Quad/Graphics Inc.
07/30/2025 | Press release | Distributed by Public on 07/30/2025 13:18
Quarterly Report for Quarter Ending June 30, 2025 (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 and six months ended June 30, 2025 and 2024, 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, 2024, and notes thereto included in the Company's Annual Report on Form 10-K, filed with the SEC on February 21, 2025.
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 (1) the three months ended June 30, 2025, to the three months ended June 30, 2024; and (2) the six months ended June 30, 2025, to the six months ended June 30, 2024. 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 and Debt Leverage Ratio, 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," "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 2024 Annual Report on Form 10-K, filed with the SEC on February 21, 2025, 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 and technologies, such as artificial intelligence;
•The impact of decreasing demand for printing services and significant overcapacity in a highly competitive environment creates downward pricing pressures and potential under-utilization of assets;
•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;
•The impact of changes in postal rates, service levels or regulations;
•The impact macroeconomic conditions, including inflation and elevated interest rates, as well as 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 inability of the Company 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 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 negative publicity could have on our business and brand reputation;
•The failure to successfully identify, manage, complete, integrate and/or achieve the intended benefits of acquisitions, investment opportunities or other significant transactions, as well as the successful identification and execution of strategic divestitures;
•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 and other intangible assets;
•The impact of regulatory matters and legislative developments or changes in laws, including changes in cyber-security, 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 11,000 people in 11 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 online and offline 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 unlock strategic insights for its clients to help them make smarter marketing decisions. The Company's audience analytics and segmentation services leverage Quad's proprietary, household-based data stack - representative of more than 250 million consumers - to create models driven by behavior-based "passions" of current customers and optimize prospecting for new ones so clients can reach their ideal audiences. The Company believes these passions to be a true differentiator among the industry as they are based on reliable, resilient data that is proprietary to Quad. The Company offers a full suite of testing services, which can gauge the effectiveness of media across channels. In-market media testing empowers clients to incrementally improve their media planning and placement strategy, and increase their return on investment. Quad also provides pre-market creative research and testing services through its Accelerated Marketing Insights offering, which comprises a variety of virtual and experiential testing environments, including insights gleaned from neuroscience and expert panelists. This comprehensive offering delivers reliable, data-driven intelligence in a fraction of the time traditional methods require, and at a lower cost, in support of packaging, in-store, direct marketing and related solution services. Through this methodology, brands can optimize the messaging, creative treatment and design format for their marketing before it goes live to enhance audience engagement, improve product performance, and minimize costly market corrections.
MX: Creative
Quad's 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 real-time 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/premedia tasks. The Company also has an international network of 17 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 in the marketing mix. 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 offline (i.e., physical) and online 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 large-scale print products, such as magazines, retail inserts and directories, as well as targeted print products, such as catalogs, direct mail, in-store signage and displays, and high-end packaging.
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, expansive network and substantial purchasing power, 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 traditional and digital touchpoints to foster direct consumer connections in-home, in-store and online. The Company activates on a complete suite of full-funnel brand and performance marketing solutions. Quad leverages more than $3.0 billion in the marketplace, enabling the Company to provide cost-efficient and effective options across all channels. Media services are supported by Quad's proprietary, household-based data stack and Connections Planning, a comprehensive approach to connecting clients with consumers through deep exploration of audience behavior. This generates an experiential plan to help clients identify channels for most effectively reaching consumers with targeted messages in the moments they are most receptive and likely to engage across paid, owned and earned touchpoints to drive business outcomes. The Company's offering includes advanced analytics and campaign measurement solutions like media mix and tactical media effectiveness models to gauge how all media across the marketing funnel are performing, providing 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 offline and online 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 planning and content management platform empowers clients to strategize, plan and manage campaigns, and personalize at scale across any channel. Quad's Publishing Solutions platform optimizes magazine planning and streamlines print operations management by connecting sales, editorial and production departments for straightforward editions to complex regional and demographic versions. The Company's At-Home Connect solution automates direct mail personalization, printing, mail sorting and in-home delivery, which simplifies and expedites marketers' ability to create deeper, more direct connections with consumers. These automations can be triggered by activities and events such as loyalty anniversaries and lifestyle preferences, or opportunities such as winning back lapsed customers, converting abandoned shopping carts, or upselling or cross-selling items. Through its In-Store Connect retail media solution, Quad elevates the shopping experience in physical stores by helping brands deliver engaging messages and targeted promotions right at the shelf - a critical moment in the purchasing decision.
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 debt leverage to ensure long-term financial strength, and increasing return of capital to shareholders through dividends and share buybacks.
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 generates increased Free Cash Flow and allows 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, such as with Quad's successful 2024 refinancing of its Term Loan A and revolving credit agreement. The Company had total liquidity of $217.6 million as of June 30, 2025, which consisted of up to $210.9 million of unused capacity under its revolving credit agreement, which was net of $25.6 million of issued letters of credit, and cash and cash equivalents of $6.7 million. Total liquidity is reduced to $202.1 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 segmentis 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 92% and 90% of the Company's consolidated net sales during the three and six months ended June 30, 2025, respectively.
•The International segmentconsists 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 8% and 10% of the Company's consolidated net sales during the three and six months ended June 30, 2025, respectively.
•Corporateconsists 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 Debt Leverage Ratio as metrics to measure operating performance, financial condition and liquidity. EBITDA, EBITDA margin, Free Cash Flow and Debt Leverage Ratio are non-GAAP financial measures (see the definitions of EBITDA and EBITDA margin and the reconciliation of net earnings (loss) to EBITDA in the "Results of Operations" section below, and see the definitions of Free Cash Flow and Debt Leverage Ratio, the reconciliation of net cash used in operating activities to Free Cash Flow, and the calculation of 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 restructuring activities and other unusual items.
