Quad/Graphics Inc.
04/29/2026 | Press release | Distributed by Public on 04/29/2026 11:43
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the financial condition and results of operations of Quad should be read together with (1) the condensed consolidated financial statements for the three months ended March 31, 2026 and 2025, including the notes thereto, included in Item 1, "Condensed Consolidated Financial Statements (Unaudited)," of this Quarterly Report on Form 10-Q; and (2) the audited consolidated annual financial statements as of and for the year ended December 31, 2025, and notes thereto included in the Company's Annual Report on Form 10-K, filed with the SEC on February 18, 2026.
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the Company's condensed consolidated financial statements and accompanying notes to help provide an understanding of the Company's financial condition, the changes in the Company's financial condition and the Company's results of operations. This discussion and analysis is organized as follows:
•Cautionary Statement Regarding Forward-Looking Statements.
•Overview. This section includes a general description of the Company's business and segments, an overview of key performance metrics the Company's management measures and utilizes to evaluate business performance, and an overview of trends affecting the Company, including management's actions related to the trends.
•Results of Operations. This section contains an analysis of the Company's results of operations by comparing the results for the three months ended March 31, 2026, to the three months ended March 31, 2025. The comparability of the Company's results of operations between periods was impacted by the divestiture of the Company's European operations, which were sold on February 28, 2025, and the acquisition of the Enru co-mail assets, which were acquired on April 1, 2025. The results of operations of the divested operations are included in the Company's condensed consolidated results until the date of disposition and the results of operations of the acquired operations are included in the Company's condensed consolidated results from the date of acquisition. Forward-looking statements providing a general description of recent and projected industry and Company developments that are important to understanding the Company's results of operations are included in this section. This section also provides a discussion of EBITDA and EBITDA margin, financial measures that the Company uses to assess the performance of its business that are not prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
•Liquidity and Capital Resources. This section provides an analysis of the Company's capitalization, cash flows and a discussion of outstanding debt and commitments. Forward-looking statements important to understanding the Company's financial condition are included in this section. This section also provides a discussion of Free Cash Flow, Net Debt Leverage Ratio and Adjusted EBITDA, non-GAAP financial measures that the Company uses to assess liquidity and capital allocation and deployment.
Cautionary Statement Regarding Forward-Looking Statements
To the extent any statements in this Quarterly Report on Form 10-Q contain information that is not historical, these statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to, among other things, the objectives, goals, strategies, beliefs, intentions, plans, estimates, prospects, projections and outlook of the Company, and can generally be identified by the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "foresee," "project," "believe" or "continue" or the negatives of these terms, variations on them and other similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors could cause actual results to differ materially from those expressed or implied by those forward-looking statements. Among risks, uncertainties and other factors that may impact Quad are those described in Part I, Item 1A, "Risk Factors," of the Company's 2025 Annual Report on Form 10-K, filed with the SEC on February 18, 2026, as such may be amended or supplemented in Part II, Item 1A, "Risk Factors," of the Company's subsequently filed Quarterly Reports on Form 10-Q (including this report), and the following:
•The impact of increased business complexity as a result of the Company's transformation to a marketing experience company, including adapting marketing offerings and business processes as required by new markets;
•The impact of decreasing demand for printing services and significant overcapacity in a highly competitive environment creating downward pricing pressures and potential under-utilization of assets;
•The impact of changes in postal rates, service levels or regulations;
•The impact of rapid changes in technology, including artificial intelligence, and the risk the Company is unable to adapt its marketing offerings to compete in this technology-driven environment;
•The impact of increases in its operating costs, including the cost and availability of raw materials (such as paper, ink components and other materials), inventory, parts for equipment, labor, fuel and other energy costs and freight rates, and the risk the Company is unable to pass along such increases to clients;
•The impact macroeconomic conditions, including elevated interest rates, postal rate increases, tariffs, trade restrictions, cost pressures and the price and availability of paper, have had, and may continue to have, on the Company's business, financial condition, cash flows and results of operations (including future uncertain impacts);
•The risk the Company is unable to reduce costs and improve operating efficiency rapidly enough to meet market conditions;
•The impact of a data-breach of sensitive information, ransomware attack or other cyber incident on the Company;
•The fragility and decline in overall distribution channels;
•The failure to attract and retain qualified talent across the enterprise;
•The impact of digital media and similar technological changes, including digital substitution by consumers;
•The failure of clients to perform under contracts or to renew contracts with clients on favorable terms or at all;
•The failure to successfully identify, manage, complete and integrate acquisitions, investment opportunities or other significant transactions, as well as the successful identification and execution of strategic divestitures;
•The impact negative publicity could have on our business and brand reputation;
•The impact of risks associated with the operations outside of the United States ("U.S."), including trade restrictions, currency fluctuations, the global economy, costs incurred or reputational damage suffered due to improper conduct of its employees, contractors or agents, and geopolitical events like war and terrorism;
•The impact of significant capital expenditures and investments that may be needed to sustain and grow the Company's platforms, processes, systems, client and product technology, marketing and talent, to remain technologically and economically competitive, and to adapt to future changes, such as artificial intelligence;
•The impact of the various restrictive covenants in the Company's debt facilities on the Company's ability to operate its business, as well as the uncertain negative impacts macroeconomic conditions may have on the Company's ability to continue to be in compliance with these restrictive covenants;
•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, goodwill and other intangible assets;
•The impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, consumer protection, safety, privacy and environmental laws; and
•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.
Quad cautions that the foregoing list of risks, uncertainties and other factors is not exhaustive, and you should carefully consider the other factors detailed from time to time in Quad's filings with the SEC and other uncertainties and potential events when reviewing the Company's forward-looking statements.
Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except to the extent required by the federal securities laws, Quad undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
Business Overview
Quad is a marketing experience, or MX, company that simplifies the complexities of marketing, removing friction from wherever it occurs along the marketing journey. Its results-driven approach enables stronger marketing operations that lead to real, repeatable success for its clients. The Company does this through its MX Solutions Suite, which is flexible, scalable and connected. Quad tailors its solutions to each client's objectives, driving cost efficiencies, improving speed to market, strengthening marketing effectiveness and delivering value on their investments. Quad employs approximately 10,100 people in 10 countries and serves approximately 2,100 clients, including industry-leading blue-chip companies that serve both businesses and consumers across multiple industry verticals, with a particular focus on commerce, including retail, consumer packaged goods and direct to-consumer; financial services; and health.
Quad's MX Solutions Suite provides a comprehensive range of marketing and print services, seamlessly integrating creative, production and media solutions across physical and digital channels. Powered by advanced intelligence and technology, this suite empowers brands to connect with their target audiences across households, in-store and online.
