Quad/Graphics, Inc.: Form 10-K for the period ended Dec 31, 2023

Overview

Quad is a global marketing experience (MX) company that helps brands make direct consumer connections, from household to in-store to online. The Company is focused on providing a better marketing experience for its clients, so they can focus on delivering the best customer experience to theirs. Quad does this with a suite of marketing solutions that is flexible, scalable and connected. Supported by state-of-the-art technology and data-driven intelligence, these solutions are designed to streamline the complexities of marketing and remove friction from wherever it occurs in the marketing journey. Quad tailors its solutions to its clients’ objectives, driving cost efficiencies, improving speed to market, strengthening marketing effectiveness, and delivering value on their investments.

Quad’s footprint spans 14 countries, including 43 manufacturing and distribution facilities and more than 70 client dedicated teams. The Company supports a diverse base of approximately 2,700 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 prides itself on its long-standing relationships, with its largest clients averaging more than 22 years in duration. In 2023, its 10 largest clients accounted for approximately 19% of consolidated sales, with none representing more than 5% individually.

Quad was founded in Pewaukee, Wisconsin, as a Wisconsin corporation, in 1971 by the late Harry V. Quadracci. For many years, the Company operated as Quad/Graphics and focused on commercial printing. It grew rapidly and built a premier print manufacturing and distribution platform. Beginning in 2018, the Company accelerated its transformation to an MX company through strategic investments in marketing services, talent and technology, and, in 2019, evolved its brand from Quad/Graphics to Quad. Today, Quad is one of the nation’s largest marketing services providers, ranked as the 14th largest agency company in the U.S. by Ad Age (2023), and is the second-largest commercial printer in North America, according to Printing Impressions (2023).

Quad’s unique engagement model complements a brand’s way of working. Whether as a full-service marketing partner, an outsourced extension of a marketing department or as executional support in conjunction with a brand’s agency, the Company’s connected capabilities, breadth of expertise and expansive reach enables Quad’s clients to:

• Target the right audience segments at the right time in the right channels based on insights from Quad’s large, proprietary data stack;
• Deliver and execute against a more streamlined end-to-end marketing process for greater speed and agility, better data utilization and improved customer engagement;
• Leverage Quad’s experience in offline, physical touchpoints to drive omnichannel effectiveness;
• Streamline complexity at scale across the marketing supply chain with proven production and logistics capabilities;
• Enable scalable, complex, cross-channel activation while offering real-time automation and optimization.

In 2023, the Company focused on delivering strong financial results while navigating multiple issues in the macroeconomic environment, including an uncertain economy, postage cost increases on print mailings, inflationary cost pressures and rising interest rates. Despite these challenges, Quad worked to mitigate impacts on its business while proactively managing client expectations. The Company also continued its focus on three major growth drivers: delivering integrated service excellence, accelerating market penetration and leveraging its culture as an MX company. Quad believes it will be able to maintain a leading competitive position through its consistent long-term business strategy, which is driven by dedicated, passionate and highly skilled employees, and by providing stability and innovative solutions for clients into the future.

More information regarding Quad is available on the Company’s website at quad.com. Quad is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are made available to the public at no charge through a link appearing on the Investor Relations section of the Company’s website. Quad provides access to such materials through its website as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.

Principal Capabilities

The Company’s suite of flexible, scalable and connected solutions addresses the pain points brands and marketers experience most frequently when creating and deploying content and campaigns.

Intelligence

Quad’s intelligence capabilities comprise audience identification and segmentation, testing, media optimization and media mix modeling services that empower smarter decisions to maximize marketing effectiveness and generate quantifiable impact.

• Audience identification and segmentation services leverage the Company’s proprietary data stack, comprised of consumer data from more than 117 million households, to identify potential consumers, matching their demographic details, behaviors and interests with other factors such as a client’s desired marketing spend, location footprint and business objectives. Equipped with these data-driven insights, clients can strategically target their marketing efforts to drive engagement and spur consumer action.
• Testing services, such as Quad’s proprietary Accelerated Marketing Insights platform, assist clients in identifying the most impactful marketing decisions by using a unique combination of high-level mathematics and social factors to predict the best combination of offer, messaging and imagery across channels – both offline and online.
• Media optimization services include Quad’s proprietary, award-winning media optimization platform, Connex, which offers cross-channel insights, proactive intelligence and automated optimization capabilities that enable clients to make data-backed decisions in real time to drive campaign performance. The platform takes the guesswork out of media placement, unifying and normalizing client marketing data to uncover performance trends by audience, creative, product, location and more.
• Media mix modeling services help clients understand the revenue that can be attributed to marketing spend during a given timeframe. By applying rigorous analytics to client data, Quad provides a detailed model that reflects the effectiveness of each channel in a campaign, detailing a client’s marketing return on investment and allowing them to make informed media placement decisions moving forward.

Creative

Quad’s creative services help clients increase engagement with their brands to accelerate business growth, supporting all channels through every step of the creative process, including strategy, brand design, campaign ideation, premedia, adaptive design and content creation. Informed by a combination of proprietary, client and other third-party data, Quad’s in-depth research on customer trends helps clients best define, design and position their brands. Applying this strategic brand work, the Company helps clients concept, direct and produce scalable creative content that attracts attention and elicits action. Creative services are powered by the Company’s marketing, advertising and creative talent, which includes creative directors, art directors, strategists, videographers, photographers, copywriters, computer generated imagery (CGI) artists, graphic designers and animation experts, among others. The Company’s network of 16 photography and video production studios execute content creation through in-studio and on-location services. Several of these studios operate directly within or near client facilities, leading to improved creative collaboration and streamlined workflows. Creative services are also backed by global production resources that provide around-the-clock service for quick-turn design and production support. For clients with their own creative content operations, the Company offers strategic process design services to identify and address process gaps, helping increase production efficiency, ensure consistent brand assets, and avoid time-consuming and costly rework.

Production

Quad offers a wide range of production capabilities for deploying content to offline and online channels. These capabilities include digital as well as print – a major point of differentiation among the Company’s competitive set. The Company’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. Leveraging 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 cost-savings. The Company streamlines the marketing process for clients through its network of in-house experts and capabilities for marketing and production outsourcing, sourcing and procurement of goods and services, and print and paper management. As a result, Quad’s clients can focus on other critical aspects of their business.

Media

Quad believes that every consumer touch point is a brand experience and that every experience has the potential to drive measurable business outcomes. Quad’s media services activate this philosophy by providing strategic omnichannel media planning and placement for a variety of industry-leading clients, managing hundreds of millions of dollars of media billings annually. All media solutions prioritize transparency and neutrality, so clients can feel confident that their media spend is supported by the best data, platform and partners for their unique needs to generate measurable impact. Quad’s Connections Planning identifies the audiences, messaging and channel placement best suited to drive business results. The service is rooted in a deep exploration of audience behavior, crafting an experience plan that helps clients choose the channels that will most effectively reach consumers with targeted messages in the moments they are most receptive and likely to engage. Each media plan includes a measurement framework that specifies how brands can best identify each channel’s success. Once a campaign is underway, Quad’s proprietary media optimization platform, Connex, provides real-time insights to further optimize media placement and increase marketing efficiency.

Technology

The Company’s client-facing technology solutions help brands connect marketing strategy, global content creation, analytics and personalized communications across offline and online channels. These tailored solutions rely on a people-process-technology approach that first analyzes a client’s current-state workflow and performance, with a particular focus on increasing accuracy, reducing waste and improving efficiencies. Once potential improvements have been identified, a dedicated team implements the tool(s) that will best streamline campaign cycle efforts and remove friction. These solutions work together with Quad’s creative and media offerings so that clients’ marketing efforts are scalable and relevant, driving optimal return on marketing spend across an ever-growing number of media channels.

Industry and Competition

Because of its one-of-a-kind integrated marketing platform, Quad competes in both the advertising and marketing services industry, and in the commercial printing industry. The Company’s breadth of connected solutions and its ability to both strategically consult and execute results at scale, positions Quad in a unique space beyond that of just a manufacturer or traditional agency. This positioning expands the Company’s competitive set to include large agency holding companies, independent agencies, marketing consultants, as well as print management firms and commercial printers.

Advertising and Marketing Services

The advertising and marketing services industry is highly fragmented, and competition is based on adapting quickly to new advertising platforms and technology, developing comprehensive proposals to secure client contracts, creating unique and effective multichannel marketing campaigns, demonstrating spend effectiveness by monitoring and reporting on clients’ marketing campaign results, providing favorable pricing, accessing talent and offering superior customer service.

Consumer media consumption habits are constantly evolving. The ongoing emergence of new marketing channels — including social media platforms and connected TV advertising — has caused audiences to become increasingly segmented. As a result, advertising and marketing services 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.

Commercial Printing

The commercial printing industry also remains highly fragmented, with competition based on pricing; availability of materials, including paper (which may be more limited in the future as a number of mills reduce graphic paper production capacity in favor of other product lines, such as packaging); quality; distribution capabilities; customer service; access to labor, especially highly skilled labor; availability to schedule work on appropriate equipment; on-time production and delivery; and ability to maintain and adopt state-of-the-art technology to meet a client’s business objectives.