Debt Leverage Ratio.The Company uses the 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 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 (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 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 debt leverage. The Company's consolidated debt and finance lease obligations increased by $75.7 million during the six months ended June 30, 2025, primarily due to the following: (1) $41.6 million in cash used in operating activities from seasonality; (2) $24.3 million in purchases of property, plant and equipment; (3) $16.3 million in cash paid for an acquisition; (4) $11.2 million in purchases of treasury stock and equity awards redeemed to pay employees' tax obligations; and (5) $7.4 million in cash dividends, partially offset by a $22.5 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 service levels provided by the postal service could impact the demand that clients have for print services. In September 2024, the USPS held a pre-filing conference to further reduce service standards. These changes required an advisory opinion from the Postal Regulatory Commission ("PRC"), which was issued in January 2025, urging the USPS to reconsider its plan. Disregarding the advisory opinion, the USPS implemented the first phase of changes as of 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 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. 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 far exceeded Consumer Price Index ("CPI"). The USPS has confirmed it intends to continue with twice a year price increases for 2026 and 2027. The USPS launched a new Marketing Mail Catalog promotion, which will offer a 10% discount on postage for any mail pieces that meet the USPS definition of a catalog. The discount will go into effect on October 1, 2025 and continue until June 30, 2026. An increase to catalog volume and revenue is expected from the promotion. However, with postage increases that continue to exceed the CPI, combined with lower service standards, we expect that 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.
Federal statute requires the 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 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. The USPS has used these additional rate authorities to implement twice a year increases. 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 to cover the costs of an outdated postal service that does not reflect the industry's ability or willingness to pay. In response to industry concerns, 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, such as only allowing price changes once a year and aligning workshare discounts. However, the Company believes the continued use of all available rate authority by the USPS that far exceeds CPI will continue to increase the potential volume declines.
The Company has invested significantly in its mail preparation, optimization 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, optimization and distribution of most of its clients' products to maximize efficiency, to enable on-time and consistent delivery and to partially reduce postage costs. It is important as part of the ongoing PRC review, the USPS maintain the current work-share discounts as the Company believes this mail optimization capability is valuable to its clients.
The Company continues to face several other industry challenges that have, and are expected to continue to, adversely impact the Company's results of operation. 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 2025. 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, 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 be advantageous in its efforts 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 2025.
Results of Operations for the Three Months Ended June 30, 2025, Compared to the Three Months Ended June 30, 2024
Summary Results
The Company's operating income, operating margin, net loss (computed using a 25% normalized tax rate for all items subject to tax) and diluted loss per share for the three months ended June 30, 2025, changed from the three months ended June 30, 2024, as follows (dollars in millions, except margin and per share data):
|
Operating Income |
Operating Margin | Net Loss | Diluted Loss Per Share | ||||||||||||||||||||
| For the Three Months Ended June 30, 2024 | $ | 15.1 | 2.4 | % | $ | (2.8) | $ | (0.06) | |||||||||||||||
|
Restructuring, impairment and transaction-related charges, net (1)
|
0.9 | - | % | 0.6 | 0.02 | ||||||||||||||||||
|
Other operating income elements (2)
|
(2.3) | - | % | (1.7) | (0.04) | ||||||||||||||||||
| Operating Income | 13.7 | 2.4 | % | (3.9) | (0.08) | ||||||||||||||||||
|
Interest expense (3)
|
N/A | N/A | 3.0 | 0.06 | |||||||||||||||||||
|
Net pension (expense) income (4)
|
N/A | N/A | (0.4) | - | |||||||||||||||||||
|
Income taxes (5)
|
N/A | N/A | 1.2 | 0.02 | |||||||||||||||||||
| For the Three Months Ended June 30, 2025 | $ | 13.7 | 2.4 | % | $ | (0.1) | $ | 0.00 | |||||||||||||||
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(1)Restructuring, impairment and transaction-related charges, net decreased $0.9 million ($0.6 million, net of tax), to $9.2 million during the three months ended June 30, 2025, and included the following:
a.A $2.6 million increase in employee termination charges from $3.2 million during the three months ended June 30, 2024, to $5.8 million during the three months ended June 30, 2025;
b.A $3.1 million increase in impairment charges from $1.1 millionduring the three months ended June 30, 2024, to $4.2 million during the three months ended June 30, 2025;
c.Transaction-related charges of $0.4 million for the three months ended June 30, 2025 and June 30, 2024;
d.A $0.1 million increase in integration costs from $0.1 million during the three months ended June 30, 2024, to $0.2 million during the three months ended June 30, 2025; and
e.A $6.7 million decrease in various other restructuring charges from $5.3 million of expense during the three months ended June 30, 2024, to $1.4 million of income during the three months ended June 30, 2025.
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 $2.3 million ($1.7 million, net of tax) primarily due to the impact from lower product and services net sales and increased investments in innovation offerings to drive future revenue growth, partially offset by the following: (1) a $8.5 million decrease in selling, general and administrative expenses; (2) a $5.7 million decrease in depreciation and amortization expense; (3) impacts from improved manufacturing productivity; and (4) savings from other cost reduction initiatives.
(3)Interest expense decreased $4.0 million ($3.0 million, net of tax) during the three months ended June 30, 2025, to $13.2 million. This change was due to lower average debt levels and a lower weighted average interest rate on borrowings in the three months ended June 30, 2025, as compared to the three months ended June 30, 2024.
(4)Net pension expense increased $0.5 million ($0.4 million, net of tax) during the three months ended June 30, 2025, from $0.2 million of income to $0.3 million of expense. This was due to a $0.8 million decrease from the expected long-term return on pension plan assets, partially offset by a $0.3 million decrease from interest cost on pension plan liabilities.