MX: Intelligence
Quad's MX: Intelligence solutions support three distinct categories: research, analytics and data services. The Company's primary and secondary research helps clients understand their brand health, customer preferences and industry-wide trends. Through its Accelerated Marketing Insights (AMI) offering, Quad also performs pre-market creative and product research and testing services, which are conducted in a variety of virtual and experiential testing environments. To help clients increase the incremental effectiveness of their cross-channel marketing investments, Quad offers an array of media measurement services. These include both deterministic techniques - such as lift-over-control studies - that track real-time campaign results and probabilistic modeling techniques that project outcomes based on consumer demographics and trends. Quad's data services utilize the Company's proprietary, household-based data stack - representative of more than 250 million consumers - to help clients more effectively reach their ideal audiences. Unique to Quad, the stack includes "passions" data that indicates the interests of individuals at the household-level, thereby providing a differentiated view into what type of advertising and marketing will be most valuable to those consumers. The data stack enables a wide range of audience services, such as first-party data augmentations and profiling, audience segmentation, and look-a-like modeling and response modeling.
MX: Creative
Quad's MX: Creative offering addresses every step of the creative process, from ideation to execution. These services are powered by the Company's strategists, creative and art directors, photographers, videographers, premedia specialists, graphic designers, animation experts and copywriters. Quad's brand strategy and design services include brand positioning, design strategy, naming and brand-mark design, visual identity creation, retail environment support, packaging design and brand roll-out execution. Through in-depth strategic brand research, the Company takes time to truly understand each client's unique brand voice and positioning. It then applies these findings to craft compelling creative campaigns that solve the brand's problems and lead to desired consumer actions. Quad's global platform and advanced technology support always-on premedia and adaptive design capabilities for creative and digital execution, image and color management, and prepress tasks. The Company also has an international network of 14 studios to help brands create unique and ownable content through photography, motion, computer generated imagery (CGI), automated 3D scanning and audio recording for activation across every channel. This full-service offering is housed under Betty, Quad's creative agency.
MX: Production
Quad offers a wide range of production capabilities for deploying content to physical and digital channels - a major point of differentiation among the Company's competitive set. Quad's print operations feature the latest in automation and technology complemented by skilled manufacturing professionals. The Company can produce targeted print products, such as catalogs, direct mail, in-store signage and displays, and high-end packaging, as well as large-scale print products, such as magazines, retail inserts and directories.
Quad also has vertically integrated print and non-print capabilities that help improve the quality, cost and availability of key inputs in the printing and distribution processes. For example, the Company has its own prepress/premedia services, paper procurement, ink manufacturing (through its subsidiary Chemical Research/Technology), and logistics and transportation services (through its in-house Quad Transportation Services division and Duplainville Transport trucking division), which it leverages to lower costs and enhance customer service for its clients while providing Quad with substantial control over critical links in the overall print supply chain.
Quad complements its production capabilities through its Managed Services offering. Applying its deep industry knowledge and expansive network of trusted vendors, Quad helps clients manage their operations the way it runs its own - with diligence, efficiency and highly competitive costs.
MX: Media
Quad provides data-led, strategic media planning and placement services that support all physical and digital touchpoints to foster direct consumer connections at home, in-store and online. The Company activates on a complete suite of full-funnel brand and performance marketing solutions. Quad has more than $6.0 billion of media under management, giving the Company leverage in the marketplace to provide cost-efficient and effective options across all channels. Media services are supported by Quad's proprietary, household-based data stack and Connections Strategy, a comprehensive approach that translates quantitative audience insights into experience-driven media plans that find the best combination of audience, messaging, channel and time to achieve a client's desired business outcomes. The Connections Strategy process helps brands meaningfully connect with their priority audiences by humanizing quantitative data, considering the cultural forces, emotional drivers and behavioral signals that fuel consumer actions. Overlaying these factors with the audience's media habits, the team forms recommendations for Rise's planning and placement experts who execute across the paid, owned and earned touchpoints where consumers are most receptive to engagement. The Company's offering includes campaign measurement and analytics solutions that provide in-the-moment reporting. This level of transparency helps clients understand how all their media across the marketing funnel is performing and enables Quad to provide data-backed guidance on how to incrementally optimize media spend. This full-service offering is housed under Rise, Quad's media agency.
MX: Tech
The Company's client-facing technology solutions help brands connect marketing strategy, global content creation, analytics and optimized media performance across physical and digital channels. Quad applies a people-process-technology approach that first analyzes a client's current-state workflow and performance, then creates tailored solutions to centralize assets, optimize processes and accelerate speed to market. For instance, the Company's ContentX content management platform empowers clients to strategize, plan and manage campaigns, and personalize at scale across any channel. The Company's suite of "Connect" technology services helps marketers deliver content wherever consumers are. For instance, Local Connect helps national brands execute localized marketing strategies while ensuring brand consistency. This streamlined order management platform automates localized marketing execution and provides a single source of truth to manage, order and distribute multichannel campaigns. At-Home Connect automates direct mail personalization, printing, mail sorting and delivery, which simplifies and expedites marketers' ability to reach consumers through the mailbox. Through its In-Store Connect retail media solution, Quad elevates the shopping experience in brick-and-mortar stores by helping brands deliver engaging messages and targeted promotions right at the shelf - a critical moment in the purchasing decision. In addition to these solutions, Quad integrates AI-based systems across its MX Solutions Suite to generate internal cost savings and revenue opportunities for the Company.
Financial Objectives
Quad follows a disciplined approach to maintaining and enhancing financial strength to create shareholder value. This strategy is centered on the Company's ability to drive profitable growth and maximize net earnings, Free Cash Flow, and operating margins; maintain consistent financial policies to ensure a strong balance sheet, liquidity level and access to capital; and retain the financial flexibility needed to strategically allocate and deploy capital as circumstances change. The priorities for capital allocation and deployment are balanced according to prevailing circumstances and what the Company thinks is best for shareholder value creation at any point in time. These priorities currently include increasing growth investments as an MX company to fuel net sales growth, maintaining low net debt leverage to ensure long-term financial strength, and increasing return of capital to shareholders through dividends and share repurchases.
Quad applies holistic continuous improvement and lean enterprise methodologies to further streamline its processes and maximize operating margins. These same methodologies are applied to its selling, general and administrative functions. The Company continually works to lower its cost structure by consolidating manufacturing operations into its most efficient facilities, as well as realizing purchasing, mailing and logistics synergies by centralizing and consolidating print manufacturing volumes, and eliminating redundancies in its administrative and corporate operations. Quad believes that its focused efforts to be a high-quality, low-cost producer, will enable it to generate increased Free Cash Flow and allow the Company to maintain a strong balance sheet through debt reduction. The Company's disciplined financial approach and strong, trusted banking relationships allows it to maintain sufficient liquidity and to reduce refinancing risk. The Company had total liquidity of $250.9 million as of March 31, 2026, which consisted of up to $243.9 million of unused capacity under its revolving credit agreement, which was net of $23.8 million of issued letters of credit, and cash and cash equivalents of $7.0 million. Total liquidity is reduced to $177.4 million under the Company's most restrictive debt covenants.
Segments
The Company's operating and reportable segments are aligned with how the chief operating decision-maker of the Company currently manages the business. The Company's operating and reportable segments, including their product and service offerings, and a "Corporate" category, are summarized below.
