To Our Shareholders
2020 was a year of unprecedented challenges due to the global pandemic, but we responded with speed and agility, and addressed those challenges head-on, building on our established track record of navigating change and disruption.
Early on in the pandemic, we took swift action to offset the impacts so we could maintain our focus on running the business well. Our consistent and strong operating performance delivered solid full-year results with higher Adjusted EBITDA margin and cash flow. At the same time, we were able to reduce debt by $184 million.
In 2020, we pivoted from transforming the company to advancing our competitive position as a worldwide marketing solutions partner. We continued to strengthen and expand our existing marketing, consulting, creative and technology capabilities, and added experienced talent with marketing and consulting expertise. Accordingly, we have built a singular integrated marketing platform that uncomplicates marketing to deliver more for brands and marketers through:
- Reducing the complexity of working with multiple agency partners and vendors;
- Increasing efficiencies through process optimization and content production; and
- Enhancing marketing spend effectiveness across all media channels.
Our platform is unique in the marketplace. We help clients strategically plan, produce, deploy, manage and measure content across multiple channels—rapidly, at scale, and without the handoffs that compromise quality, consistency and timeliness. A distinguishing feature of our platform is our industry-leading printing and distribution capabilities for retail advertising inserts, catalogs, direct mail, consumer packaging, and in-store displays and signage. No other agency, holding company or organization offers these capabilities integrated with digital, mobile and broadcast channels.
Due to our commitment to platform excellence and innovation, we are winning work from some of the world’s most valued—and valuable brands across consumer technology, healthcare, finance, consumer-packaged goods and more. These brands—admired for the trust they have built with their clientele—have placed their trust in us to help solve their marketing and process challenges. As a result, we have been able to expand into higher value areas of our clients’ businesses.
At the same time, we continue to advance our commitment to culture and social purpose—a priority for us since my father founded Quad 50 years ago in 1971. We have always sought to conduct business with meaningful purpose, knowing it’s possible to do well as a company while also doing good in our communities and for the environment.
For example, at this time of heightened awareness about social issues, we have elevated our commitment to diversity, equity and inclusion. In 2020, we launched a multi-faceted learning and development program for leaders and employees on this important topic. We also continue to support the expansion of employee-led Business Resource Groups, which offer support and development for women, military veterans, LGBTQIA+ and Black employees and their allies. In Milwaukee, we are partnering with community organizations to connect underserved populations with education, training, transportation and jobs.
We are also catalyzing change in the marketing and advertising industries to bring diverse voices into the creative profession. This includes investments in The BrandLab, which provides young people from diverse ethnic and socioeconomic backgrounds with exposure to viable careers in the creative profession, and the Brandcenter at Virginia Commonwealth University, which offers diverse students education in the fields of advertising, marketing, branding and communications.
While 2020 was a challenging year, we were unwavering in our commitment to find new ways to drive segment share gains, improve productivity, reduce fixed and variable costs, reduce debt and maintain liquidity while keeping our employees safe and serving our clients well.
We continued to optimize our product portfolio, completing the divestiture of our Book platform. The divestiture supports our strategy as a marketing solutions partner to shift from standalone product lines that do not lend themselves to an integrated marketing solutions offering for our clients. We generated $69 million in cash from the divestiture of non-core assets and, when combined with our strong operating and cash flow performance, enabled us to reduce debt by $184 million in 2020.
Net sales in 2020 decreased 25% to $2.9 billion primarily due to the economic impact from the COVID-19 pandemic, and ongoing print industry volume and pricing pressures. Since the peak of the pandemic’s impact on net sales in the second quarter of 2020, quarterly net sales have continued to sequentially improve as our operating environment continues to strengthen.
Net loss from continuing operations was $107 million as compared to $56 million in 2019. Non-GAAP Adjusted EBITDA was $260 million as compared to $335 million in 2019, and Non-GAAP Adjusted EBITDA margin increased to 8.9% as compared to 8.5% in 2019. Notably, Non-GAAP Adjusted EBITDA margin increased 35 basis points, driven by cost savings initiatives that more than offset the relative percentage decline in net sales.
Net cash provided by operating activities was $190 million, an increase of $35 million from 2019 primarily due to $40 million of income tax refunds received during the third quarter of 2020 related to the CARES Tax Act. Non-GAAP Free Cash Flow was $129 million, an increase of $23 million from 2019, primarily due to a $50 million decrease in capital expenditures, partially offset by a $27 million decrease in cash earnings.
We ended 2020 with a Debt Leverage Ratio of 3.35x. While this leverage ratio is above our long-term target leverage range of 2.0x to 2.5x, we were able to reduce debt by $184 million despite the economic headwinds created by the pandemic.
We believe our significant liquidity, strong lender relationships, agile approach to cost management and ability to help clients during and after the pandemic as a marketing solutions partner will help provide substantial financial flexibility on into the future.
2021 Financial Objectives
In 2021, we will continue to closely monitor the COVID-19 pandemic and its impact on our clients and the worldwide economy, and will adjust our priorities to support our financial objectives to ensure Quad remains a compelling, long-term investment. These priorities include:
- Exit the pandemic positioned to increase earnings through net sales growth and higher margin marketing services, as well as through effective cost management and productivity improvements.
- Generate strong Free Cash Flow and use it—along with cash generated from asset sales—to continue to invest organically in our business and reduce debt with the expectation that we will end 2021 at a lower debt leverage ratio than we ended 2020.
- Strengthen our balance sheet and liquidity through debt reduction to provide financial flexibility for changing circumstances while continuing to advance our strategy as a marketing solutions partner.
As we enter 2021—our milestone 50th anniversary year—we will continue to build on our established track record of navigating change and disruption. We have faced challenges before, and we know how to manage through adversity. This experience will serve us well as we adapt to a future where certain aspects of our work may be conducted differently. We are confident in our talented, resourceful team; our strategy, which capitalizes on our competitive advantages of platform excellence, innovation and culture and social purpose; and our future as a marketing solutions partner that uncomplicates marketing and delivers more for our clients.
J. Joel Quadracci
Chairman, President &
Chief Executive Officer