(5)The $1.2 million decrease in income tax expense as calculated in the following table is primarily due to a $1.3 million decrease from valuation allowance reserves.
| Three Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Earnings (loss) before income taxes | $ | 0.2 | $ | (1.9) | $ | 2.1 | |||||||||||
| Normalized tax rate | 25.0 | % | 25.0 | % | |||||||||||||
| Income tax expense (benefit) at normalized tax rate | 0.1 | (0.5) | 0.6 | ||||||||||||||
| Income tax expense from the condensed consolidated statements of operations | 0.3 | 0.9 | (0.6) | ||||||||||||||
| Impact of income taxes | $ | 0.2 | $ | 1.4 | $ | (1.2) | |||||||||||
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 June 30, | |||||||||||||||||||||||||||||||||||
| 2025 |
% of Sales |
2024 |
% of Sales |
$ Change |
% Change |
||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||
| Products | $ | 448.0 | 78.3 | % | $ | 497.6 | 78.5 | % | $ | (49.6) | (10.0) | % | |||||||||||||||||||||||
| Services | 123.9 | 21.7 | % | 136.6 | 21.5 | % | (12.7) | (9.3) | % | ||||||||||||||||||||||||||
| Total net sales | 571.9 | 100.0 | % | 634.2 | 100.0 | % | (62.3) | (9.8) | % | ||||||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||||||||||||||
| Products | 368.6 | 64.5 | % | 408.1 | 64.3 | % | (39.5) | (9.7) | % | ||||||||||||||||||||||||||
| Services | 79.5 | 13.9 | % | 85.8 | 13.5 | % | (6.3) | (7.3) | % | ||||||||||||||||||||||||||
| Total cost of sales | 448.1 | 78.4 | % | 493.9 | 77.8 | % | (45.8) | (9.3) | % | ||||||||||||||||||||||||||
| Selling, general & administrative expenses | 80.2 | 14.0 | % | 88.7 | 14.0 | % | (8.5) | (9.6) | % | ||||||||||||||||||||||||||
| Depreciation and amortization | 20.7 | 3.6 | % | 26.4 | 4.2 | % | (5.7) | (21.6) | % | ||||||||||||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 9.2 | 1.6 | % | 10.1 | 1.6 | % | (0.9) | (8.9) | % | ||||||||||||||||||||||||||
| Total operating expenses | 558.2 | 97.6 | % | 619.1 | 97.6 | % | (60.9) | (9.8) | % | ||||||||||||||||||||||||||
| Operating income | $ | 13.7 | 2.4 | % | $ | 15.1 | 2.4 | % | $ | (1.4) | (9.3) | % | |||||||||||||||||||||||
Net Sales
Product sales decreased $49.6 million, or 10.0%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following: (1) a $35.8 million decrease in paper sales, of which $15.1 million is a result of the sale of the European operations on February 28, 2025; (2) an $11.6 million decrease in net sales in the Company's print product lines, which is net of a $17.9 million decrease as a result of the sale of the European operations; and (3) $2.2 million in unfavorable foreign exchange impacts.
Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $12.7 million, or 9.3%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a $9.0 million decrease in logistics sales, of which $3.5 million is a result of the sale of the European operations, and a $3.7 million decrease in marketing services and medical services.
Cost of Sales
Cost of product sales decreased $39.5 million, or 9.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following: (1) a decrease in paper costs due to the decrease in paper sales; (2) impacts from improved manufacturing productivity; and (3) other cost reduction initiatives.
Cost of service sales decreased $6.3 million, or 7.3%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the impact from decreased freight volumes and lower marketing services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $8.5 million, or 9.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following: (1) a $6.5 million decrease from favorable foreign exchange impacts; (2) $4.9 million in lower employee-related costs; and (3) savings from other cost reduction initiatives, partially offset by a $4.1 million gain on the sale of an investment in 2024 that did not reoccur in 2025. Selling, general and administrative expenses as a percentage of net sales was 14.0% for the three months ended June 30, 2025, and the three months ended June 30, 2024.
Depreciation and Amortization
Depreciation and amortization decreased $5.7 million, or 21.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, due to a $2.9 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, and a $2.8 million decrease in amortization expense.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net decreased $0.9 million, or 8.9%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following:
| Three Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 5.8 | $ | 3.2 | $ | 2.6 | |||||||||||
|
Impairment charges (a)
|
4.2 | 1.1 | 3.1 | ||||||||||||||
| Transaction-related charges | 0.4 | 0.4 | - | ||||||||||||||
| Integration costs | 0.2 | 0.1 | 0.1 | ||||||||||||||
| Other restructuring charges | |||||||||||||||||
| Vacant facility carrying costs and lease exit charges | 2.0 | 5.1 | (3.1) | ||||||||||||||
| Equipment and infrastructure removal costs | 0.8 | 0.2 | 0.6 | ||||||||||||||
|
Gain on the sale of a facility (b)
|
(4.3) | - | (4.3) | ||||||||||||||
| Other restructuring activities | 0.1 | - | 0.1 | ||||||||||||||
| Other restructuring charges (income) | (1.4) | 5.3 | (6.7) | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 9.2 | $ | 10.1 | $ | (0.9) | |||||||||||
______________________________
(a)Includes $4.2 million and $1.1 million of impairment charges during the three months ended June 30, 2025 and 2024, respectively, which consisted of $3.0 million of impairment for software licensing and related implementation costs from a terminated project in 2025; $1.2 million and $0.6 million, respectively, for certain property, plant and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities; and $0.5 million for operating lease right-of-use assets in 2024.
(b)Includes a $4.3 million gain on the sale of the West Sacramento, California facility during the three months ended June 30, 2025.
EBITDA and EBITDA Margin-Consolidated
EBITDA is defined as net earnings (loss), excluding (1) interest expense, (2) income tax expense (benefit) 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 June 30, 2025, compared to the three months ended June 30, 2024, were as follows:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2025 | % of Net Sales | 2024 | % of Net Sales | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| EBITDA and EBITDA margin (non-GAAP) | $ | 34.1 | 6.0 | % | $ | 41.7 | 6.6 | % | |||||||||||||||
EBITDA decreased $7.6 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the impact from lower product and logistics and marketing services sales and increased investments in innovative offerings to drive future revenue growth, partially offset by impacts from improved manufacturing productivity and savings from other cost reduction initiatives and $0.9 million of decreased restructuring, impairment and transaction-related charges, net.