•The United States Print and Related Services segment is predominantly comprised of the Company's United States printing operations, managed as one integrated platform, and marketing and other complementary services. The printing operations include print execution and logistics for retail inserts, catalogs, long-run publications, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, custom print products, as well as other commercial and specialty printed products, along with global paper procurement and the manufacture of ink. Marketing and other complementary services include data intelligence and analytics, technology solutions, media planning, placement and optimization, creative strategy and content creation, as well as execution in non-print channels (e.g., digital and broadcast). This segment also includes medical services. The United States Print and Related Services segment accounted for approximately 91% of the Company's consolidated net sales during the three months ended March 31, 2026.
•The International segment consists of the Company's printing operations in Latin America, including operations in Colombia, Mexico and Peru, as well as operations in Europe, including operations in England, France, Germany and Poland, until the European operations were sold on February 28, 2025. This segment provides printed products and marketing and other complementary services consistent with the United States Print and Related Services segment. The International segment accounted for approximately 9% of the Company's consolidated net sales during the three months ended March 31, 2026.
•Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.
Key Performance Metrics Overview
The Company's management believes the ability to generate net sales growth, profit increases and positive cash flow, while maintaining the appropriate level of debt, are key indicators of the successful execution of the Company's business strategy and will increase shareholder value. The Company uses period-over-period net sales growth, EBITDA, EBITDA margin, net cash provided by (used in) operating activities, Free Cash Flow and Net Debt Leverage Ratio as metrics to measure operating performance, financial condition and liquidity. EBITDA, EBITDA margin, Free Cash Flow and Net Debt Leverage Ratio are non-GAAP financial measures (see the definitions of EBITDA and EBITDA margin and the reconciliation of net earnings to EBITDA in the "Results of Operations" section below, and see the definitions of Free Cash Flow and Net Debt Leverage Ratio, the reconciliation of net cash used in operating activities to Free Cash Flow, and the calculation of Net Debt Leverage Ratio in the "Liquidity and Capital Resources" section below).
Net sales growth. The Company uses period-over-period net sales growth as a key performance metric. The Company's management assesses net sales growth based on the ability to generate increased net sales through increased sales to existing clients, sales to new clients, sales of new or expanded solutions to existing and new clients and opportunities to expand sales through strategic investments, including acquisitions.
EBITDA and EBITDA margin. The Company uses EBITDA and EBITDA margin as metrics to assess operating performance. The Company's management assesses EBITDA and EBITDA margin based on the ability to increase revenues while controlling variable expense growth.
Net cash provided by (used in) operating activities. The Company uses net cash provided by (used in) operating activities as a metric to assess liquidity. The Company's management assesses net cash provided by (used in) operating activities based on the ability to meet recurring cash obligations while increasing available cash to fund debt service requirements, capital expenditures, cash restructuring requirements related to cost reduction activities, World Color Press single employer pension plan contributions, World Color Press MEPPs withdrawal liabilities, acquisitions and other investments in future growth, shareholder dividends and share repurchases. Net cash provided by (used in) operating activities can be significantly impacted by the timing of non-recurring or infrequent receipts or expenditures.
Free Cash Flow. The Company uses Free Cash Flow as a metric to assess liquidity and capital deployment. The Company's management assesses Free Cash Flow as a measure to quantify cash available for strengthening the balance sheet (debt and pension liability reduction), for strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and for returning capital to the shareholders (dividends and share repurchases). The Company's priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company's seasonality, restructuring activities and other unusual items.
Net Debt Leverage Ratio. The Company uses the Net Debt Leverage Ratio as a metric to assess liquidity and the flexibility of its balance sheet. Consistent with other liquidity metrics, the Company monitors the Net Debt Leverage Ratio as a measure to determine the appropriate level of debt the Company believes is optimal to operate its business, and accordingly, to quantify our ability to strengthen the balance sheet through debt and pension liability reduction, for strategic capital allocation and deployment through investments in the business (capital expenditures, acquisitions and strategic investments), and for returning capital to the shareholders (dividends and share repurchases). The Company's priorities for capital allocation and deployment will change as circumstances dictate for the business, and the Net Debt Leverage Ratio can be significantly impacted by the amount and timing of large expenditures requiring debt financing, as well as changes in profitability.
The Company remains disciplined with its net debt leverage. The Company's consolidated debt and finance lease obligations increased by $63.2 million during the three months ended March 31, 2026, primarily due to the following: (1) $93.7 million in cash used in operating activities; (2) $13.3 million in purchases of property, plant and equipment; (3) $4.9 million in purchases of treasury stock and equity awards redeemed to pay employees' tax obligations; and (4) $5.5 million in cash dividends, partially offset by a $56.3 million reduction in cash and cash equivalents.
Overview of Trends Affecting Quad
As consumer media consumption habits change, advertising and marketing services providers face increased demand to offer end-to-end marketing services, from strategy and creative through execution. As new marketing channels emerge, these providers must expand their capabilities to create effective multichannel campaigns for their clients, and providers face increased client demand to offer integrated, end-to-end marketing services (i.e., from strategy and creative through execution). These trends greatly influence Quad's ongoing efforts to help brands reduce the complexities of working with multiple agency partners and vendors, increase marketing process efficiency and maximize marketing effectiveness.
Competition in the commercial printing industry remains highly fragmented, and the Company believes that there are indicators of heightened competitive pressures. The commercial printing industry has moved toward a demand for shorter print runs, faster product turnaround and increased production efficiencies of products with lower page counts and increased complexity. This - combined with increases in postage and paper costs as well as marketers' increasing use of online marketing and communication channels - has led to excess manufacturing capacity.
The Company believes that a disciplined approach for capital management and a strong balance sheet are critical to be able to invest in profitable growth opportunities and technological advances, thereby providing the highest return for shareholders. Management balances the use of cash between deleveraging the Company's balance sheet (through reduction in debt and pension obligations), compelling investment opportunities (through capital expenditures, acquisitions and strategic investments) and returns to shareholders (through dividends and share repurchases).
The Company continues to make progress on integrating and streamlining all aspects of its business, thereby lowering its cost structure by consolidating its manufacturing platform into its most efficient facilities, as well as realizing purchasing, mailing and logistics efficiencies by centralizing and consolidating print manufacturing volumes and eliminating redundancies in its administrative and corporate operations. The Company has continued to evolve its manufacturing platform, equipping facilities to be product-line agnostic, which enables the Company to maximize equipment utilization. Quad believes that the large plant size of its key printing facilities allows the Company to drive savings in certain product lines (such as publications and catalogs) due to economies of scale and from investments in automation and technology. The Company continues to focus on proactively aligning its cost structure to the realities of the top-line pressures it faces in the printing industry through Lean Manufacturing and sustainable continuous improvement programs.
The Company believes it will continue to drive productivity improvements and sustainable cost reduction initiatives into the future through an engaged workforce and ongoing adoption of the latest manufacturing automation and technology. Through this strategy, the Company believes it can maintain the strongest, most efficient print manufacturing platform to remain a high-quality, low-cost producer.