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. This excess capacity has allowed certain larger competitors like Quad, with economies of scale, strong balance sheets and access to capital markets, the ability to invest in automation and more efficient equipment; take advantage of consolidating acquisition opportunities to remove excess, inefficient and/or underutilized capacity; and reduce overall costs.

Seasonality

Quad is subject to seasonality in its quarterly results as net sales and operating income are higher in the second half of the calendar year as compared to the first half of the calendar year. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities and Free Cash Flow due to the reduction of working capital requirements that reach peak levels during the third quarter. Seasonality is driven by increased catalogs and retail inserts primarily due to back-to-school and holiday-related advertising and promotions. The Company expects seasonality impacts to continue in future years.

Competitive Advantages

Quad’s suite of marketing solutions is powered by three primary competitive advantages that the Company believes distinguish it from its competitors: integrated marketing platform excellence, ongoing innovation, and culture and sustainable impact.

Integrated Marketing Platform Excellence

Quad’s integrated marketing platform encompasses all the resources brands and marketers need to plan, create, deploy, measure and optimize their marketing efforts across all media channels — from household to in-store to online. Accordingly, the Company can guide clients through every effort intended to drive an action, from consumer awareness and trust, to brand preference and purchase.

Print and Distribution Capabilities

While Quad’s manufacturing operations are the most capital-intensive part of its integrated marketing platform, they constitute a key point of differentiation from consulting firms, traditional creative agencies and agency holding companies. Traditional agencies or agency holding companies develop creative and then outsource production while traditional consulting firms provide strategy and then outsource implementation. Quad, however, is able to strategize, create and execute all campaign elements across all channels using its own internal resources.

Within its manufacturing operations, the Company benefits from managing several very large facilities (greater than one million square feet) that produce multiple product lines under one roof, which maximizes utilization of equipment and labor resources while also driving savings in certain product lines (such as publications and catalogs) due to economies of scale. The Company continually strengthens its manufacturing operations through leading-edge technologies such as digital presses that enhance targeted print products and wide-web presses that maximize labor productivity; advanced equipment and automation, including automated guided vehicles and robotic palletizers that support high-quality, low-cost production; and its own global production resources that provide around-the-clock service for tasks like page assembly, retouching, color correction and design to reduce print job turnaround times.

In addition to the scale of its manufacturing operations and ongoing investments in technology, Quad’s ability to address postage rate increases sets the Company apart from its competition. Postage rates are a significant component of many clients’ cost structures, and Quad believes that postal costs directly influence clients’ print and mail quantities. Quad offers clients an array of postage optimization programs that lead to significant client cost savings. Several of these programs integrate directly with the United States Postal Service (“USPS”). For instance, the Company operates the print industry’s largest co-mail program (based on information published or otherwise made available from competitors), which expedites distribution by sorting and bundling multiple printed products at once in exchange for work-sharing discounts.

Client Dedicated Teams

A key aspect of the Company’s integrated marketing platform is the client dedicated on-site and near-site teams it employs. These teams serve as an extension of a client’s internal marketing department, fulfilling critical execution roles ranging from content creation and creative production to marketing deployment in all channels. All of this is executed to maximize production efficiencies, creating content that is adaptive across channels and easily templated and automated and, therefore, scalable. Quad’s on-site and near-site teams also offer seamless access to additional services and subject matter experts across the Company, removing handoffs and associated friction in the client’s marketing process. Quad’s dedicated team model simplifies marketing for clients and enables them to focus on what they do best: selling more products, services and/or content. Quad has more than 500 professionals embedded within more than 70 client dedicated on-site and near-site teams including several photography and video production studios. These teams support a range of clients, including those in grocery, sporting goods, mass merchandise and publishing.

Ongoing Innovation

Quad’s ongoing innovation drives its purpose to create a better way for its stakeholders. While the Company challenges each of its employees to think differently through its core Value of “urgently innovate,” its disciplined approach to product development and innovation (PDI) identifies major innovation opportunities that can materially impact the Company’s revenue and margins. Led by an interdepartmental committee of leaders, this process focuses on solutions that either close a gap or meet an underserved need in the marketplace, or provide significant time and cost efficiencies to internal workflows. This organized approach to innovation ensures the Company is able to balance the short-term needs of the business with long-term growth opportunities provided by investments in new technology, capabilities and services.

Key areas of innovation that differentiate Quad from its competitors include the following:

Data

Powered by its extensive print manufacturing business, Quad possesses a large data stack that represents approximately 89% of U.S. households. The Company matches clients’ data files with its curated database of household addresses, ensuring that insights connect to real consumers, not just faceless email addresses. Quad uses these insights to derive household-level “passion scores” that highlight the interests of that household, which inform target audience identification. Over an 18-month span, Quad sent an average of 39 mail pieces on behalf of clients to each of the 117 million households it reaches (according to internal data from June 2022 to December 2023). This frequency of interaction ensures that the Company’s data stack remains relevant, providing meaningful insights to help clients make the most of their marketing budgets. As the federal government increases regulations on data privacy, and sources of data such as third-party cookies begin to disappear, Quad anticipates marketers will place a premium value on its privacy-compliant household data. Led by experts in the field, Quad is investing in several applications of its differentiated data stack to help clients enhance audience insights and segmentation to optimize their marketing spend.

In-Store Experience

Quad helps clients think differently about the in-store experience by combining in-depth research with leading-edge testing to produce strategic insights on consumer behaviors, and then designing and executing innovative signage and displays that amplify brand awareness and generate consumer engagement.

Through its proprietary InVision testing platform, Quad offers:

• Virtual concepting of in-store campaigns through digitally rendered store environments;
• Predictive analytics that calculate the probability of where consumers are most likely to focus when looking at signage or a display; and
• Display evaluation to verify the effectiveness of a client’s product messaging and creative design via feedback from a panel of shopper marketing experts.

Quad understands that in-store signage and product packaging work together to inform a consumer’s purchasing decision. Complementing the Company’s InVision testing platform is Package InSight, a solution that applies advanced biometric research capabilities to evaluate brand packaging performance, consumer attention and shelf impact. Package InSight uses the latest in biometric technology, such as mobile eye-tracking, facial coding and brain activation, to assess a packaging’s design effectiveness in an actual shopping environment. In 2024, the Company plans to expand its testing capabilities by opening a retail and brand innovation center in its West Allis, Wisconsin, manufacturing facility. The space will visually tell the story of Quad’s marketing experience offering for brick-and-mortar retailers and consumer packaged goods (CPG) companies, and will include three mock retail environments – a general testing area, a cosmetics and beauty space, and a CPG and grocery section – all customizable for client visits.

Quad’s ability to bring a client’s most complex design concepts to life is another key differentiator for the Company. Quad’s In-Store team creates and executes on a wide range of products, such as temporary end cap displays, semi-permanent store-within-a-store setups, and outdoor permanent signage, among others, in substrates such as wood, metal, acrylic, plastic or paper board. Once a concept has been rendered, engineered and prototyped, Quad is able to either manage or manufacture the work itself, and handle deployment and distribution.

In 2023, Quad acquired DART Innovation (“DART”), a company specializing in in-store digital media solutions. The Company aims to use DART’s expertise and capabilities to establish in-store retail media networks (RMNs) for brands at mid-sized retailers. In-Store RMNs, like online RMNs, are useful to individual brands for reaching and engaging shoppers. This acquisition expands Quad’s in-store capabilities with a dynamic digital solution at the shelf.

Technology Solutions

Given artificial intelligence’s (AI) generational leap over the past year, Quad has amplified its AI focus across the Company. In 2023, the Company formed a cross-functional AI steering committee composed of Quad executives and technology experts to explore new ways to apply generative AI across its internal workflows and client-facing solutions. The group spearheaded an enhanced policy to address emerging use cases and associated business risks. The steering committee established a robust methodology to test, harden and implement AI use cases. Quad’s expanded focus on generative AI is built upon decades of leveraging AI-driven robotic process automation and cognitive insights at the Company.

Quad’s technology solutions underpin many of the capabilities that make up Quad’s integrated marketing platform. This includes supporting retail media networks, in which Quad recently invested through its acquisition of DART (as described above in “In-Store Experience”).

Internally, Quad incorporates advanced technologies in its workflows to maintain its execution excellence. For example, the Company’s manufacturing operations leverage a proprietary enterprise resource planning system (known as Smartools®) to provide real-time information flow across all facets of print production and deployment — from print sales and estimating to production planning, scheduling, manufacturing, warehousing, logistics, invoicing, reporting and customer service.

Culture and Sustainable Impact

For more than 52 years, Quad has operated as a company with a soul, believing it can do good in the world while doing well as a business. The Company’s long-standing focus on “creating a better way” reflects its “maker” culture where employees not only envision solutions, but actually create and execute them. This approach has been a hallmark of the Company’s culture since its founding and has inspired creativity in how it addresses environmental issues, social issues and corporate governance, and contributes to good corporate citizenship. The Company details its progress on driving positive, sustainable impact annually in its Environmental, Social and Governance (ESG) report*, which includes metrics, programming details and advancements on its environmental and social commitments, multiple of which were achieved in 2023. Further, the Company believes that its distinct corporate culture, which evolved from a core set of Values conceived by the Company’s late founder, Harry V. Quadracci, drives thoughtful decision making, especially around its disciplined approach to managing operations and innovating solutions for clients, better positioning the Company to succeed and grow in a dynamic marketplace.