A reconciliation of EBITDA to net loss for the three months ended June 30, 2025 and 2024, was as follows:
| Three Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (dollars in millions) | |||||||||||
|
Net loss (1)
|
$ | (0.1) | $ | (2.8) | |||||||
| Interest expense | 13.2 | 17.2 | |||||||||
| Income tax expense | 0.3 | 0.9 | |||||||||
| Depreciation and amortization | 20.7 | 26.4 | |||||||||
| EBITDA (non-GAAP) | $ | 34.1 | $ | 41.7 | |||||||
______________________________
(1)Net loss included the following:
a.Restructuring, impairment and transaction-related charges of $9.2 million and $10.1 million for the three months ended June 30, 2025 and 2024, 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 June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 400.6 | $ | 411.9 | $ | (11.3) | (2.7) | % | |||||||||||||||
| Services | 123.9 | 132.4 | (8.5) | (6.4) | % | ||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 22.8 | 25.4 | (2.6) | (10.2) | % | ||||||||||||||||||
| Operating margin | 4.3 | % | 4.7 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 8.6 | $ | 9.3 | $ | (0.7) | (7.5) | % | |||||||||||||||
Net Sales
Product sales for the United States Print and Related Services segment decreased $11.3 million, or 2.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an $18.7 million decrease in paper sales, partially offset by a $7.4 million increase in sales in the Company's print product lines.
Service sales for the United States Print and Related Services segment decreased $8.5 million, or 6.4%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a $5.5 million decrease in logistics sales and a $3.0 million decrease in marketing services and medical services.
Operating Income
Operating income for the United States Print and Related Services segment decreased $2.6 million, or 10.2%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the impact from decreased logistics and marketing services sales and increased investments in innovative offerings to drive future revenue growth, partially offset by the following: (1) a $3.8 million decrease in depreciation and amortization; (2) a $0.7 million decrease in restructuring, impairment and transaction-related charges, net; (3) impacts from improved manufacturing productivity; and (4) savings from other cost reduction initiatives.
Operating margin for the United States Print and Related Services segment decreased to 4.3% for the three months ended June 30, 2025, from 4.7% for the three months ended June 30, 2024, 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 decreased $0.7 million, or 7.5% for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following:
| Three Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 5.7 | $ | 2.9 | $ | 2.8 | |||||||||||
|
Impairment charges (a)
|
4.2 | 1.0 | 3.2 | ||||||||||||||
| Integration costs | 0.2 | 0.1 | 0.1 | ||||||||||||||
|
Other restructuring charges (income) (b)
|
(1.5) | 5.3 | (6.8) | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 8.6 | $ | 9.3 | $ | (0.7) | |||||||||||
______________________________
(a)Includes $4.2 million and $1.0 million of impairment charges during the three months ended June 30, 2025 and 2024, respectively, which consisted of $3.0 million for software licensing and related implementation costs from a terminated project in 2025, $1.2 million and $0.5 million, respectively, for certain property, plant and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities, and $0.5 million for operating lease right-of-use assets in 2024.
(b)Includes a $4.3 million gain on the sale of the West Sacramento, California facility during the three months ended June 30, 2025.
International
The following table summarizes net sales, operating income, operating margin and certain items impacting comparability within the International segment:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 47.4 | $ | 85.7 | $ | (38.3) | (44.7) | % | |||||||||||||||
| Services | - | 4.2 | (4.2) | nm | |||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 3.9 | 2.3 | 1.6 | 69.6 | % | ||||||||||||||||||
| Operating margin | 8.2 | % | 2.6 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 0.2 | $ | 0.8 | $ | (0.6) | (75.0) | % | |||||||||||||||
Net Sales
Product sales for the International segment decreased $38.3 million, or 44.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following: (1) a $19.0 million decrease in print product volume, which is net of a $17.9 million decrease as a result of the sale of the European operations; (2) a $17.1 million decrease in paper sales, of which $15.1 million is a result of the sale of the European operations; and (3) $2.2 million in unfavorable foreign exchange impacts, primarily in Mexico.
Service sales for the International segment decreased $4.2 million for the three months ended June 30, 2025 compared to the three months ended June 30, 2024, primarily due to a $3.5 million decrease in logistics sales and a $0.7 million decrease in marketing services, both as a result of the sale of the European operations.