Integrated distribution with the United States Postal Service ("USPS") is an important component of the Company's business. Any material change in the current postage rates or service levels provided by the postal service could impact the demand that clients have for print services. In 2025, the USPS significantly reduced their service standards with the first phase of changes taking effect on April 1, 2025, and the second phase took effect July 1, 2025. In addition to the reduced service standards, the USPS has also issued reduced service performance targets for 2025. Almost all letters and flats targets were reduced, some as much as 15% lower than 2024 targets (i.e. First Class Letters three to five day on time performance target was reduced from 90% down to 80%). The USPS, however, did not meet these reduced performance standards and targets, and has kept the performance targets for 2026 essentially in line with 2025, with a few minor adjustments.
The USPS continues to experience financial problems. The passing of the Postal Service Reform Act of 2022, signed in April 2022, gave the USPS considerable financial relief as well as significant other relief over the next ten years. While the legislative postal reform helps considerably, without decreased operational cost structures, increased efficiencies or increased volumes and revenues, these losses are expected to continue into the future. As a result of these financial difficulties, the USPS has continued to adjust its postal rates and service levels. During March 2026, the USPS announced an 8% temporary increase on Ground Advantage and Priority Mail that started on April 26, 2026 and will continue until January 17, 2027. Additionally, the USPS proposed their once a year Market Dominant price increase in April 2026 to go into effect in July 2026, which will result in an overall price increase of approximately 5%.
Federal statute requires the Postal Regulatory Commission (PRC) to conduct reviews of the overall rate-making structure for the USPS to ensure funding stability. As a result of those reviews, the PRC authorized a five year rate-making structure that provides the USPS with additional pricing flexibility over the Consumer Price Index ("CPI") cap, which has resulted in a substantially altered rate structure for mailers. The revised rate authority that is effective as a result of the rules issued by the PRC, includes a higher overall rate cap on the USPS' ability to increase rates from year to year. This will continue to lead to price spikes for mailers and may also reduce the incentive for the USPS to continue to take out costs and instead continue to rely on postage increases, including those noted above, as it attempts to cover its costs.
Given the significant amount of concern that has been expressed by the mailing industry, in April 2024, the PRC opened a proceeding to start the next rate system review, which includes a phased approach of proposing changes to improve rate predictability. The USPS did not implement a Market Dominant product price increase for January 2025. However, the available rate authority was rolled forward to July 2025, where approximately 8% postage increases were implemented and significantly exceeded CPI. On January 13, 2026, the PRC issued a final rule that restricts the USPS to one price change a year on Market Dominant products from 2026 to 2030. This decision is currently being appealed by the USPS. On December 22, 2025, the USPS filed a petition with the PRC, requesting new rules on Market Dominant rates to either eliminate the price cap and give full rate authority to the Board of Governors, or if a price cap continues to be required, allow a rate reset with a conservative 22% banked authority for the USPS to use. This remains open and is unknown how the PRC will respond. The PRC also refined some rules around work-share discounts that will keep these discounts more closely aligned with the costs avoided.
The USPS launched a new Marketing Mail Catalog promotion, which offers a 10% discount on postage for any mail pieces that meet the USPS definition of a catalog. The discount went into effect on October 1, 2025 and continues until June 30, 2026. Because the discount applies to the current rate, which is based on several years of biannual rate increases, including another increase in July 2025, the impact of the discount on catalog volume and revenue may be diminished. The USPS has stated the Catalog promotion will not be extended past June 30, 2026. The Company believes the continued use of all available rate authority by the USPS that significantly exceeds CPI, combined with lower service standards and the petition filed on December 22, 2025, clients will continue to reduce mail volumes and explore the use of alternative methods for delivering a larger portion of their products, such as continued diversion to the internet, digital and mobile channels and other alternative media channels, in order to ensure that they stay within their expected postage budgets.
The Company has invested significantly in its mail optimization, preparation and distribution capabilities to mitigate the impact of increases in postage costs, and to help clients successfully navigate the ever-changing postal environment. Through its data analytics, unique software to merge mail streams on a large scale, advanced finishing capabilities and technology, and in-house transportation and logistics operations, the Company manages the mail preparation and distribution of most of its clients' products to maximize efficiency, to enable on-time and consistent delivery and to partially reduce these costs. The PRC decision on once a year price increases is an important part of providing the mailing industry with additional rate stability. Additionally, the new requirements for the USPS to maintain the current work-share discounts more closely to the level of avoided costs, the Company believes is a good decision as this mail optimization capability is valuable to its clients. It is imperative that the PRC ensure that rates are affordable to the mailing industry.
The Company continues to face several other industry challenges that have, and are expected to continue to, adversely impact the Company's results of operations. The Company is closely monitoring the potential impacts of tariffs and recessionary pressures on its clients' businesses that could impact their marketing spend, including print volumes. The Company continues to operate in an elevated interest rate environment, which is expected to continue through 2026. Additionally, the price and availability of paper has been, and may continue to be, adversely affected by paper mills' permanent or temporary closures; paper mills' access to raw materials, conversion to produce other types of paper that are not usable by the Company in its operations (which a number of paper mills' have done or are doing), and ability to transport paper produced; and tariffs and trade restrictions. Postal rate increases, along with the previously described industry challenges, have led to reduced demand for printed products and has caused clients to move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers. These challenges have, as needed, driven the Company to institute several cost saving measures through its restructuring program, including plant closures and headcount reductions. Through these cost saving measures and proceeds from asset sales, the Company has been able to maintain focus on its transformation into an MX company, with flexibility to invest into the growing business, as well as continuing to return capital to shareholders and reduce debt. The Company is also dependent on its production personnel to print the Company's products in a cost-effective and efficient manner that allows the Company to obtain new clients and to drive sales from existing clients. The Company is unable to predict the full future impact these challenges will have on its business, financial condition, cash flows and results of operations, but expects them to continue through 2026.
Results of Operations for the Three Months Ended March 31, 2026, Compared to the Three Months Ended March 31, 2025
Summary Results
The Company's operating income, operating margin, net earnings (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings per share for the three months ended March 31, 2026, changed from the three months ended March 31, 2025, as follows (dollars in millions, except margin and per share data):
|
Operating Income |
Operating Margin | Net Earnings | Diluted Earnings Per Share | ||||||||||||||||||||
| For the three months ended March 31, 2025 | $ | 19.6 | 3.1 | % | $ | 5.8 | $ | 0.11 | |||||||||||||||
|
Restructuring, impairment and transaction-related charges, net (1)
|
(1.8) | (0.4) | % | (1.4) | (0.03) | ||||||||||||||||||
|
Other operating income elements (2)
|
(0.1) | 0.3 | % | - | 0.02 | ||||||||||||||||||
| Operating Income | 17.7 | 3.0 | % | 4.4 | 0.10 | ||||||||||||||||||
|
Interest expense (3)
|
N/A | N/A | 1.8 | 0.03 | |||||||||||||||||||
|
Net pension (income) expense (4)
|
N/A | N/A | 0.4 | 0.01 | |||||||||||||||||||
|
Income taxes (5)
|
N/A | N/A | (0.4) | (0.01) | |||||||||||||||||||
| For the three months ended March 31, 2026 | $ | 17.7 | 3.0 | % | $ | 6.2 | $ | 0.13 | |||||||||||||||
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(1)Restructuring, impairment and transaction-related charges, net increased $1.8 million ($1.4 million, net of tax), to $8.4 million during the three months ended March 31, 2026, and included the following:
a.A $3.7 million increase in employee termination charges from $0.7 million during the three months ended March 31, 2025, to $4.4 million during the three months ended March 31, 2026;
b.A $0.1 million decrease in impairment charges from $0.3 million during the three months ended March 31, 2025, to $0.2 million during the three months ended March 31, 2026;
c.A $2.4 million decrease in transaction-related charges from $2.6 million during the three months ended March 31, 2025, to $0.2 million during the three months ended March 31, 2026;
d.A $0.4 million increase in integration costs from zero during the three months ended March 31, 2025, to $0.4 million during the three months ended March 31, 2026; and
e.A $0.2 million increase in various other restructuring charges from $3.0 million during the three months ended March 31, 2025, to $3.2 million during the three months ended March 31, 2026.