*Quad is not including the information contained on or available through its website as part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

Environmental

Quad seeks to operate in an environmentally responsible manner that better serves the environment and reflects the values of its clients and their customers. The Company’s environmental efforts promote sustainable resource consumption, focusing on the following areas:

• Recycling: Quad applies a mentality of refuse, reduce, reuse and recycle throughout its internal processes to limit the amount of waste it creates. In 2022 (the most recent year for which data has been tabulated), the Company’s U.S. manufacturing facilities recycled more than 98% of their industrial wastepaper and other solid waste.
• Energy and Emissions: The Company participates in nationwide and statewide programs to enhance its efforts to reduce energy usage and carbon emissions. These include being a founding partner of the U.S. Department of Energy’s Better Plants Program, being ISO 50001 Ready through the U.S. Department of Energy at some of its largest manufacturing plants, and participating in the State of Wisconsin’s Focus on Energy Program.
• Hazardous Waste: Quad mitigates the dangers associated with hazardous waste through comprehensive chemical and hazardous waste management processes, including safe handling practices, and finding ways to reduce the use of chemicals and solvents.
• Responsible Forestry: The Company maintains chain-of-custody certifications for sourcing materials from responsibly managed forests (i.e., Forest Stewardship Council®, Sustainable Forest Initiative, and Program for the Endorsement of Forest Certification) and partners with clients to increase certified paper usage. In 2022 (the most recent year for which data has been tabulated), nearly 80% of all the Company’s printed products and packaging were sustainably sourced from certified third-party organizations.

The Company benchmarks its environmental performance regularly to evaluate the effectiveness of current environmental management programs and to identify program areas that need improvement or need to be developed.

As the owner, lessee or operator of various real properties and facilities, Quad is subject to various federal, state and local environmental laws and regulations, including those relating to air emissions; waste generation, handling, management and disposal; sanitary and storm water discharge; and remediation of contaminated sites. Historically, compliance with these laws and regulations has not had a material adverse effect on the Company’s results of operations, financial position or cash flows. Compliance with existing or new environmental laws and regulations may require the Company to make future expenditures.

Human Capital Management

The Company continually invests in and supports its employees and the areas in which it operates. Highly qualified, skilled and knowledgeable talent and strong community partnerships are key to Quad’s success as a marketing experience company.

Attracting, Developing and Retaining Highly Qualified Talent

Given Quad’s belief that its talent stands as a major differentiator among its competition, the Company invests heavily in efforts to attract, develop and retain employees, and in tools, technologies, processes, training and education to increase engagement, and drive productivity enhancements and efficiencies across the entire organization.

As of December 31, 2023, the Company had approximately 13,150 full-time equivalent (“FTE”) employees in the following geographies:

Quad focuses on the following key areas to attract, develop and retain highly qualified talent:

• Competitive Pay and Innovative Benefits: Employees are hired into jobs with competitive wages and innovative benefits. The Company regularly evaluates its pay practices and structures to ensure it is competitive in the markets where it operates, and equitable based on employees’ experience, job responsibilities, performance and business results. Beyond traditional, expected benefits, such as paid vacation time and holidays, a 401(k) retirement savings program with annual discretionary Company match, short- and long-term disability insurance, and employer-paid life insurance, the Company offers expansive health and wellness benefits, including:
• QLife Wellness, a program that provides educational resources, interactive webinars and regular communications around physical, emotional, financial and social well-being topics. For instance, the program partners with Quad’s Total Rewards team and external vendors to provide employees with retirement planning, financial wellness webinars and one-on-one meetings so they can strategically plan for their financial futures.
• QuadMed, the Company’s wholly owned health and wellness subsidiary, provides a differentiated set of benefits for Quad employees and dependents through:
• On-site and near-site primary and specialty healthcare, pharmacy, dental, vision and physical therapy services, and fitness centers at several large-scale employee locations.
• No-cost virtual primary care across nearly all 50 states that allows patients to connect regularly with the same doctor, building the level of trust and connection they’ve come to expect from in-person care.
• Nationwide behavioral health program with in-person and virtual counseling through licensed therapists.

Beyond Quad itself, QuadMed provides worksite healthcare solutions nationally for approximately 30 employers of all sizes and across multiple industries, including private and public sector employers. External services include on-site, near-site and virtual health delivery of comprehensive primary and preventive care, condition management, wellness programs and coaching, physical therapy, behavioral health, pharmacy services, occupational health and more.

• Career Training and Growth: Employees are encouraged to take advantage of the Company’s focus on employee growth and development, which not only teaches critical on-the-job and leadership skills, but also helps them respond to rapid change, cultivate effective networks, and create high-quality relationships necessary for personal, professional and Company growth. Multiple programs offer employees accelerated responsibility and pay, including Accelerated Career Training, which provides a fast-track for career advancement in manufacturing positions; Leading Within Quad, which focuses on best-in-class managerial behaviors; Corporate Trainee Program, which develops skills and leadership abilities through a series of agency and corporate administration rotations; and hands-on, mentor-led manufacturing apprenticeship programs. The Company also provides all employees with training focused on expanding cultural awareness, recognizing commonalities and differences across cultures, and adapting as appropriate – critical skills which help support employee retention, collaboration and productivity.
• Employee Recognition: Regularly acknowledging the hard work employees demonstrate every day is an important component of Quad’s culture and retention strategy. Recognition occurs through annual traditions, such as celebrating milestone years of service, especially one’s 10th year of service, during which an employee joins Quad’s Founders’ Circle – a tradition begun by the Company's founder to honor the dedicated work long-time employees do to push the Company forward every day. Various additional recognition programs aim to spur employee pride, such as the quarterly Safety Cup Award for manufacturing plants that achieve low Days Away, Restricted, or Transferred (DART) rates, low cost-per-hour rates and high safety test scoring. Manufacturing locations also participate in a quarterly engagement and retention award program that highlights plants’ initiatives to create an engaging workplace through employee and family events; and community outreach activities.
• Employee Feedback: The Company recognizes that when employees feel heard and supported, they are more likely to stay and put forth their best work. To foster an engaged workforce, the Company offers multiple avenues to provide feedback so the Company can better understand what is working well and what can be improved. Examples include:
• Surveys: Quad conducts an annual, U.S.-wide engagement survey in addition to “pulse surveys” to acquire feedback. Human Resources and Company leadership then meet to review and develop new and updated programs from this information.
• Open forums: Quarterly all-company town halls, in addition to department meetings, provide opportunities for employees to voice their thoughts and questions.
• Business Resource Groups (BRGs): The Company’s BRGs also help create a company culture that is empathetic and attentive to the needs of employees. The Company’s BRGs create spaces where employees of shared backgrounds and interests can come together to support each other and share their unique perspectives and feedback with Quad leadership. The Company currently has seven BRGs supporting women, military veterans and their families, differently abled employees and caregivers, the LGBTQIA+ community, Black employees, Hispanic / Latinx employees, and working parents.
• Inclusive Policy Review: Through its policies, the Company aims to create a safe and open environment where all Quad employees can bring their truest and best selves to work every day, consistent with the Company’s long-standing values. Quad regularly reviews its policies and aims to ensure all Company procedures, processes and distribution of resources create equal opportunities among its employees and fair and just outcomes.

Building Strong Communities

The Company believes partnering with local communities creates a catalyst for movement and change, which benefits those outside of Quad’s walls while helping the Company maintain a positive reputation as the kind of business people choose to work for, do business with, invest in and call a true neighbor. Supporting community activities, initiatives and organizations also demonstrates the Company’s Values in action, which fosters pride and employee engagement.

The four key objectives that drive the Company’s community impact from strategic investment of finances, volunteerism and in-kind services in community organizations are:

• Lessen the use of natural resources and impact on the environment;
• Provide academic and educational opportunities, and experiential learning for more people;
• Ensure that the diversity of Quad reflects the communities where its employees live and work, as well as the clients who trust Quad with their business; and
• Support programs that improve employees’ mental and physical health.

