To our shareholders
In 2021, Quad continued to accelerate our competitive position as a worldwide marketing solutions partner, leveraging our more than 50-year heritage of platform excellence, innovation, strong culture and social purpose to create a better way for our clients, employees and communities.
Despite a challenging operating and economic environment, our sales growth and strong execution helped drive strong full-year results, including a 3% increase in Net Sales when excluding divestitures. At the same time, we continued to pay down debt and, over the past two years, we have reduced Net Debt by $410 million or 40%, and returned to our long-term targeted leverage range of 2.0x to 2.5x.
Throughout 2021, we continued to strategically invest in the talent, technology, products and services to strengthen our integrated marketing platform, which features a complete through-the-line offering–from innovation to execution. Our platform is unique because it removes friction wherever a client experiences it in the marketing process by:
• Reducing the complexity of working with multiple agency partners and vendors;
• Increasing efficiencies through workflow re-engineering, content production and process optimization; and
• Enhancing marketing spend effectiveness through integrated solutions that help clients target, more deeply engage and grow audiences; plan and measure marketing; strategize, create and activate big ideas; produce content at scale; and connect with consumers in the most appropriate channels and with the right amplitude for eliciting maximum response.
Due to the strength of our integrated marketing platform, we are winning higher value, higher margin work from leading brands across multiple verticals. For example, we recently created an integrated advertising campaign for a regional insurance carrier that featured a series of 30-second media spots—one of which aired in the Pacific Northwest during Super Bowl LVI. This placement helped our client achieve its campaign objectives, including strengthening consumer brand awareness. In another example, we are currently helping two national retail clients advance sustainable packaging for their “own” or private brands, drawing on our expertise in sustainability, which has been a core focus for our company since our founding in 1971. This work includes materials reduction and replacement evaluations, packaging redesign, sustainable sourcing practices, and a process for long-term packaging innovation to achieve a regenerative future.
We take seriously our role in creating a better way through our approach to Environmental, Social and Governance (ESG) matters and, at year-end 2021, released a comprehensive ESG report that details how we are driving positive, sustainable change in our business along with ESG commitments for the future. For example, when it comes to the environment, we have a long history of reducing our environmental impact by conserving resources, minimizing waste, and recycling and re-using materials—including a 98% recycling rate for wastepaper, the primary byproduct of our manufacturing processes. We are even exploring how to upcycle waste streams— like paper dust from the printing process—into viable commercial products.
In the Social space, we continue to build out a more comprehensive and sustainable Diversity, Equity and Inclusion strategy. This strategy includes specific goals for creating a more inclusive, open culture to benefit all stakeholders. Additionally, we have deepened our commitment to employee health and wellness with a newly expanded program that provides full-circle support for our employees’ physical, emotional, financial and social well-being.
As far as how we run our business, we remain committed to effective Governance and have programs and policies in place that reflect our culture of high ethical standards, legal compliance, and reduced risk to the company and all stakeholders.
As we continue to grow, I am thankful for our employees who are committed to proactively managing our clients’ service expectations while innovatively addressing our clients’ ever-changing needs.
We delivered strong 2021 financial results, including revenue growth, despite a myriad of economic challenges that included significant paper and supply chain disruptions; a tight labor and freight market; and inflationary cost pressures. Despite these headwinds, we achieved or exceeded our 2021 financial guidance.
We continued to optimize our product portfolio, completing the divestiture of QuadExpress, a third-party logistics business that was a small part of our overall Logistics business. The divestiture supports Quad’s established strategy to optimize our product and service portfolio and invest in those parts of our business that accelerate our competitive position and create more value for our clients and other stakeholders. We generated $40 million in cash proceeds from the divestiture, which we used to reduce debt.
Net Sales in 2021 were $3 billion, up 1% from 2020 and up 3% when excluding divestitures. The Net Sales increase was due to a 1% increase in year-over-year Print Net Sales, a 12% increase in year-over-year Logistics Net Sales, and a 7% increase in year-over-year Agency Solutions Net Sales. We expect sales growth of 3% – 7% in 2022, marking a second consecutive year of sales growth.
Net Earnings from Continuing Operations were $38 million in 2021 as compared to a Net Loss of $107 million in 2020. Non-GAAP Adjusted EBITDA was $246 million in 2021 as compared to $260 million in 2020, and Non-GAAP Adjusted EBITDA margin was 8.3% as compared to 8.9% in 2020. The decline in Adjusted EBITDA and margin was primarily due to the nonrecurrence of $39 million of COVID-19 pandemic-related temporary cost savings in 2020 and from the negative impact of cost inflation and supply chain disruptions.
Non-GAAP Adjusted Diluted Earnings Per Share From Continuing Operations more than doubled from $0.29 per share for full-year 2020 to $0.60 per share for full-year 2021. This increase was primarily due to lower depreciation and amortization, lower interest expense and lower selling, general and administrative expenses.
Net Cash Provided by Operating Activities decreased by $54 million in 2021 to $137 million, as compared to 2020, and Non-GAAP Free Cash Flow decreased by $43 million in 2021 to $87 million, as compared to 2020. The decline was primarily due to $40 million of income tax refunds received during the third quarter of 2020 due to the CARES Tax Act, as well as higher working capital to support Net Sales growth and the strategic decision to carry higher paper and material inventory to serve our clients during this period of worldwide supply chain disruption and resulting longer lead times. These were partially offset by an $11 million decrease in capital expenditures.
At year-end 2021, we improved our Debt Leverage Ratio 81 basis points to 2.5x from 3.3x at year-end 2020, and returned to our long-term targeted leverage range of 2.0x to 2.5x. Notably, we have reduced Net Debt by $410 million or 40% over the past two years.
We believe our ample liquidity, strong lender relationships, agile approach to cost management and ability to help clients as a marketing solutions partner will provide substantial financial flexibility on into the future.
2022 financial objectives
In 2022, we will build on the positive growth momentum from clients embracing our integrated marketing platform. Our financial objectives to ensure Quad remains a compelling long-term investment include:
• Net Sales growth and diversification into higher margin marketing services, as well as improved profitability through effective cost management, productivity improvements and automation investments.
• Generate strong Free Cash Flow and use it to continue to invest organically in our business and reduce debt with the expectation that we will end 2022 at a lower debt leverage ratio than we ended 2021.
• Further strengthen our balance sheet and liquidity through debt reduction to enhance our financial flexibility to further accelerate and scale our strategy as a marketing solutions partner, and drive shareholder value.
As we look ahead to 2022, we will continue to accelerate our competitive position, scaling our unique platform to innovatively address our clients’ ever-changing needs. We will expand our relationships with existing clients, providing them with more products and services, while also adding new clients who are looking for a partner with a complete through-the-line marketing offering. We also expect to expand in established and emerging verticals, driven by our integrated marketing platform that removes friction throughout the marketing process. Our focus remains clear: helping brands and marketers reduce complexity, increase efficiency and enhance marketing spend effectiveness while creating a better, more purposeful and sustainable way forward for all our stakeholders.
J. Joel Quadracci
Chairman, President &
Chief Executive Officer