The Company expects to incur additional restructuring and integration costs in future reporting periods in connection with eliminating excess manufacturing capacity and properly aligning its cost structure in conjunction with the Company's acquisitions and strategic investments, and other cost reduction programs.
(2)Other operating income elements decreased $0.1 million (zero net of tax impact) during the three months ended March 31, 2026, primarily due to a $1.3 million decrease in depreciation and amortization expense and impacts from improved manufacturing productivity, partially offset by the impact from lower net sales.
(3)Interest expense decreased $2.4 million ($1.8 million, net of tax) during the three months ended March 31, 2026, to $10.0 million. This was primarily due to lower average debt levels and lower weighted average interest rates on borrowings in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.
(4)Net pension (income) expense increased $0.6 million ($0.4 million, net of tax) during the three months ended March 31, 2026, from $0.4 million of expense to $0.2 million of income. This was due to a $1.7 million decrease from interest cost on pension plan liabilities and a $0.2 million decrease in the amortization of actuarial loss, partially offset by $1.3 million decrease from the expected long-term return on pension plan assets.
(5)The $0.4 million increase in income tax expense as calculated in the following table is primarily due to a $0.9 million increase in tax expense related to the Company's liability for audit assessments and unrecognized tax benefits and a $0.6 million increase from the impact of non-deductible expenses, partially offset by a $0.9 million decrease from valuation allowance reserves.
| Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Earnings before income taxes | $ | 7.9 | $ | 6.8 | $ | 1.1 | |||||||||||
| Normalized tax rate | 25.0 | % | 25.0 | % | |||||||||||||
| Income tax expense at normalized tax rate | 2.0 | 1.7 | 0.3 | ||||||||||||||
| Income tax expense from the condensed consolidated statements of operations | 1.7 | 1.0 | 0.7 | ||||||||||||||
| Impact of income taxes | $ | (0.3) | $ | (0.7) | $ | 0.4 | |||||||||||
Operating Results
The following table sets forth certain information from the Company's condensed consolidated statements of operations on an absolute dollar basis and as a relative percentage of total net sales for each noted period, together with the relative percentage change in such information between the periods set forth below:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2026 |
% of Sales |
2025 |
% of Sales |
$ Change |
% Change |
||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||
| Products | $ | 456.2 | 78.5 | % | $ | 494.8 | 78.6 | % | $ | (38.6) | (7.8) | % | |||||||||||||||||||||||
| Services | 124.8 | 21.5 | % | 134.6 | 21.4 | % | (9.8) | (7.3) | % | ||||||||||||||||||||||||||
| Total net sales | 581.0 | 100.0 | % | 629.4 | 100.0 | % | (48.4) | (7.7) | % | ||||||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||||||||||||||
| Products | 377.6 | 65.0 | % | 414.4 | 65.9 | % | (36.8) | (8.9) | % | ||||||||||||||||||||||||||
| Services | 80.5 | 13.9 | % | 85.6 | 13.6 | % | (5.1) | (6.0) | % | ||||||||||||||||||||||||||
| Total cost of sales | 458.1 | 78.9 | % | 500.0 | 79.5 | % | (41.9) | (8.4) | % | ||||||||||||||||||||||||||
| Selling, general & administrative expenses | 78.4 | 13.5 | % | 83.5 | 13.3 | % | (5.1) | (6.1) | % | ||||||||||||||||||||||||||
| Depreciation and amortization | 18.4 | 3.2 | % | 19.7 | 3.1 | % | (1.3) | (6.6) | % | ||||||||||||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 8.4 | 1.4 | % | 6.6 | 1.0 | % | 1.8 | 27.3 | % | ||||||||||||||||||||||||||
| Total operating expenses | 563.3 | 97.0 | % | 609.8 | 96.9 | % | (46.5) | (7.6) | % | ||||||||||||||||||||||||||
| Operating income | $ | 17.7 | 3.0 | % | $ | 19.6 | 3.1 | % | $ | (1.9) | (9.7) | % | |||||||||||||||||||||||
Net Sales
Product sales decreased $38.6 million, or 7.8%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $34.7 million decrease in sales in the Company's print product lines, of which $10.9 million is from the impact of the sale of the European operations, and a $7.2 million decrease in paper sales, which is net of an $8.7 million decrease as a result of the sale of the European operations on February 28, 2025, partially offset by $3.3 million in favorable foreign exchange impacts.
Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $9.8 million, or 7.3%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $6.7 million net decrease in marketing services and medical services, of which $0.3 million is a result of the sale of the European operations, and a $3.1 million decrease in logistics sales, of which $2.6 million is a result of the sale of the European operations.
Cost of Sales
Cost of product sales decreased $36.8 million, or 8.9%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the following: (1) the impacts from decreased print product sales; (2) a decrease in paper costs due to the decrease in paper sales; (3) impacts from improved manufacturing productivity; and (4) other cost reduction initiatives.
Cost of service sales decreased $5.1 million, or 6.0%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the impact from lower marketing services and decreased freight volumes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $5.1 million, or 6.1%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to $7.4 million in lower employee-related costs and savings from other cost reduction initiatives, partially offset by a $1.1 million decrease in favorable foreign exchange impacts. Selling, general and administrative expenses as a percentage of net sales increased to 13.5% for the three months ended March 31, 2026, compared to 13.3% for the three months ended March 31, 2025.