Corporate Governance

Effective corporate governance has been a part of Quad since its founding and is informed by the Company’s Values, especially “do the right thing,” which strengthens partnerships, reduces risk and creates sustainable value for the Company long term. Governance starts at the highest level of the Company with oversight by the Board of Directors, which is responsible for minimizing risk while maximizing the effectiveness of Quad’s business strategy. Key tenets of Quad’s governance strategy include:

• Family Leadership: As of January 31, 2024, the Quadracci family, through the Quad/Graphics, Inc. Amended and Restated Voting Trust Agreement (“Quad Voting Trust”), has voting control of approximately 73% of the Company’s outstanding shares. The Company believes this governing structure provides continued stability and flexibility to achieve its long-term strategic vision.
• Risk Management: Led by an executive risk steering committee, Quad’s Enterprise Risk Management program strategically identifies potential risks to the business and conducts appropriate response planning. Risk management is a highly collaborative process at Quad as cross-functional teams help recognize the ripple effects a situation could have across the Company’s interconnected operations.
• Employee Compliance: Employees are required to take an active role in ethics and compliance. Each year, all employees take a suite of compliance trainings on topics that include the Code of Conduct, anti-harassment, conflict of interest, Customs-Trade Partnership Against Terrorism (C-TPAT), data privacy, Health Insurance Portability and Accountability Act of 1996 (HIPAA), information security, physical security, acceptable use policy for technology assets, and anti-bribery and anti-corruption. Employees can discreetly report violations to the Code of Conduct through multiple easy-to-use channels, including a 24/7 anonymous Ethics and Compliance Hotline.
• Supplier Code of Conduct: The Company maintains a Supplier Code of Conduct to ensure suppliers, vendors, contractors, consultants, agents and other providers of goods and services follow the Company’s policies related to business integrity, ethical labor and human rights practices, associate health and safety, and environmental management. This code also includes anti-corruption and anti-bribery policies.
• Data Security: Quad continually updates and strengthens its information and data security program to address the fast-changing threat landscape and ensure proper oversight. The program includes ongoing employee education to ensure the security of physical and digital workspaces, protect the privacy of valuable data, identify potential phishing and malware threats, and avoid risky behaviors.

Growth Strategy

As an MX company, Quad intends to expand its capabilities and develop its platform through executing on the three pillars of its growth strategy:

Deliver Integrated Service Excellence

Quad focuses on solving problems, and removing pain points and sources of friction wherever a client experiences them in the marketing process. Quad seeks to become an invaluable strategic marketing partner by helping its clients successfully navigate today’s constantly evolving media landscape through innovative, data-driven omnichannel solutions that are scalable and efficiently produced and deployed — from household to in-store to online. A key component of Quad’s client-facing strategy is to strengthen relationships at higher levels within a client’s organization so the Company can better understand, anticipate and satisfy the organization’s business objectives.

To serve clients’ disparate needs, Quad continues to make disciplined and compelling investments across its integrated marketing platform. These investments take many forms, including new equipment, technology and service capabilities. The Company also makes investments in its talent, such as hiring business professionals with transformation, innovation, and client-side marketing and consulting expertise to enhance its position as an MX company, as well as investments to attract new employees and increase existing employee engagement, retention and productivity.

As the Company has transformed its offering to better meet the needs of brands and marketers, it has also made strategic decisions to divest of businesses that could not be easily leveraged as part of its greater integrated marketing platform. These decisions free up cash flow for disciplined investments that the Company believes will lead to sustainable growth.

Accelerate Market Penetration

Quad’s ability to acquire new and expand existing account relationships is critical to the Company’s growth strategy. The Company has made significant strides in recent years, introducing a growing number of brands and marketers to its suite of solutions. The Company is particularly focused on expanding in key vertical industries where it believes the biggest opportunities for new business exist. These include commerce, including consumer packaged goods, direct-to-consumer and retail; financial services; and health. Key investments in 2023 to accelerate market penetration included:

• Fortifying business development efforts through strategic personnel hires in Sales, Sales Operations, Marketing and Agency Solutions to give the Company wider visibility as an MX company within its current client base, as well as with companies in its targeted growth verticals;
• Expanding awareness of Quad’s differentiated capabilities through a large-scale marketing and advertising effort centered on the campaign “Built on Quad”; and
• Providing brand visibility and thought leadership at global industry events, such as the Cannes Lions Festival of Creativity, the premier gathering of the global advertising and creative communications industry.

Leverage Culture as an MX Company

The Company’s culture continues to be a driver for growth as Quad accelerates its competitive position as an MX company. Core aspects of its unique culture are:

• Walk in the shoes of clients: Quad delivers service excellence by encouraging all employees, regardless of job title, to prioritize listening to clients’ needs and challenges, and do what they can to make it easy to work with Quad at every touchpoint.
• Empower employees: Quad continues to position itself as the workplace for the marketing industry’s best talent, and empowers its employees to think like owners and take responsibility for how they can help propel the business forward. By embracing employees’ unique perspectives and experiences, fostering a sense of belonging through inclusion, and providing growth opportunities through skill development and career advancement, Quad believes employees are more fully engaged in their day-to-day activities, producing better results for clients while helping grow the business.
• Continuously improve: Through its foundation in manufacturing, Quad’s has built a “maker” culture that embraces attention to detail, expert execution and a commitment to continuous improvement. All employees are encouraged to identify opportunities, however small, that can improve processes and create efficiencies. It’s this long-standing commitment to continuous improvement that enables Quad to confidently identify and remove friction from clients’ workflows.
• Collaborate to innovate: The close, personal relationships employees form with one another is a foundational aspect of Quad’s culture. The Company recognizes that the more effectively teams work together across the entire organization, the better it can serve its clients. Accordingly, Quad encourages employees to connect and collaborate with others both inside and outside of their immediate department and/or business area. Integrated workflows and inter-departmental collaboration speed the Company’s ability to innovate and evolve as an MX company.
• Communicate a unified vision forward: The Company sends timely, transparent communications to all employees through a variety of channels to maintain employee engagement and connectivity, and maintain trust. These communication efforts not only detail matters of personal importance (e.g., total rewards), but also keep employees informed on business operations and the Company’s strategic direction. By articulating the role that each business area plays in the Company’s suite of interconnected solutions, Quad crafts a unified vision that everyone can rally behind. Communication channels include InsideQuad, the employee intranet; executive blogs and video logs (vlogs); executive town halls; department meetings; “lunch and learn” events; email; in-plant electronic and print signage; and in-home mailings.

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 using Free Cash Flow and cash proceeds from any asset sales to continue reducing debt while investing in scaling the business as a marketing experience company to fuel net sales growth; driving profitability through sales growth; and pursuing opportunities to return capital to shareholders through stock buybacks or dividends.

To provide ongoing improvement in productivity and, ultimately, maximize operating margins, the Company 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 the 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 also allows it to maintain sufficient liquidity and to reduce refinancing risk. Quad is proud of its strong and trusted banking relationships, which provide the Company with increased financial flexibility to make strategic investments to accelerate its growth and drive profitability as a marketing experience company.

Patents, Trademarks and Trade Names

Quad operates research and development facilities that support the development of new equipment, process improvements, raw materials and content management, and distribution technologies to better meet client needs and improve operating efficiencies. The Company continues to innovate within the printing and print-related industry and, as a result, has developed what it believes to be one of the most powerful patent portfolios in the print industry.

Quad currently holds or has rights to commercialize a wide variety of worldwide patents and applications relating to its business. The Company intends to continue to file patent applications that it believes will help ensure the continued strength of the Company and its portfolio. Additionally, the Company markets products, services and capabilities under a number of trademarks and trade names. Quad aggressively defends its intellectual property rights and intends to continue to do so in the future.

Raw Materials

The primary raw materials that Quad uses in its print business are paper, ink and energy. At this time, the Company’s supply of raw materials are available from numerous vendors; however, based on market conditions, the current supply is under pressure due to supply chain shortages and higher than expected inflation. The Company generally buys these raw materials based upon market prices that are established with the vendor as part of the procurement process.

Approximately half of the paper used in the printing process is supplied directly by the Company’s clients. For those clients that do not directly supply their own paper, the Company makes use of its purchasing efficiencies to supply paper by negotiating with leading paper vendors, uses a wide variety of paper grades, weights and sizes, and does not rely on any one vendor. In addition, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies, as well as changes in the United States import or trade regulations, may have an impact on client demand for printed products. The Company’s working capital requirements, including the impact of seasonality, are partially mitigated through the direct purchasing of paper by its clients.

The Company produces the majority of ink used in its print manufacturing, allowing it to control the quality, cost and supply of key inputs. Raw materials for the ink manufacturing process are purchased externally from a variety of vendors.

The Company may not be able to fully pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations. The Company mitigates its risk through natural gas hedges when appropriate. In its logistic operations, however, the Company is able to pass a substantial portion of any increase in fuel prices directly to its clients.

Information About Our Executive Officers

The following table sets forth the names, ages (as of January 31, 2024) and positions of Quad’s executive officers.

Mr. J. Joel Quadracci has been a director of Quad since 2003, its President since January 2005, its President and Chief Executive Officer since July 2006 and its Chairman, President and Chief Executive Officer since January 2010. Mr. Quadracci joined Quad in 1991 and, prior to becoming President and Chief Executive Officer, served in various capacities, including Sales Manager, Regional Sales Strategy Director, Vice President of Print Sales, Senior Vice President of Sales and Administration, and President and Chief Operating Officer. He serves on the board of directors for Plexus Corp., Pixability, Inc., Road America, Inc., Children’s Hospital of Wisconsin, the National Association of Manufacturers, and the Metropolitan Milwaukee Association of Commerce. He also serves on the board of trustees for the Milwaukee Art Museum and on the advisory council of the Smithsonian National Postal Museum. Mr. Quadracci received a B.A. in Philosophy from Skidmore College in 1991. Mr. Quadracci is the brother of Kathryn Quadracci Flores, M.D., a director of Quad and President of QuadMed, the brother-in-law of Christopher B. Harned, a director of Quad, and the first cousin of Robert Quadracci, Chief Human Resources Officer.