Operating Income
Operating income for the International segment increased $1.6 million, or 69.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a $1.0 million increase in operating income from increased print product volume, mainly in Mexico, and a $0.6 million decrease in restructuring, impairment and transaction-related charges, net.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net for the International segment decreased $0.6 million, or 75.0%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following:
| Three Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 0.1 | $ | 0.3 | $ | (0.2) | |||||||||||
| Impairment charges | - | 0.1 | (0.1) | ||||||||||||||
| Transaction-related charges | - | 0.4 | (0.4) | ||||||||||||||
| Other restructuring charges | 0.1 | - | 0.1 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 0.2 | $ | 0.8 | $ | (0.6) | |||||||||||
Corporate
The following table summarizes unallocated operating expenses presented as Corporate:
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Operating expenses (including restructuring, impairment and transaction-related charges, net) | $ | 13.0 | $ | 12.6 | $ | 0.4 | 3.2 | % | |||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 0.4 | - | 0.4 | nm | |||||||||||||||||||
Operating Expenses
Corporate operating expenses increased $0.4 million, or 3.2%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a $0.4 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 $0.4 million, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to the following:
| Three Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| Transaction-related charges | 0.4 | - | 0.4 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 0.4 | $ | - | $ | 0.4 | |||||||||||
Results of Operations for the Six Months Ended June 30, 2025, Compared to the Six Months Ended June 30, 2024
Summary Results
The Company's operating income, operating margin, net earnings (loss) (computed using a 25% normalized tax rate for all items subject to tax) and diluted earnings (loss) per share for the six months ended June 30, 2025, changed from the six months ended June 30, 2024, as follows (dollars in millions, except margin and per share data):
|
Operating Income |
Operating Margin | Net Earnings (Loss) | Diluted Earnings (Loss) Per Share | ||||||||||||||||||||
| For the six months ended June 30, 2024 | $ | 4.4 | 0.3 | % | $ | (30.9) | $ | (0.65) | |||||||||||||||
|
Restructuring, impairment and transaction-related charges, net (1)
|
26.8 | 2.0 | % | 20.0 | 0.44 | ||||||||||||||||||
|
Other operating income elements (2)
|
2.1 | 0.5 | % | 1.6 | - | ||||||||||||||||||
| Operating Income | 33.3 | 2.8 | % | (9.3) | (0.21) | ||||||||||||||||||
|
Interest expense (3)
|
N/A | N/A | 5.1 | 0.13 | |||||||||||||||||||
|
Net pension (expense) income(4)
|
N/A | N/A | (0.8) | (0.02) | |||||||||||||||||||
|
Income taxes (5)
|
N/A | N/A | 10.7 | 0.21 | |||||||||||||||||||
| For the six months ended June 30, 2025 | $ | 33.3 | 2.8 | % | $ | 5.7 | $ | 0.11 | |||||||||||||||
______________________________
(1)Restructuring, impairment and transaction-related charges, net decreased $26.8 million ($20.0 million, net of tax), to $15.8 million during the six months ended June 30, 2025, and included the following:
a.A $10.4 million decrease in employee termination charges from $16.9 million during the six months ended June 30, 2024, to $6.5 million during the six months ended June 30, 2025;
b.A $9.2 million decrease in impairment charges from $13.7 million during the six months ended June 30, 2024, to $4.5 million during the six months ended June 30, 2025;
c.A $2.1 million increase in transaction-related charges from $0.9 million during the six months ended June 30, 2024, to $3.0 million during the six months ended June 30, 2025;
d.Integration costs of $0.2 million during the six months ended June 30, 2025 and June 30, 2024; and
e.A $9.3 million decrease in various other restructuring charges from $10.9 million during the six months ended June 30, 2024, to $1.6 million during the six months ended June 30, 2025.
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 increased $2.1 million ($1.6 million, net of tax impact) during the six months ended June 30, 2025, primarily due to the following: (1) a $14.6 million decrease in depreciation and amortization expense; (2) impacts from improved manufacturing productivity; and (3) savings from other cost reduction initiatives, partially offset by the impact from lower net sales and increased investments in innovative offerings to drive future revenue growth.
(3)Interest expense decreased $6.8 million ($5.1 million, net of tax) during the six months ended June 30, 2025, to $25.6 million. This was primarily due to the following: (1) lower average debt levels; (2) lower weighted average interest rates on borrowings; and (3) a $0.5 million decrease in interest expense related to the interest rate swap in the six months ended June 30, 2025, as compared to the six months ended June 30, 2024.
(4)Net pension expense increased $1.1 million ($0.8 million, net of tax) during the six months ended June 30, 2025, from $0.4 million of income to $0.7 million of expense. This was due to a $1.6 million decrease from the expected long-term return on pension plan assets and a $0.1 million increase in the amortization of actuarial loss, partially offset by a $0.6 million decrease from interest cost on pension plan liabilities.
(5)The $10.7 million decrease in income tax expense as calculated in the following table is primarily due to the following: (1) a $9.2 million decrease from valuation allowance reserves; (2) a $1.2 million decrease from the impact of non-deductible expenses; and (3) a $0.3 million decrease in the Company's liability for audit assessments and unrecognized tax benefits.
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Earnings (loss) before income taxes | $ | 7.0 | $ | (27.6) | $ | 34.6 | |||||||||||
| Normalized tax rate | 25.0 | % | 25.0 | % | |||||||||||||
| Income tax expense (benefit) at normalized tax rate | 1.8 | (6.9) | 8.7 | ||||||||||||||
| Income tax expense from the condensed consolidated statements of operations | 1.3 | 3.3 | (2.0) | ||||||||||||||
| Impact of income taxes | $ | (0.5) | $ | 10.2 | $ | (10.7) | |||||||||||
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:
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2025 |
% of Sales |
2024 |
% of Sales |
$ Change |
% Change |
||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||||||||||||||
| Products | $ | 942.8 | 78.5 | % | $ | 1,004.8 | 78.0 | % | $ | (62.0) | (6.2) | % | |||||||||||||||||||||||
| Services | 258.5 | 21.5 | % | 284.2 | 22.0 | % | (25.7) | (9.0) | % | ||||||||||||||||||||||||||
| Total net sales | 1,201.3 | 100.0 | % | 1,289.0 | 100.0 | % | (87.7) | (6.8) | % | ||||||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||||||||||||||
| Products | 783.0 | 65.2 | % | 834.6 | 64.8 | % | (51.6) | (6.2) | % | ||||||||||||||||||||||||||
| Services | 165.1 | 13.7 | % | 180.6 | 14.0 | % | (15.5) | (8.6) | % | ||||||||||||||||||||||||||
| Total cost of sales | 948.1 | 78.9 | % | 1,015.2 | 78.8 | % | (67.1) | (6.6) | % | ||||||||||||||||||||||||||
| Selling, general & administrative expenses | 163.7 | 13.6 | % | 171.8 | 13.3 | % | (8.1) | (4.7) | % | ||||||||||||||||||||||||||
| Depreciation and amortization | 40.4 | 3.4 | % | 55.0 | 4.3 | % | (14.6) | (26.5) | % | ||||||||||||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 15.8 | 1.3 | % | 42.6 | 3.3 | % | (26.8) | (62.9) | % | ||||||||||||||||||||||||||
| Total operating expenses | 1,168.0 | 97.2 | % | 1,284.6 | 99.7 | % | (116.6) | (9.1) | % | ||||||||||||||||||||||||||
| Operating income | $ | 33.3 | 2.8 | % | $ | 4.4 | 0.3 | % | $ | 28.9 | nm | ||||||||||||||||||||||||
Net Sales
Product sales decreased $62.0 million, or 6.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following: (1) a $46.5 million decrease in paper sales, of which $21.6 million is a result of the sale of the European operations on February 28, 2025; (2) an $8.8 million decrease in sales in the Company's print product lines, which is net of a $24.2 million decrease as a result of the sale of the European operations; and (3) $6.7 million in unfavorable foreign exchange impacts.
Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $25.7 million, or 9.0%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $16.6 million decrease in logistics sales, of which $5.2 million is a result of the sale of the European operations, and a $9.1 million decrease in marketing services and medical services, of which $0.7 million is a result of the sale of the European operations.
Cost of Sales
Cost of product sales decreased $51.6 million, or 6.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following: (1) a decrease in paper costs due to the decrease in paper sales; (2) impacts from improved manufacturing productivity; and (3) other cost reduction initiatives.
Cost of service sales decreased $15.5 million, or 8.6%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the impact from decreased freight volumes and lower marketing services.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $8.1 million, or 4.7%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following: (1) a $7.0 million increase in favorable foreign exchange impacts; (2) $4.3 million in lower employee-related costs; and (3) savings from other cost reduction initiatives, partially offset by a $4.1 million gain on the sale of an investment in 2024 that did not reoccur in 2025. Selling, general and administrative expenses as a percentage of net sales increased to 13.6% for the six months ended June 30, 2025, compared to 13.3% for the six months ended June 30, 2024.
Depreciation and Amortization
Depreciation and amortization decreased $14.6 million, or 26.5%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, due to a $7.5 million decrease in amortization expense, primarily from intangible assets becoming fully amortized over the past year, and a $7.1 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.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net decreased $26.8 million, or 62.9%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following:
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 6.5 | $ | 16.9 | $ | (10.4) | |||||||||||
|
Impairment charges (a)
|
4.5 | 13.7 | (9.2) | ||||||||||||||
|
Transaction-related charges (b)
|
3.0 | 0.9 | 2.1 | ||||||||||||||
| Integration costs | 0.2 | 0.2 | - | ||||||||||||||
| Other restructuring charges | |||||||||||||||||
| Vacant facility carrying costs and lease exit charges | 4.1 | 9.4 | (5.3) | ||||||||||||||
| Equipment and infrastructure removal costs | 1.2 | 1.3 | (0.1) | ||||||||||||||
|
Gain on the sale of a facility (c)
|
(4.3) | - | (4.3) | ||||||||||||||
|
Loss on the sale of a business (d)
|
0.5 | - | 0.5 | ||||||||||||||
| Other restructuring activities | 0.1 | 0.2 | (0.1) | ||||||||||||||
| Other restructuring charges | 1.6 | 10.9 | (9.3) | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 15.8 | $ | 42.6 | $ | (26.8) | |||||||||||
______________________________
(a)Includes $4.5 million and $13.7 million of impairment charges during the six months ended June 30, 2025 and 2024, respectively, which consisted of the following: $3.0 million of impairment for software licensing and related implementation costs from a terminated project in 2025; $1.5 million and $11.4 million, respectively, for certain property, plant and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities; and $2.3 million for operating lease right-of-use assets in 2024.
(b)Includes professional service fees related to business acquisition and divestiture activities, including charges related to the sale of the European operations.
(c)Includes a $4.3 million gain on the sale of the West Sacramento, California facility during the six months ended June 30, 2025.
(d)Includes a $0.5 million loss on the sale of the European operations during the six months ended June 30, 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 six months ended June 30, 2025, compared to the six months ended June 30, 2024, were as follows:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2025 | % of Net Sales | 2024 | % of Net Sales | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| EBITDA and EBITDA margin (non-GAAP) | $ | 73.0 | 6.1 | % | $ | 59.8 | 4.6 | % | |||||||||||||||
EBITDA increased $13.2 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following: (1) $26.8 million of decreased restructuring, impairment and transaction-related charges, net; (2) impacts from improved manufacturing productivity; and (3) savings from other cost reduction initiatives, partially offset by the impact of lower net sales and increased investments in innovative offerings to drive future revenue growth.
A reconciliation of EBITDA to net earnings (loss) for the six months ended June 30, 2025 and 2024, was as follows:
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (dollars in millions) | |||||||||||
|
Net earnings (loss) (1)
|
$ | 5.7 | $ | (30.9) | |||||||
| Interest expense | 25.6 | 32.4 | |||||||||
| Income tax expense | 1.3 | 3.3 | |||||||||
| Depreciation and amortization | 40.4 | 55.0 | |||||||||
| EBITDA (non-GAAP) | $ | 73.0 | $ | 59.8 | |||||||
______________________________
(1)Net earnings (loss) included the following:
a.Restructuring, impairment and transaction-related charges, net of $15.8 million and $42.6 million for the six months ended June 30, 2025 and 2024, 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:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 822.7 | $ | 847.8 | $ | (25.1) | (3.0) | % | |||||||||||||||
| Services | 255.6 | 275.4 | (19.8) | (7.2) | % | ||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 54.5 | 24.1 | 30.4 | nm | |||||||||||||||||||
| Operating margin | 5.1 | % | 2.1 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 12.1 | $ | 40.9 | $ | (28.8) | (70.4) | % | |||||||||||||||
Net Sales
Product sales for the United States Print and Related Services segment decreased $25.1 million, or 3.0%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $24.8 million decrease in paper sales and a $0.3 million decrease in sales in the Company's print product lines.
Service sales for the United States Print and Related Services segment decreased $19.8 million, or 7.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to an $11.4 million decrease in logistics sales and an $8.4 million decrease in marketing services and medical services.