Depreciation and Amortization
Depreciation and amortization decreased $1.3 million, or 6.6%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, due to a $1.5 million decrease in depreciation expense, primarily due to impacts from plant closures and from property, plant and equipment becoming fully depreciated over the past year, partially offset by a $0.2 million increase in amortization expense.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net increased $1.8 million, or 27.3%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the following:
| Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 4.4 | $ | 0.7 | $ | 3.7 | |||||||||||
|
Impairment charges (a)
|
0.2 | 0.3 | (0.1) | ||||||||||||||
|
Transaction-related charges (b)
|
0.2 | 2.6 | (2.4) | ||||||||||||||
| Integration costs | 0.4 | - | 0.4 | ||||||||||||||
| Other restructuring charges, net | |||||||||||||||||
| Vacant facility carrying costs and lease exit charges | 2.7 | 2.1 | 0.6 | ||||||||||||||
| Equipment and infrastructure removal costs | 0.2 | 0.4 | (0.2) | ||||||||||||||
|
Loss on the sale of a business (c)
|
- | 0.5 | (0.5) | ||||||||||||||
| Other restructuring activities | 0.3 | - | 0.3 | ||||||||||||||
| Other restructuring charges, net | 3.2 | 3.0 | 0.2 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 8.4 | $ | 6.6 | $ | 1.8 | |||||||||||
______________________________
(a)Includes $0.2 million and $0.3 million of impairment charges during the three months ended March 31, 2026 and 2025, respectively, which consisted of machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities.
(b)Includes professional service fees related to business acquisition and divestiture activities, including charges related to the sale of the European operations in 2025.
(c)Includes a $0.5 million loss on the sale of the European operations during the three months ended March 31, 2025.
EBITDA and EBITDA Margin-Consolidated
EBITDA is defined as net earnings (loss), excluding (1) interest expense, (2) income tax expense and (3) depreciation and amortization. EBITDA margin represents EBITDA as a percentage of net sales. EBITDA and EBITDA margin are presented to provide additional information regarding Quad's performance. Both are important measures by which Quad gauges the profitability and assesses the performance of its business. EBITDA and EBITDA margin are non-GAAP financial measures and should not be considered alternatives to net earnings (loss) as a measure of operating performance, or to cash flows provided by (used in) operating activities as a measure of liquidity. Quad's calculation of EBITDA and EBITDA margin may be different from the calculations used by other companies, and therefore, comparability may be limited.
EBITDA and EBITDA margin for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | % of Net Sales | 2025 | % of Net Sales | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| EBITDA and EBITDA margin (non-GAAP) | $ | 36.3 | 6.2 | % | $ | 38.9 | 6.2 | % | |||||||||||||||
EBITDA decreased $2.6 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the impact of lower net sales and $1.8 million of increased restructuring, impairment and transaction-related charges, net, partially offset by impacts from improved manufacturing productivity.
A reconciliation of EBITDA to net earnings for the three months ended March 31, 2026 and 2025, was as follows:
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (dollars in millions) | |||||||||||
|
Net earnings (1)
|
$ | 6.2 | $ | 5.8 | |||||||
| Interest expense | 10.0 | 12.4 | |||||||||
| Income tax expense | 1.7 | 1.0 | |||||||||
| Depreciation and amortization | 18.4 | 19.7 | |||||||||
| EBITDA (non-GAAP) | $ | 36.3 | $ | 38.9 | |||||||
______________________________
(1)Net earnings included the following:
a.Restructuring, impairment and transaction-related charges, net of $8.4 million and $6.6 million for the three months ended March 31, 2026 and 2025, respectively.
United States Print and Related Services
The following table summarizes net sales, operating income, operating margin and certain items impacting comparability within the United States Print and Related Services segment:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 406.2 | $ | 422.1 | $ | (15.9) | (3.8) | % | |||||||||||||||
| Services | 124.8 | 131.7 | (6.9) | (5.2) | % | ||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 26.1 | 31.7 | (5.6) | (17.7) | % | ||||||||||||||||||
| Operating margin | 4.9 | % | 5.7 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 7.7 | $ | 3.5 | $ | 4.2 | 120.0 | % | |||||||||||||||
Net Sales
Product sales for the United States Print and Related Services segment decreased $15.9 million, or 3.8%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to an $18.7 million decrease in sales in the Company's print product lines, partially offset by a $2.8 million increase in paper sales.
Service sales for the United States Print and Related Services segment decreased $6.9 million, or 5.2%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $6.4 million net decrease in marketing services and medical services and a $0.5 million decrease in logistics sales.
Operating Income
Operating income for the United States Print and Related Services segment decreased $5.6 million, or 17.7%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $4.2 million increase in restructuring, impairment and transaction-related charges, net and the impact from decreased net sales, partially offset by a $1.3 million decrease in depreciation and amortization expense and the impacts from improved manufacturing productivity.
The operating margin for the United States Print and Related Services segment decreased to 4.9% for the three months ended March 31, 2026, compared to 5.7% for the three months ended March 31, 2025, primarily due to the reasons provided above.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net for the United States Print and Related Services segment increased $4.2 million, or 120.0%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the following:
| Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 4.3 | $ | 0.6 | $ | 3.7 | |||||||||||
|
Impairment charges (a)
|
0.2 | 0.3 | (0.1) | ||||||||||||||
| Integration costs | 0.4 | - | 0.4 | ||||||||||||||
| Other restructuring charges, net | 2.8 | 2.6 | 0.2 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 7.7 | $ | 3.5 | $ | 4.2 | |||||||||||
______________________________
(a)Includes $0.2 million and $0.3 million of impairment charges during the three months ended March 31, 2026 and 2025, respectively, which consisted of machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities.
International
The following table summarizes net sales, operating income, operating margin and certain items impacting comparability within the International segment:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 50.0 | $ | 72.7 | $ | (22.7) | (31.2) | % | |||||||||||||||
| Services | - | 2.9 | (2.9) | (100.0) | % | ||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 3.7 | 0.6 | 3.1 | nm | |||||||||||||||||||
| Operating margin | 7.4 | % | 0.8 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 0.3 | $ | 2.8 | $ | (2.5) | (89.3) | % | |||||||||||||||
Net Sales
Product sales for the International segment decreased $22.7 million, or 31.2%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, due to a $16.0 million decrease in print volume, of which $10.9 million is a result of the sale of the European operations, and a $10.0 million decrease in paper sales, of which $8.7 million is a result of the sale of the European operations, partially offset by $3.3 million favorable foreign exchange impacts, primarily in Mexico.
Service sales for the International segment decreased $2.9 million, or 100.0%, for the three months ended March 31, 2026, when compared to the three months ended March 31, 2025, primarily due to a $2.6 million decrease in logistics sales and $0.3 million decrease in marketing service sales, both as a result of the sale of the European operations.
Operating Income
Operating income for the International segment increased $3.1 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $2.5 million decrease in restructuring, impairment and transaction-related charges, net, and a $0.6 million increase in operating income, primarily in Mexico.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net for the International segment decreased $2.5 million, or 89.3%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the following:
| Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 0.1 | $ | 0.1 | $ | - | |||||||||||
|
Transaction-related charges (a)
|
0.1 | 2.3 | (2.2) | ||||||||||||||
|
Other restructuring charges, net (b)
|
0.1 | 0.4 | (0.3) | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 0.3 | $ | 2.8 | $ | (2.5) | |||||||||||
______________________________
(a)Includes professional service fees related to business acquisition and divestiture activities, including charges related to the sale of the European operations in 2025.
(b)Includes a $0.5 million loss on the sale of the European operations during the three months ended March 31, 2025.