Mr. Ashworth has served as Executive Vice President of Product and Market Strategy since joining Quad in 2015 and as President of Quad Agency Solutions since April 2016. Prior to joining Quad, Mr. Ashworth was President of SGK, Inc. (formerly Schawk, Inc.) from July 2012 to July 2015; Chief Growth and Strategy Officer of SGK from September 2009 to July 2012; and Global Chief Growth Officer of Anthem Worldwide (a division of SGK) from November 2003 to 2010. Prior thereto, Mr. Ashworth was Co-founder and President of BlueMint Associates from June 2002 through November 2003, after serving in various marketing roles at Fitch San Francisco, Addis Interaction, Levi Strauss & Co., Clorox, Colgate-Palmolive and National Semiconductor. Mr. Ashworth is a board member of Uniting Voices Chicago (formerly Chicago Children’s Choir) and The BrandLab, a nonprofit organization that works to increase diversity in the marketing industry.

Ms. Bauer has served as Vice President since January 2022 and Chief Accounting Officer since March 2017. She previously served as Director - Corporate Controller of Quad from May 2016 until March 2017 and then as Executive Director and Chief Accounting Officer until January 2022. She joined Quad in September 2011, serving as Director of Corporate Accounting until May 2016. Prior to joining Quad, Ms. Bauer held various accounting positions at Journal Communications, Inc., during her 18 years there, including Vice President and Controller from June 2000 until September 2011.

Ms. Currie has served as Executive Vice President and Chief Revenue Officer since November 2020. She previously served as Executive Consultant of FCM, LLC from 2019 to 2020. Prior thereto, Ms. Currie served in multiple senior leadership roles at Nielsen, a global leader in audience measurement, data and analytics, including as Senior Vice President, Global Retail Product Leadership from 2016 to 2019; as Senior Vice President, Global Loyalty Commercial Director from 2012 to 2016; as Senior Vice President, Global Business Services North America from 2008 to 2012; as Vice President, National Accounts Group Client Director from 2003 to 2007; and as Vice President, Group Client Director from 2001 to 2003. Ms. Currie serves on the board of directors of the Boys & Girls Club of Lake County, Illinois.

Mr. Golden has served as Chief Marketing Officer since July 2021. Prior to joining Quad, Mr. Golden was the President & Publisher of Ad Age from 2016 to 2021. Prior thereto, Mr. Golden served as Vice President, Global Digital Marketing for Xerox from March 2015 to June 2016; as Chief Marketing Officer of Story Worldwide from September 2011 to March 2015; as Chief Digital Officer of Grey Group from September 2010 to September 2011; as Managing Director, Digital of Havas from December 2007 to September 2010; as Group Director of Digital Marketing for NBC Universal from January 2006 to December 2007; and as Head of Digital at Young & Rubicam from November 2000 to January 2006.

Ms. Gruen has served as General Counsel, Corporate Secretary and Chief Risk & Compliance Officer since February 2023. Joining Quad’s legal department in 2007 as Employment Counsel, she advanced to Assistant General Counsel in 2014; Deputy General Counsel and Chief Compliance Officer in 2015; Vice President, Deputy General Counsel and Chief Compliance Officer in 2016; Vice President, Deputy General Counsel and Chief Compliance and Risk Officer in 2020; Senior Vice President, Deputy General Counsel and Chief Risk & Compliance Officer in 2022. Prior to joining Quad, Ms. Gruen was an associate at Foley & Lardner, Sonnenschein Nath & Rosenthal (now part of Dentons), and Seyfarth Shaw.

Mr. Honan has served as Executive Vice President and Chief Operating Officer since January 2022. His previous roles at Quad were Executive Vice President and Chief Financial Officer from January 2015 to December 2021; Vice President and Chief Financial Officer from March 2014 to January 2015; Vice President and Chief Accounting Officer from July 2010 to March 2014; Vice President and Corporate Controller from December 2009 to July 2010; and Corporate Controller from when he joined Quad in May 2009 to December 2009. Currently, he serves on the advisory board of FM Global. Prior to joining Quad, Mr. Honan served as Vice President, General Manager and Chief Financial Officer of Journal Community Publishing Group, a subsidiary of diversified media company Journal Communications Inc., for five years, and held executive-level roles in investor relations and corporate development at Newell Rubbermaid, a global marketer of consumer and commercial products. Prior thereto, Mr. Honan worked at the accounting firm Arthur Andersen LLP for 11 years.

Mr. Jaeger has served as Vice President and Chief Information Officer since November 2015. He previously served as Executive Vice President, President of Direct Marketing and Chief Information Officer from November 2014 to November 2015; as Executive Vice President, President of Direct Marketing and Media Solutions and Chief Information Officer from March 2014 to November 2014; as Corporate Vice President of Information and Technology since 2013; as Vice President of Information Systems and Infrastructure from 2007 to 2012; and as President of Quad/Direct from August 2007 until 2013. Prior thereto, Mr. Jaeger served as Quad’s Vice President of Information Systems from 1998 to 2006 and worked in various other capacities since he joined the company in 1994. Prior to joining Quad, Mr. Jaeger worked for Andersen Consulting for eight years.

Mr. McKenna has served as Executive Vice President and Chief Administrative Officer since January 2022. He previously served as Senior Vice President of Sales Administration from August 2018 to January 2022; Vice President of Sales Administration from June 2013 to August 2018; and Product Planning Manager from March 2010 to June 2013. Prior to joining Quad, Mr. McKenna worked at J.S. Eliezer Associates, a print consulting firm in Stamford, Conn., beginning in 1998 and was named President of the firm in 2004, the leadership role he maintained until joining Quad in 2010.

Mr. Robert Quadracci has served as Quad’s Chief Human Resources Officer since February 2023. Previously, he was Vice President of Human Resources - Sales, Marketing & Quad Agency Solutions from January 2022 to February 2023; Executive Director – Human Resources from 2014 to 2022; and Human Resources Director from 1999 to 2014. Prior to joining Quad, Mr. Quadracci worked at Edison International as a Project Manager, Workforce Management and Corporate Redeployment from 1992 to 1999. Mr. Quadracci is the first cousin of J. Joel Quadracci, Chairman, President and Chief Executive Officer of Quad, and Kathryn Quadracci Flores, M.D., a director of Quad and President of QuadMed.

Mr. Staniak has served as Chief Financial Officer since January 2022. Previously, he served as Vice President of Finance from March 2017 until January 2022. Joining the company in 2009 as Director of External Reporting, Mr. Staniak was subsequently named Director of Internal Audit in 2011; Executive Director – Financial Controller in 2013; Chief Accounting Officer in 2014; and Vice President and Chief Accounting Officer in 2015. Prior to joining Quad, Mr. Staniak was Chief Financial Officer of data consulting firm Sagence, Inc. He began his career at the accounting firm Arthur Andersen LLP in 1995. Mr. Staniak is a member of the Wisconsin Institute of Certified Public Accountants and is a member of the board of directors for the Zoological Society of Milwaukee and for the Volunteer Center of Washington County.

Mr. Vanderboom has served as Executive Vice President and Treasurer since 2018 and Head of Quad Agency Solutions Operations since March 2023. Mr. Vanderboom also serves on the board of Quad/Med and the advisory board of Rise Interactive, a Quad company, and provides executive oversight for Quad Paper Services. Since joining Quad in 1993, he has served in various leadership capacities, including Controller of Parcel Direct, a freight expediting subsidiary sold to FedEx in 2004; Treasurer, beginning in 2007; Vice President, beginning in 2008; Vice President of the Program Management Office (PMO) from 2012 to 2014 and 2019 to 2023; and President of Logistics from 2014 to 2023.

Executive officers of Quad are elected by and serve at the discretion of Quad’s Board of Directors. Other than described above, there are no family relationships between any directors or executive officers of Quad.

You should carefully consider each of the risks described below, together with all of the other information contained in this Annual Report on Form 10-K, before making an investment decision with respect to Quad’s securities. If any of the following risks develop into actual events, the Company’s business, financial condition or results of operations could be materially and adversely affected, and you may lose all or part of your investment.

Risks Relating to Quad’s Business, Operations and Industry

Decreases in demand for printing services caused by factors outside of the Company’s control, including the substitution of printed products with digital content, recessions and other macroeconomic conditions, as well as significant downward pricing pressure, may continue to adversely affect the Company.

The Company and the overall printing industry continues to experience a reduction in demand for printed materials and overcapacity due to various factors including the sustained and increasing shift of digital substitution by marketers and advertisers (to both replace and augment campaigns that were historically focused on print), as well as macroeconomic conditions and recessions (which severely impact print volumes and further accelerate the impact of media disruption). The impacts of overcapacity, as well as intense competition, have led to the Company experiencing significant downward pricing pressures for printing services in recent years and such pricing may continue to decline from current levels. Any future increases in the supply of printing services or decreases in demand could cause prices to continue to decline, and prolonged periods of low prices, weak demand and/or excess supply could have a material adverse effect on the Company’s business growth, results of operations and liquidity.