Operating Income
Operating income for the United States Print and Related Services segment increased $30.4 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following: (1) a $28.8 million decrease in restructuring, impairment and transaction-related charges, net; (2) a $10.7 million decrease in depreciation and amortization expense; (3) impacts from improved manufacturing productivity; and (4) savings from other cost reduction initiatives; partially offset by the impact from decreased marketing services sales and increased investments in innovative offerings to drive future revenue growth.
The operating margin for the United States Print and Related Services segment increased to 5.1% for the six months ended June 30, 2025, compared to 2.1% for the six months ended June 30, 2024, 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 decreased $28.8 million, or 70.4%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following:
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 6.3 | $ | 16.3 | $ | (10.0) | |||||||||||
|
Impairment charges (a)
|
4.5 | 13.6 | (9.1) | ||||||||||||||
| Integration costs | 0.2 | 0.2 | - | ||||||||||||||
|
Other restructuring charges (b)
|
1.1 | 10.8 | (9.7) | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 12.1 | $ | 40.9 | $ | (28.8) | |||||||||||
______________________________
(a)Includes $4.5 million and $13.6 million of impairment charges during the six months ended June 30, 2025 and 2024, respectively, which consisted of $3.0 million for software licensing and related implementation costs from a terminated project in 2025, $1.5 million and $11.3 million, respectively, for certain property, plant and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities, and $2.3 million for operating lease right-of-use assets in 2024.
(b)Includes a $4.3 million gain on the sale of the West Sacramento, California facility during the six months ended June 30, 2025.
International
The following table summarizes net sales, operating income, operating margin and certain items impacting comparability within the International segment:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Products | $ | 120.1 | $ | 157.0 | $ | (36.9) | (23.5) | % | |||||||||||||||
| Services | 2.9 | 8.8 | (5.9) | (67.0) | % | ||||||||||||||||||
| Operating income (including restructuring, impairment and transaction-related charges, net) | 4.5 | 5.7 | (1.2) | (21.1) | % | ||||||||||||||||||
| Operating margin | 3.7 | % | 3.4 | % | N/A | N/A | |||||||||||||||||
| Restructuring, impairment and transaction-related charges, net | $ | 3.0 | $ | 1.6 | $ | 1.4 | 87.5 | % | |||||||||||||||
Net Sales
Product sales for the International segment decreased $36.9 million, or 23.5%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, due to the following: (1) a $21.7 million decrease in paper sales, of which $21.6 million is a result of the sale of the European operations; (2) a $8.5 million decrease in print volume, which is net of a $24.2 million decrease as a result of the sale of the European operations; and (3) $6.7 million in unfavorable foreign exchange impacts, primarily in Mexico.
Service sales for the International segment decreased $5.9 million, or 67.0%, for the six months ended June 30, 2025, when compared to the six months ended June 30, 2024, primarily due to a $5.2 million decrease in logistics sales and $0.7 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 decreased $1.2 million, or 21.1%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $1.4 million increase in restructuring, impairment and transaction-related charges, net, partially offset by a $0.2 million increase in operating income, net as a result of the sale of the European operations.
Restructuring, Impairment and Transaction-Related Charges, Net
Restructuring, impairment and transaction-related charges, net for the International segment increased $1.4 million, or 87.5%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following:
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Employee termination charges | $ | 0.2 | $ | 0.6 | $ | (0.4) | |||||||||||
| Impairment charges | - | 0.1 | (0.1) | ||||||||||||||
|
Transaction-related charges (a)
|
2.3 | 0.8 | 1.5 | ||||||||||||||
|
Other restructuring charges (b)
|
0.5 | 0.1 | 0.4 | ||||||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 3.0 | $ | 1.6 | $ | 1.4 | |||||||||||
______________________________
(a)Includes professional service fees related to business acquisition and divestiture activities, including charges related to the sale of the European operations during the six months ended June 30, 2025.
(b)Includes a $0.5 million loss on the sale of the European operations during the six months ended June 30, 2025.
Corporate
The following table summarizes unallocated operating expenses presented as Corporate:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Operating expenses (including restructuring, impairment and transaction-related charges, net) | $ | 25.7 | $ | 25.4 | $ | 0.3 | 1.2 | % | |||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 0.7 | 0.1 | 0.6 | nm | |||||||||||||||||||
Operating Expenses
Corporate operating expenses increased $0.3 million, or 1.2%, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024 primarily due to a $0.6 million increase in restructuring, impairment and transaction-related charges, net, partially offset by a $0.2 million decrease in employee-related costs.
Restructuring, Impairment and Transaction-Related Charges, Net
Corporate restructuring, impairment and transaction-related charges, net increased $0.6 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to the following:
| Six Months Ended June 30, | |||||||||||||||||
| 2025 | 2024 | $ Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| Transaction-related charges | $ | 0.7 | $ | 0.1 | $ | 0.6 | |||||||||||
| Total restructuring, impairment and transaction-related charges, net | $ | 0.7 | $ | 0.1 | $ | 0.6 | |||||||||||
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 $217.6 million as of June 30, 2025, which consisted of up to $210.9 million of unused capacity under its revolving credit agreement, which was net of $25.6 million of issued letters of credit, and cash and cash equivalents of $6.7 million. Total liquidity is reduced to $202.1 million under the Company's most restrictive debt covenants. There were $88.1 million of borrowings under the $324.6 million revolving credit facility as of June 30, 2025.
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
Six Months Ended June 30, 2025, Compared to Six Months Ended June 30, 2024
Net cash used in operating activities decreased $6.7 million, from $48.3 million for the six months ended June 30, 2024, to $41.6 million for the six months ended June 30, 2025. This decrease was due to a $14.4 million increase in cash from earnings, partially offset by a $7.7 million increase in cash flows used in changes in operating assets and liabilities.