Corporate
The following table summarizes unallocated operating expenses presented as Corporate:
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Operating expenses (including restructuring, impairment and transaction-related charges, net) | $ | 12.1 | $ | 12.7 | $ | (0.6) | (4.7) | % | |||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 0.4 | 0.3 | 0.1 | 33.3 | % | ||||||||||||||||||
Operating Expenses
Corporate operating expenses decreased $0.6 million, or 4.7%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025 primarily due to a $0.9 million decrease in employee-related costs, partially offset by a $0.1 million increase in restructuring, impairment and transaction-related charges, net.
Restructuring, Impairment and Transaction-Related Charges, Net
Corporate restructuring, impairment and transaction-related charges, net increased $0.1 million, or 33.3% for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to the following:
| Three Months Ended March 31, | |||||||||||||||||
| 2026 | 2025 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Transaction-related charges | $ | 0.1 | $ | 0.3 | $ | (0.2) | |||||||||||
| Other restructuring charges, net | 0.3 | - | 0.3 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 0.4 | $ | 0.3 | $ | 0.1 | |||||||||||
Liquidity and Capital Resources
The Company utilizes cash flows from operating activities and borrowings under its credit facilities to satisfy its liquidity and capital requirements. The Company had total liquidity of $250.9 million as of March 31, 2026, which consisted of up to $243.9 million of unused capacity under its revolving credit agreement, which was net of $23.8 million of issued letters of credit, and cash and cash equivalents of $7.0 million. Total liquidity is reduced to $177.4 million under the Company's most restrictive debt covenants. There were $71.9 million of borrowings under the $339.6 million revolving credit facility as of March 31, 2026.
The Company believes its expected future cash flows from operating activities and its current liquidity and capital resources, are sufficient to fund ongoing operating requirements and service debt and pension requirements for both the next 12 months and beyond.
Net Cash Used in Operating Activities
Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025
Net cash used in operating activities increased $4.7 million, from $89.0 million for the three months ended March 31, 2025, to $93.7 million for the three months ended March 31, 2026. This increase was due to a $2.4 million decrease in cash from earnings and a $2.3 million increase in cash used in changes in operating assets and liabilities.
Net Cash Used in Investing Activities
Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025
Net cash used in investing activities increased $0.9 million, from $14.1 million for the three months ended March 31, 2025, to $15.0 million for the three months ended March 31, 2026. The increase was primarily due to a $2.0 million increase in purchases of property, plant and equipment and a $0.1 million decrease in proceeds from the sale of property, plant, and equipment. These increases in cash used were partially offset by a $1.0 million decrease in cash used in other investing activities and a $0.2 million decrease in cash used for cost investment in unconsolidated entity.
Net Cash Provided by Financing Activities
Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025
Net cash provided by financing activities decreased $28.0 million, from $80.4 million for the three months ended March 31, 2025, to $52.4 million for the three months ended March 31, 2026. The decrease was primarily due to the following: (1) a $28.0 million decrease in net borrowings of debt and lease obligations; (2) a $2.0 million increase in payments of cash dividends; and (3) a $0.2 million increase in equity awards redeemed to pay employees' tax obligations. These were partially offset by a $2.2 million decrease in the purchase of treasury stock.
Free Cash Flow
Free Cash Flow is defined as net cash provided by (used in) operating activities less purchases of property, plant and equipment.
The Company's management assesses Free Cash Flow as a measure to quantify cash available for (1) strengthening the balance sheet (debt and pension liability reduction), (2) strategic capital allocation and deployment through investments in the business (acquisitions and strategic investments) and (3) returning capital to the shareholders (dividends and share repurchases). The priorities for capital allocation and deployment will change as circumstances dictate for the business, and Free Cash Flow can be significantly impacted by the Company's seasonality, restructuring activities and other unusual items.
Free Cash Flow is a non-GAAP financial measure and should not be considered an alternative to cash flows provided by (used in) operating activities as a measure of liquidity. Quad's calculation of Free Cash Flow may be different from similar calculations used by other companies, and therefore, comparability may be limited.
Free Cash Flow for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, was as follows:
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| (dollars in millions) | |||||||||||
| Net cash used in operating activities | $ | (93.7) | $ | (89.0) | |||||||
| Less: purchases of property, plant and equipment | 13.3 | 11.3 | |||||||||
| Free Cash Flow (non-GAAP) | $ | (107.0) | $ | (100.3) | |||||||
Free Cash Flow decreased $6.7 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to a $4.7 million increase in net cash used in operating activities and a $2.0 million increase in capital expenditures. See the "Net Cash Used in Operating Activities" section above for further explanations of the change in operating cash flows.
Net Debt Leverage Ratio
The Net Debt Leverage Ratio is defined as total debt and finance lease obligations less cash and cash equivalents (Net Debt) divided by the trailing twelve months Adjusted EBITDA, comprised of the sum of the last twelve months of EBITDA (see the definition of EBITDA and the reconciliation of net earnings (loss) to EBITDA in the "Results of Operations" section above) and restructuring, impairment and transaction-related charges, net and the settlement charge from defined benefit pension plan annuitization.
The Company uses the Net Debt Leverage Ratio as a metric to assess liquidity and the flexibility of its balance sheet. Consistent with other liquidity metrics, the Company monitors the Net Debt Leverage Ratio as a measure to determine the appropriate level of debt the Company believes is optimal to operate its business, and accordingly, to quantify debt capacity available for strengthening the balance sheet through debt and pension liability reduction, for strategic capital allocation and deployment through investments in the business, and for returning capital to shareholders. The priorities for capital allocation and deployment will change as circumstances dictate for the business, and the Net Debt Leverage Ratio can be significantly impacted by the amount and timing of large expenditures requiring debt financing, as well as changes in profitability.
The Net Debt Leverage Ratio is a non-GAAP measure and should not be considered an alternative to cash flows used in operating activities as a measure of liquidity. Quad's calculation of the Net Debt Leverage Ratio may be different from similar calculations used by other companies and, therefore, comparability may be limited.
The Net Debt Leverage Ratio calculated below differs from the Total Leverage Ratio, the Total Net Leverage Ratio and Senior Secured Leverage Ratio included in the Company's debt covenant calculations (see "Covenants and Compliance" section below for further information on debt covenants). The Total Leverage Ratio included in the Company's debt covenants includes interest rate derivative liabilities and letters of credit as debt, and excludes non-cash stock-based compensation expense from EBITDA. The Total Net Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to netting domestic unrestricted cash with debt. Similarly, the Senior Secured Leverage Ratio includes and excludes the same adjustments as the Total Leverage Ratio, in addition to netting domestic unrestricted cash with debt.