The media landscape is experiencing rapid change due to the impact of digital media and content on printed products. Improvements in the accessibility and quality of digital media through the online distribution and hosting of media content, mobile technologies, e-reader technologies, digital retailing and the digital distribution of documents and data has resulted and may continue to result in increased consumer substitution. Continued consumer acceptance of such digital media, as an alternative to print materials, is uncertain and difficult to predict and may decrease the demand for the Company’s printed products, result in reduced pricing for its printing services and additional excess capacity in the printing industry, and adversely affect the results of the Company’s operations.

The Company’s transformation to a marketing experience company increases the complexity of the Company’s business, and if the Company is unable to successfully adapt its marketing offerings and business processes as required by new markets and technologies, such as artificial intelligence, the Company will be at a competitive disadvantage and its ability to grow will be adversely affected.

As the Company continues to expand its integrated marketing platform, the overall complexity of the Company’s business continues to increase and the Company continues to become subject to different market dynamics. The new markets into which the Company is expanding, or may expand, may have different characteristics from the markets in which the Company historically competed. These different characteristics may include, among other things, demand volume requirements, demand seasonality, product generation development rates, client concentrations and performance and compatibility requirements. The Company’s failure to make the necessary adaptations to its business model to address these different characteristics, complexities and new market dynamics could adversely affect the Company’s operating results. In addition, with rapid changes in technology affecting the marketing and advertising industry, including generative artificial intelligence, the Company may not accurately predict trends, identify use cases, or make the technological adaptations or investments necessary to stay competitive in these new markets.

Changes in postal rates, postal regulations and postal services may adversely impact clients’ demand for print products and services.

Postal costs are a significant component of the cost structures of many of the Company’s clients and potential clients. Postal rate changes and USPS regulations that result in higher overall costs can influence the volume that these clients will be willing to print and ultimately send through the USPS.

Integrated distribution with the 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. 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 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 will potentially continue into the future. As a result of these financial difficulties, the USPS has continued to adjust its postal rates and service levels. Additional price increases may result in clients reducing mail volumes and exploring the use of alternative methods for delivering a larger portion of their products, such as continued diversion to the internet, digital and mobile channels and other alternative media channels, in order to ensure that they stay within their expected postage budgets.

The USPS offers “work-share” discounts that provide incentives to co-mail and place product as far down the mail-stream as possible. Discounts are earned as a result of less handling of the mail, and therefore, lower costs for the USPS. As a result, the Company has made substantial investments in co-mailing technology and equipment to ensure clients benefit from these discounts. If the incentives to co-mail are decreased by USPS regulations, the overall cost to mail printed products will increase and may result in print volumes declining.

Federal statute requires the Postal Regulatory Commission (“PRC”) to conduct reviews of the overall rate-making structure for the USPS to ensure funding stability. As a result of those reviews, the PRC authorized a five year rate-making structure that provides the USPS with additional pricing flexibility over the Consumer Price Index cap, which may result 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 and are expected to continue to do so in the future. This has led 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. The uncertainty as to how much of the authority the USPS will use on any specific rate increase also creates potential volume declines as rate predictability with respect to cost is no longer known for mailers. The result may be reduced demand for printed products as clients may move more aggressively into other delivery methods, such as the many digital and mobile options now available to consumers. The PRC has committed to reviewing the 5-year structure in 2024, but resulting rate reductions may take years to finalize.

The Company may be adversely affected by increases in its operating costs, including the cost and availability of paper, ink components and other raw materials, parts for equipment, labor-related costs, fuel and other energy costs and freight rates.

The primary raw materials that the Company uses in its print business are paper, ink and energy. The price of such raw materials has fluctuated over time and has caused fluctuations in the Company’s net sales and cost of sales. This volatility may continue and the Company may experience increases in the costs of its raw materials in the future as prices in the overall paper, ink and energy markets are expected to remain beyond its control. The price and availability of paper may also be adversely affected by paper mills’ permanent or temporary closures, and mills’ access to raw materials, conversion to produce other types of paper (which a number of paper mills have done or are doing), and ability to transport paper produced. The price and availability of ink and ink components may be adversely affected by the availability of component raw materials, labor and transportation.

Approximately half of the paper used by the Company is supplied directly by its clients. For those clients that do not directly supply their own paper, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies may have an impact on client demand for printed products. If the Company passes along increases in the cost of paper and the price of the Company’s products and services increases as a result, client demand could be adversely affected, and thereby, negatively impact the Company’s financial performance. If the Company is unable to continue to pass along increases in the cost of paper to its clients, future increases in paper costs would adversely affect its margins and profits.

Due to the significance of paper in the Company’s print business, it is dependent on the availability of paper. In periods of high demand, certain paper grades have been in short supply, including grades used in the Company’s business. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of clients. Additionally, the declining number of paper suppliers has resulted in a contraction in the overall paper manufacturing industry. This contraction of suppliers may cause overall supply issues, may cause certain paper grades to be in short supply or unavailable, and may cause paper prices to substantially increase.

Although historically the Company generally has not experienced significant difficulty in obtaining adequate quantities of paper, continued decline in suppliers, changes in United States import or trade regulations, or other developments in the overall paper markets could result in a decrease in the supply of paper and could adversely affect the Company’s revenues or profits. In addition, the Company may not be able to resell waste paper and other by-products or the prices received for their sale may decline substantially.

The Company is dependent upon the vendors within the Company’s supply chain to maintain a steady supply of inventory, parts for equipment and materials. Many of the Company’s products are dependent upon a limited number of vendors, and significant disruptions could adversely affect operations (including labor pressures, distribution challenges, recessionary concerns and other macroeconomic conditions). Under current market conditions, it is possible that one or more of the Company’s vendors will be unable to fulfill their operating obligations due to financial hardships, liquidity issues or other reasons.

The Company may not be able to fully pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations.

Labor represents a significant component of the cost structure of the Company. Increases in wages, salaries and the cost of medical, dental, pension and other post-retirement benefits have in the past and may continue to impact the Company’s financial performance. Changes in interest rates, investment returns or the regulatory environment have and may continue to impact the amounts the Company will be required to contribute to the pension plans that it sponsors and may affect the solvency of these pension plans. The Company may be unable to achieve labor productivity targets, to retain employees or labor may not be adequately available in locations in which the Company operates, which could negatively impact the Company’s financial performance.

Freight rates and fuel costs also represent a significant component of the Company’s cost structure. In general, the Company has been able to pass along increases in the cost of freight and fuel to many of its clients. If the Company is not able to pass along a substantial portion of increases in freight rates or in the price of fuel, future increases in these items would adversely impact the Company’s margin and profits. If the Company passes along increases in the cost of freight and fuel and the price of the Company’s products and services increases as a result, client demand could be adversely affected, and thereby, negatively impact the Company’s financial performance.

Macroeconomic conditions could have a material adverse impact on the Company’s business, financial conditions, cash flows and results of operations.

Macroeconomic conditions, including inflation, high interest rates and recessionary concerns, cost and labor pressures, distribution challenges and the price and availability of paper, have had, and may continue to have, a negative impact on the Company’s business, financial condition, cash flows and results of operations. For instance, the Company was negatively impacted in 2023 by rising interest rates and the increasing cost and availability of raw materials (such as paper, ink and supplies), distribution and labor. In addition in 2023, the Company experienced certain distribution challenges, including, but not limited to, delivery delays at the USPS and recent volume restrictions at the United Parcel Service, Federal Express and certain local couriers, which negatively impacted the Company.

Demand for the Company’s products and services, in general, is highly related to general economic conditions in the markets the Company’s clients serve. Declines in economic conditions in the United States or in other countries in which the Company operates, including as a result of macroeconomic conditions, recessionary concerns and/or geopolitical events, may adversely impact the Company’s financial results, and these impacts may be material. Economic weakness and constrained advertising spending have resulted, and may in the future result, in decreased revenue, operating margin, earnings and growth rates and difficulty in managing inventory levels and collecting accounts receivable. The Company has experienced, and expects to experience in the future, excess capacity and lower demand due to economic factors affecting consumers’ and businesses’ spending behavior, including as a result of macroeconomic conditions, recessionary concerns and/or geopolitical events. This, or uncertainty or disruptions in global credit and banking markets, might cause the Company to not be able to continue to have access to preferred sources of liquidity when needed or on terms the Company finds acceptable, and the Company’s borrowing costs could increase.

The Company expects inflationary cost pressures and certain supply chain shortages and distribution challenges to potentially continue through 2024 and the Company may not be able to fully mitigate the impact of the rising inflationary cost pressures through price increases. Continuing or worsening inflation, recessionary concerns, supply chain and distribution challenges and/or uncertainty or disruptions in global credit and banking markets may have a material adverse impact on the Company’s business, financial condition, cash flows and/or results of operations.

The Company operates in a highly competitive environment.

The advertising and marketing services industries are highly competitive and are expected to remain so. Any failure on the part of the Company to compete effectively in the markets it serves could have a material adverse effect on its results of operations, financial condition or cash flows and could require changes to the way it conducts its business or require it to reassess strategic alternatives involving its operations.