Net Cash Used in Investing Activities
Six Months Ended June 30, 2025, Compared to Six Months Ended June 30, 2024
Net cash used in investing activities increased $32.0 million, from $6.2 million for the six months ended June 30, 2024, to $38.2 million for the six months ended June 30, 2025. The increase was primarily due to (1) a $22.2 million decrease in proceeds from the sale of an investment in 2024; (2) a $16.3 million increase as a result of the acquisition of a business in 2025; and (3) a $3.2 million increase in cash used in other investing activities. These were partially offset by a $9.2 million decrease in purchases of property, plant and equipment and a $0.5 million increase in proceeds from the sale of property, plant, and equipment.
Net Cash Provided by Financing Activities
Six Months Ended June 30, 2025, Compared to Six Months Ended June 30, 2024
Net cash provided by financing activities increased $40.9 million, from $14.5 million for the six months ended June 30, 2024, to $55.4 million for the six months ended June 30, 2025. The increase was primarily due to a $52.5 million increase in net borrowings of debt and lease obligations and a $0.2 million decrease in cash used for other financing activities. These increases were partially offset by the following: (1) a $7.6 million increase in the purchase of treasury stock; (2) a $2.7 million increase in payment of cash dividends; and (3) a $1.5 million increase in equity awards redeemed to pay employees' tax obligations.
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 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 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 six months ended June 30, 2025, compared to the six months ended June 30, 2024, was as follows:
| Six Months Ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (dollars in millions) | |||||||||||
| Net cash used in operating activities | $ | (41.6) | $ | (48.3) | |||||||
| Less: purchases of property, plant and equipment | 24.3 | 33.5 | |||||||||
| Free Cash Flow (non-GAAP) | $ | (65.9) | $ | (81.8) | |||||||
Free Cash Flow increased $15.9 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to a $9.2 million decrease in capital expenditures and a $6.7 million decrease in net cash used in operating activities. See the "Net Cash Used in Operating Activities" section above for further explanations of the change in operating cash flows.
Debt Leverage Ratio
The 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.
The Company uses the 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 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 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 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 Debt Leverage Ratio may be different from similar calculations used by other companies and, therefore, comparability may be limited.
The 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 Debt Leverage Ratio at June 30, 2025, and December 31, 2024, was as follows:
|
June 30, 2025 |
December 31, 2024 |
||||||||||
| (dollars in millions) | |||||||||||
| Total debt and finance lease obligations on the condensed consolidated balance sheets | $ | 454.9 | $ | 379.2 | |||||||
| Less: Cash and cash equivalents | 6.7 | 29.2 | |||||||||
| Net Debt (non-GAAP) | $ | 448.2 | $ | 350.0 | |||||||
| Divided by: Adjusted EBITDA (non-GAAP) | 210.4 | $ | 224.0 | ||||||||
| Debt Leverage Ratio-Net Debt (non-GAAP) | 2.13 | x | 1.56 | x | |||||||
The calculation of Adjusted EBITDA for the trailing twelve months ended June 30, 2025, and December 31, 2024, was as follows:
| Add | Subtract |
Trailing Twelve Months Ended |
|||||||||||||||||||||
| Year Ended | Six Months Ended | ||||||||||||||||||||||
|
December 31, 2024 (1)
|
June 30, 2025 |
June 30, 2024 |
June 30, 2025 |
||||||||||||||||||||
| Net earnings (loss) | $ | (50.9) | $ | 5.7 | $ | (30.9) | $ | (14.3) | |||||||||||||||
| Interest expense | 64.5 | 25.6 | 32.4 | 57.7 | |||||||||||||||||||
| Income tax expense | 6.4 | 1.3 | 3.3 | 4.4 | |||||||||||||||||||
| Depreciation and amortization | 102.5 | 40.4 | 55.0 | 87.9 | |||||||||||||||||||
| EBITDA (non-GAAP) | $ | 122.5 | $ | 73.0 | $ | 59.8 | $ | 135.7 | |||||||||||||||
| Restructuring, impairment and transaction-related charges, net | 101.5 | 15.8 | 42.6 | 74.7 | |||||||||||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 224.0 | $ | 88.8 | $ | 102.4 | $ | 210.4 | |||||||||||||||
______________________________
(1)Financial information for the year ended December 31, 2024, is included as reported in the Company's 2024 Annual Report on Form 10-K filed with the SEC on February 21, 2025.
The Debt Leverage Ratio at June 30, 2025, increased 0.57x, compared to December 31, 2024, primarily due to a $98.2 million increase in Net Debt and a $13.6 million reduction in trailing twelve months Adjusted EBITDA. The Debt Leverage Ratio at June 30, 2025, is above management's desired target Debt Leverage Ratio range of 1.50x to 2.00x; however, the Company will operate at times above the Debt Leverage Ratio target range depending on the timing of compelling strategic investment opportunities, as well as seasonal working capital needs.
Debt Obligations
As of June 30, 2025, the Company utilized a combination of debt instruments to fund cash requirements, including the following:
•Senior Secured Credit Facility:
◦Revolving credit facility ($88.1 million outstanding as of June 30, 2025); and
◦Term Loan A ($350.7 million outstanding as of June 30, 2025).
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 June 30, 2025:
•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 June 30, 2025, the Company's Total Leverage Ratio was 2.10 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 June 30, 2025, the Company's Senior Secured Leverage Ratio was 2.09 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 June 30, 2025, the Company's Interest Coverage Ratio was 4.59 to 1.00).
The Company was in compliance with all financial covenants in its debt agreements as of June 30, 2025. 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 June 30, 2025, was 2.10 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 2.09 to 1.00 and the Total Net Leverage Ratio was 2.09 to 1.00, as of June 30, 2025.
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.
There were no share repurchases during the three and six months ended June 30, 2024, and the following repurchases occurred during the three and six months ended June 30, 2025:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2025 | 2025 | ||||||||||
| Shares of Class A common stock | 832,439 | 1,396,655 | |||||||||
| Weighted average price per share | $ | 5.11 | $ | 5.41 | |||||||
| Total repurchases during the period (in millions) | $ | 4.3 | $ | 7.6 | |||||||
As of June 30, 2025, there were $70.0 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 17, "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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