The Net Debt Leverage Ratio at March 31, 2026, and December 31, 2025, was as follows:
|
March 31, 2026 |
December 31, 2025 |
||||||||||
| (dollars in millions) | |||||||||||
| Total debt and finance lease obligations on the condensed consolidated balance sheets | $ | 434.4 | $ | 371.2 | |||||||
| Less: Cash and cash equivalents | 7.0 | 63.3 | |||||||||
| Net Debt (non-GAAP) | $ | 427.4 | $ | 307.9 | |||||||
| Divided by: trailing twelve months Adjusted EBITDA (non-GAAP) | 195.4 | $ | 196.2 | ||||||||
| Net Debt Leverage Ratio (non-GAAP) | 2.19 | x | 1.57 | x | |||||||
The calculation of Adjusted EBITDA for the trailing twelve months ended March 31, 2026, and December 31, 2025, was as follows:
| Add | Subtract |
Trailing Twelve Months Ended |
|||||||||||||||||||||
| Year Ended | Three Months Ended | ||||||||||||||||||||||
|
December 31, 2025 (1)
|
March 31, 2026 |
March 31, 2025 |
March 31, 2026 |
||||||||||||||||||||
| Net earnings | $ | 27.0 | $ | 6.2 | $ | 5.8 | $ | 27.4 | |||||||||||||||
| Interest expense | 50.5 | 10.0 | 12.4 | 48.1 | |||||||||||||||||||
| Income tax expense | 5.5 | 1.7 | 1.0 | 6.2 | |||||||||||||||||||
| Depreciation and amortization | 78.6 | 18.4 | 19.7 | 77.3 | |||||||||||||||||||
| EBITDA (non-GAAP) | $ | 161.6 | $ | 36.3 | $ | 38.9 | $ | 159.0 | |||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 21.8 | 8.4 | 6.6 | 23.6 | |||||||||||||||||||
| Settlement charge from defined benefit pension plan annuitization | 12.8 | - | - | 12.8 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 196.2 | $ | 44.7 | $ | 45.5 | $ | 195.4 | |||||||||||||||
______________________________
(1)Financial information for the year ended December 31, 2025, is included as reported in the Company's 2025 Annual Report on Form 10-K filed with the SEC on February 18, 2026.
The Net Debt Leverage Ratio at March 31, 2026, increased 0.62x, compared to December 31, 2025, primarily due to a $119.5 million increase in Net Debt and a $0.8 million reduction in trailing twelve months Adjusted EBITDA. The Net Debt Leverage Ratio at March 31, 2026, is above management's desired target Net Debt Leverage Ratio range of 1.50x to 2.00x; however, the Company will operate at times above the Net Debt Leverage Ratio target range depending on the timing of seasonal working capital needs, as well as compelling strategic investment opportunities.
Debt Obligations
As of March 31, 2026, the Company utilized a combination of debt instruments to fund cash requirements, including the following:
•Senior Secured Credit Facility:
◦Revolving credit facility ($71.9 million outstanding as of March 31, 2026); and
◦Term Loan A ($350.1 million outstanding as of March 31, 2026).
Covenants and Compliance
The Company's various lending arrangements include certain financial covenants (all financial terms, numbers and ratios are as defined in the Company's debt agreements). Among these covenants, the Company was required to maintain the following as of March 31, 2026:
•Total Leverage Ratio. On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exceed 3.50 to 1.00 (for the twelve months ended March 31, 2026, the Company's Total Leverage Ratio was 2.16 to 1.00).
•If there is any amount outstanding on the revolving credit facility or Term Loan A, or if any lender has any revolving credit exposure or Term Loan A credit exposure, the Company is required to maintain the following:
◦Senior Secured Leverage Ratio. On a rolling four-quarter basis, the Senior Secured Leverage Ratio, defined as the ratio of consolidated senior secured net indebtedness to consolidated EBITDA, shall not exceed 3.00 to 1.00 for any fiscal quarter ending on or after September 30, 2024 (for the twelve months ended March 31, 2026, the Company's Senior Secured Leverage Ratio was 2.14 to 1.00).
◦Interest Coverage Ratio. On a rolling twelve-month basis, the Interest Coverage Ratio, defined as consolidated EBITDA to cash consolidated interest expense, shall not be less than 3.00 to 1.00 (for the twelve months ended March 31, 2026, the Company's Interest Coverage Ratio was 4.89 to 1.00).
The Company was in compliance with all financial covenants in its debt agreements as of March 31, 2026. While the Company currently expects to be in compliance in future periods with all of the financial covenants, there can be no assurance that these covenants will continue to be met. The Company's failure to maintain compliance with the covenants could prevent the Company from borrowing additional amounts and could result in a default under any of the debt agreements. Such default could cause the outstanding indebtedness to become immediately due and payable, by virtue of cross-acceleration or cross-default provisions.
In addition to those covenants, the Senior Secured Credit Facility also includes certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock.
•If the Company's Total Leverage Ratio is greater than 2.75 to 1.00, the Company is prohibited from making greater than $60.0 million of dividend payments, capital stock repurchases and certain other payments, over the course of the agreement. If the Company's Total Leverage Ratio is above 2.50 to 1.00 but below 2.75 to 1.00, the Company is prohibited from making greater than $100.0 million of dividend payments, capital stock repurchases and certain other payments, over the course of the agreement. If the Total Leverage Ratio is less than 2.50 to 1.00, there are no such restrictions. As the Company's Total Leverage Ratio as of March 31, 2026, was 2.16 to 1.00, the limitations described above are not currently applicable.
•If the Company's Senior Secured Leverage Ratio is greater than 3.00 to 1.00 or the Company's Total Net Leverage Ratio which, on a rolling twelve-month basis, is defined as consolidated net indebtedness to consolidated EBITDA, is greater than 3.50 to 1.00, the Company is prohibited from voluntarily prepaying any unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on any unsecured or subordinated debt). If the Senior Secured Leverage Ratio is less than 3.00 to 1.00 and the Total Net Leverage Ratio is less than 3.50 to 1.00, there are no such restrictions. The limitations described above are not currently applicable, as the Company's Senior Secured Leverage Ratio was 2.14 to 1.00 and the Total Net Leverage Ratio was 2.14 to 1.00, as of March 31, 2026.
Share Repurchase Program
On July 30, 2018, the Company's Board of Directors authorized a share repurchase program of up to $100.0 million of the Company's outstanding class A common stock. Under the authorization, share repurchases may be made at the Company's discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time.
The following repurchases occurred during the three months ended March 31, 2026 and 2025:
| Three Months Ended March 31, | |||||||||||
| 2026 | 2025 | ||||||||||
| Shares of Class A common stock | 167,337 | 564,216 | |||||||||
| Weighted average price per share | $ | 6.45 | $ | 5.86 | |||||||
| Total repurchases during the period (in millions) | $ | 1.1 | $ | 3.3 | |||||||
As of March 31, 2026, there were $68.4 million of authorized repurchases remaining under the program.
Risk Management
For a discussion of the Company's exposure to market risks and management of those market risks, see Item 3, "Quantitative and Qualitative Disclosures About Market Risk," of this Quarterly Report on Form 10-Q.
New Accounting Pronouncements
See Note 16, "New Accounting Pronouncements," to the condensed consolidated financial statements in Item 1, "Condensed Consolidated Financial Statements (Unaudited)," of this Quarterly Report on Form 10-Q.
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