The Company operates primarily in the commercial print portion of the printing industry, which is highly fragmented and competitive in both the United States and internationally. The Company competes for business not only with large and mid-sized printers, but also with smaller regional printers and the growing forms of digital alternatives to print. In certain circumstances, due primarily to factors such as freight rates and client preference for local services, printers with better access to certain regions of a given country may be preferred by clients in such regions.

Some of the industries that the Company services have been subject to consolidation efforts, leading to a smaller number of potential clients. Furthermore, if the smaller clients of the Company are consolidated with larger companies using other printing companies, the Company could lose its clients to competing printing companies.

The Company may not be able to reduce costs and improve its operating efficiency rapidly enough to meet market conditions.

Because the markets in which the Company competes are highly competitive, the Company will need to continue to improve its operating efficiency in order to maintain or improve its profitability. There can be no assurance that the Company’s continuing cost reduction efforts will continue to be beneficial to the extent anticipated, or that the estimated productivity, cost savings or cash flow improvements will be realized as anticipated or at all. If the Company’s efforts are not successful, it could have an adverse effect on the Company’s operations and competitive position. In addition, the need to reduce ongoing operating costs have and, in the future, may continue to result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.

The Company may suffer a data-breach of sensitive information, ransomware attack or other cyber incident. If the Company’s efforts to protect the security of information or systems are unsuccessful, any such failure may result in costly government enforcement actions and/or private litigation, and the Company’s business and reputation could suffer.

The Company and its clients are subject to various United States and foreign cybersecurity laws, which require the Company to maintain adequate protections for electronically held information. The Company may not be able to anticipate techniques used to gain access to the Company’s systems or facilities, the systems of the Company’s clients or vendors, or implement adequate prevention measures. Moreover, unauthorized parties may attempt to access the Company’s systems or facilities, or the systems of the Company’s clients or vendors, through fraud or deception. In the event and to the extent that a data breach, ransomware attack or other cyber incident occurs, such breach could have an adverse effect on the Company’s business and results of operations. Complying with these various laws could cause the Company to incur substantial costs or require changes to the Company’s business practices in a manner adverse to the Company’s business.

The fragility of and decline in overall distribution channels may adversely impact clients’ access to cost effective distribution of their advertising materials, and therefore may adversely impact the Company’s business.

The distribution channels of print products and services, including the newspaper industry, face significant competition from other sources of news, information and entertainment content delivery. If overall distribution channels, including newspaper distribution channels, continue to decline, the Company’s clients may be adversely impacted by the lack of access to cost effective distribution of their advertising materials. In turn, this decline in cost effective distribution channels may force clients to use other avenues of distribution that may be at significantly higher cost, which may decrease demand for the Company’s products and services, and thus adversely affect the Company’s financial condition, results of operations and cash flows.

Failure to attract and retain qualified talent across the enterprise could materially adversely affect the Company’s business, competitive position, financial condition and results of operations.

The Company continues to be substantially 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 the Company’s existing clients. The Company believes that there is significant competition for production personnel with the skills and technical knowledge that the Company requires, especially in light of continuing labor shortages. The Company’s ability to continue efficient operations, reduce production costs, and consolidate operations will depend, in large part, on the Company’s success in recruiting, training, integrating and retaining sufficient numbers of production personnel to support the Company’s production, cost savings and consolidation targets. New hires require extensive training and it may take significant time before they achieve full productivity. In addition, increases in the wages paid by competing employers, including as a result of current macroeconomic conditions, has resulted, and may continue to result, in increases in the wage rates that the Company must pay. As a result, the Company has and may continue to incur additional costs to attract, train and retain employees, including expenditures related to salaries and benefits, and the Company may lose new, as well as existing, employees to competitors or other companies before the Company realizes the benefit of its investment in recruiting and training them. If the Company is unable to hire and train sufficient numbers of personnel, the Company’s business would be adversely affected. The nationwide shortage of available production personnel may also put a strain on the Company’s ability to accept new work from client requests, including during the Company’s seasonally higher second half of the calendar year.

The Company’s future success also depends on its continuing ability to identify, hire, develop, and retain its executive management team, including its Chief Executive Officer, and other personnel for all areas of the organization.

Approximately 1,000 of the Company’s United States and international employees are covered by an industry wide agreement, a collective bargaining agreement or through a works council or similar arrangement. While the Company believes its employee relations are good and that the Company maintains an employee-centric culture, any material disruption in operations resulting from labor disputes, a strike or other forms of labor protest affecting the Company’s United States or international plants, distribution centers or other facilities in the future could materially disrupt the Company’s operations and result in an adverse impact on its financial condition, results of operations and cash flows, which could force the Company to reassess its strategic alternatives involving certain of its operations.

The Company’s business depends substantially on client contract renewals and/or client retention. Any contract non-renewals, renewals on different terms and conditions or decline in the Company’s client retention or expansion could materially adversely affect the Company’s results of operations, financial condition and cash flows.

The Company has historically derived a significant portion of its revenue from long-term contracts with significant clients. If the Company loses significant clients (including as a result of reduced demand for a client’s products or services), is unable to renew such contracts on similar terms and conditions, or at all, or is not awarded new long-term contracts with important clients in the future, its results of operations, financial condition and cash flows may be adversely affected.

The Company is exposed to risks of loss in the event of nonperformance by its clients. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Even if the Company’s credit review and analysis mechanisms work properly, the Company may experience financial losses and loss of future business if its clients become bankrupt, insolvent or otherwise are unable to pay the Company for its work performed. Any increase in the nonpayment or nonperformance by clients could adversely affect the Company’s results of operations and financial condition.

Certain industries in which the Company’s clients operate are experiencing consolidation. When client consolidation occurs, it is possible that the volume of work performed by the Company for a client after the consolidation will be less than it was before the consolidation or that the client’s work will be completely moved to competitors. In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and electronic devices, may affect clients. The internet facilitates competitive entry and comparison shopping, and the reliance on digital retailing may reduce clients’ volume. Any such reduction or loss of work could adversely affect the Company’s results of operations and financial condition.

There are additional risks associated with the Company’s operations outside of the United States, including trade restrictions, currency fluctuations, the global economy, and geopolitical events like war and terrorism.

Net sales from the Company’s wholly-owned subsidiaries outside of the United States accounted for approximately 14% and 13% of its consolidated net sales for the years ended December 31, 2023 and 2022, respectively.

As a result, the Company is subject to the risks inherent in conducting business outside of the United States, including, but not limited to: the impact of economic and political instability; fluctuations in currency values, foreign-currency exchange rates, devaluation and conversion restrictions; exchange control regulations and other limits on the Company’s ability to import raw materials or finished product; tariffs and other trade barriers; trade restrictions and economic embargoes by the United States or other countries; health concerns regarding infectious diseases; adverse weather or natural disasters; social unrest, acts of terrorism, force majeure, war or other armed conflicts; inflation and fluctuations in interest rates; language barriers; difficulties in staffing, training, employee retention and managing international operations; logistical and communications challenges; differing local business practices and cultural considerations; restrictions on the ability to repatriate funds; foreign ownership restrictions and the potential for nationalization or expropriation of property or other resources; longer accounts receivable payment cycles; potential adverse tax consequences and being subject to different legal and regulatory regimes that may preclude or make more costly certain initiatives or the implementation of certain elements of its business strategy.

If the Company fails to identify, manage, complete and integrate acquisitions, investment opportunities or other significant transactions, as well as identify and execute strategic divestitures, it may adversely affect the Company’s future results and ability to implement its business strategy.

The Company may pursue acquisitions of, investment opportunities in, or other significant transactions with, companies that are complementary to the Company’s business, as well as divestitures of businesses, product lines or other assets. In order to pursue this strategy successfully, the Company must identify attractive acquisition or investment opportunities, successfully complete the transaction, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees. The Company may not be able to identify or complete appealing acquisition or investment opportunities given the intense competition for these transactions. Even if the Company identifies and completes suitable corporate transactions, the Company may not be able to successfully address inherent risks in a timely manner, or at all. These inherent risks include, among other things: failure to achieve all or any projected synergies, performance targets or other anticipated benefits of the acquisition, investment or divestiture; failure to successfully integrate the purchased operations, technologies, products or services and maintain uniform standard controls, policies and procedures; substantial unanticipated integration costs; loss of key employees, including those of an acquired business; diversion of management’s attention from other business concerns; failure to retain the clients of the acquired business; additional debt and/or assumption of known or unknown liabilities; potential dilutive issuances of equity securities; and a write-off of goodwill, client lists, other intangibles and amortization of expenses. If the Company fails to successfully integrate an acquisition, the Company may not realize all or any of the anticipated benefits of the acquisition, and the Company’s future results of operations could be adversely affected.

In addition, the Company’s transformation to a marketing experience company is partially dependent upon the Company’s continued ability to identify and execute strategic divestiture opportunities to generate cash and related benefits. There can be no assurance whether the strategic benefits and expected financial impact of any divestitures will be achieved.

Negative publicity could have an adverse impact on the Company’s business and brand reputation.

Unfavorable publicity, whether accurate or not, related to the Company or the Company’s executive management team, employees, board of directors, operations, business or prospects, or to the Quadracci family shareholders of the Company, could negatively affect the Company’s reputation, stock price, ability to attract new clients from growth vertical industries, ability to attract and retain high-quality talent, or the performance of the Company’s business.

In addition, there has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based and mobile communications, which allow individuals access to a broad audience of consumers and other interested persons. Many social media platforms immediately publish the content their subscribers’ and participants’ post, often without filters or checks on accuracy of the content posted. Information or commentary posted on such platforms at any time may be adverse to the Company’s interests or may be inaccurate, each of which may harm the Company’s reputation, business or prospects. The harm may be immediate without affording the Company an opportunity for redress or correction.

Financial Risks

The Company may be required to make capital expenditures to sustain and grow its platforms and processes, as well as make investments in the development and implementation of new systems, client technology, product technology, marketing and talent in order to keep pace with industry developments, client expectations, and to remain technologically and economically competitive. The cash or financing required for these capital expenditures and investments may not be sufficient or available on terms acceptable to the Company. In addition, these capital expenditures and investments may increase the Company’s costs, reduce its profits, disrupt its operations or adversely affect its ability to implement its business strategy.

The printing and advertising and marketing services industries are experiencing rapid change as new digital technologies are developed that offer clients an array of choices for their marketing and publication needs. In order to remain competitive, the Company will need to adapt to future changes, especially with regard to technology and talent, to enhance the Company’s existing offerings and introduce new offerings to address the changing demands of clients. In order to remain technologically and economically competitive, the Company may need to make significant capital expenditures and other investments, including in its talent, as it develops and continues to maintain its platforms and processes, and to develop and integrate new technologies. In order to accomplish this effectively, the Company will need to deploy its resources efficiently, maintain effective cost controls and bear potentially significant market and raw material risks. If the Company’s revenues decline, it may impact the Company’s ability to expend the capital necessary to develop and implement new technology and be economically competitive. Debt or equity financing, or cash generated from operations, may not be available or sufficient for these requirements or for other corporate purposes or, if debt or equity financing is available, it may not be on terms favorable to the Company. In addition, even if capital is available to the Company, there is risk that the Company’s vendors will have discontinued the production of parts needed for repairs, replacements or improvements to the Company’s existing platforms, leading the Company to expend more capital than expected to perform such repairs, replacements or improvements. The Company’s business and operating results may be adversely affected if the Company is unable to keep pace with relevant technological and industry changes or if the technologies or business strategies that the Company adopts or services it promotes do not receive widespread market acceptance.

If the Company is unable to make the capital expenditures and other investments necessary to adapt to industry and technological developments, the Company may experience a decline in demand for its services, be unable to implement its business strategy and its business operating results may be adversely affected. Additionally, if the Company is unable to meet future challenges from competing technologies on a timely basis or at an acceptable cost, the Company could lose clients to competitors. In general, the development of new communication channels inside and outside the printing and media solutions industry requires the Company to anticipate and respond to the varied and continually changing demands of clients. The Company may not be able to accurately predict technological trends or the success of new services in the market.

The Company’s debt facilities include various covenants imposing restrictions that may affect the Company’s ability to operate its business.

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into a senior secured note agreement (the “Master Note and Security Agreement”) pursuant to which the Company has issued over time senior notes in an aggregate principal amount of $1.1 billion in various tranches. As of December 31, 2023, the borrowings outstanding under the Master Note and Security Agreement were $2.5 million. On April 28, 2014, and as last amended on January 4, 2024, the Company entered into a senior secured credit facility (the “Senior Secured Credit Facility,”) which includes two different loan facilities: a $825.0 million Term Loan A and a $432.5 million revolving credit facility. As a result of the November 2, 2021 amendment to the Senior Secured Credit Facility, the Term Loan A and revolving credit facility were both broken into two separate maturity dates. Borrowing from lenders who elected to not extend the maturity date matured on January 31, 2024, whereas borrowing from lenders who elected to extend the maturity date matures on November 2, 2026. As of December 31, 2023, the borrowings outstanding under the Senior Secured Credit Facility were $511.1 million.

The Company’s various lending arrangements include certain financial covenants. In addition to the financial covenants, the debt facilities also include certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock. As of December 31, 2023, the Company was in compliance with all financial covenants in its debt agreements. 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.

The Company may be adversely affected by interest rates, particularly floating interest rates, and foreign exchange rates.

As of December 31, 2023, 44% of the Company’s borrowings were subject to variable interest rates. As a result, the Company is exposed to market risks associated with fluctuations in interest rates, and increases in interest rates could adversely affect the Company.

The Company currently holds one interest rate swap contract. The purpose of entering into this contract was to reduce the variability of cash flows from interest payments related to a portion of the Company’s variable-rate debt. The swap converts the notional value of the Company’s variable rate debt based on one-month Secured Overnight Finance Rate (“SOFR”) to a fixed rate, including a spread on underlying debt, and a monthly reset in the variable interest rate.

The Company has entered into two interest rate collar contracts, both effective February 1, 2023. The purpose of entering into the contracts is to reduce the variability of cash flows from interest payments related to a portion of the Company’s variable-rate debt. The interest rate collars convert the notional value of the Company’s variable rate debt based on one-month term SOFR to a fixed rate if that month’s interest rate is outside of the collars’ floor and ceiling rates, including a spread on underlying debt, and a monthly reset in the variable interest rate.

Because a portion of the Company’s operations are outside of the United States, significant revenues and expenses are denominated in local currencies. Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the Company’s non-United States subsidiaries and business units, fluctuations in such rates may affect the translation of these results into the Company’s consolidated financial statements. To the extent revenues and expenses are not in the applicable local currency, the Company may enter into foreign exchange forward contracts to hedge the currency risk. There can be no assurance, however, that the Company’s efforts at hedging will be successful. There is always a possibility that attempts to hedge currency risks will lead to greater losses than predicted.

The Company’s revenue, operating income and cash flows are subject to cyclical and seasonal variations.

The Company’s business is seasonal, with the Company recognizing the majority of its operating income in the second half of the calendar year, primarily as a result of the increased magazine advertising page counts and retail inserts and catalogs from back-to-school and holiday-related advertising and promotions. The fourth quarter is typically the highest seasonal quarter for cash flows from operating activities and Free Cash Flow due to the reduction of working capital requirements that reach peak levels during the third quarter. If the Company does not successfully manage the increased workflow, necessary increases in paper and ink inventory, production capacity flows and other business elements during these high seasons of activity, this seasonality could adversely affect the Company’s cash flows and results of operations.

An other than temporary decline in operating results and enterprise value could lead to non-cash impairment charges due to the impairment of property, plant and equipment, goodwill and other intangible assets.

The Company has a material amount of property, plant, equipment, goodwill and other intangible assets on its balance sheet, due in part to acquisitions. As of December 31, 2023, the Company had the following long-lived assets on its consolidated balance sheet included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K: (a) property, plant and equipment of $620.6 million; (b) goodwill of $103.0 million; and (c) other intangible assets, primarily representing the value of customer relationships acquired, of $21.8 million.

As of December 31, 2023, these assets represented approximately 49% of the Company’s total assets. The Company assesses impairment of property, plant and equipment, goodwill and other intangible assets based upon the expected future cash flows of the respective assets. These valuations include management’s estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures and other assumptions. A decline in expected profitability, significant negative industry or economic trends, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, divestitures and discontinued operations may adversely impact the assumptions used in the valuations. As a result, the recoverability of these assets could be called into question, and the Company could be required to write down or write off these assets. Such an occurrence could have a material adverse effect on the Company’s results of operations and financial position.

The Company has liabilities with respect to defined benefit pension plans that could cause the Company to incur additional costs.

As a result of the 2010 acquisition of World Color Press, the Company assumed frozen single employer defined benefit pension plans for certain of its employees in the United States. The majority of the plans’ assets are held in North American and global equity securities and debt securities. The asset allocation as of December 31, 2023, was approximately 21% equity securities and 79% debt securities.

As of December 31, 2023, the Company had underfunded pension liabilities of $39.4 million for single employer defined benefit plans in the United States. Under current United States pension law, pension funding deficits are generally required to be funded over a seven-year period. These pension deficits may increase or decrease depending on changes in the levels of interest rates, pension plan investment performance, pension legislation and other factors. Declines in global debt and equity markets would increase the Company’s potential pension funding obligations. Any significant increase in the Company’s required contributions could have a material adverse impact on its business, financial condition, results of operations and cash flows.

In addition to the single employer defined benefit plans described above, the Company has previously participated in multiemployer pension plans (“MEPPs”) in the United States, including the Graphic Communications International Union - Employer Retirement Fund (“GCIU”) and the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund (“GCC”). Prior to the acquisition of World Color Press by the Company, World Color Press received notice that certain plans in which it participated were in critical status, as defined in Section 432 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a result, the Company could have been subject to increased contribution rates associated with these plans or other MEPPs suffering from declines in their funding levels. Due to the significantly underfunded status of the United States multiemployer plans and the potential increased contribution rates, the Company withdrew from participation in these multiemployer plans and has replaced these pension benefits with a Company-sponsored “pay as you go” defined contribution plan, which is historically the form of retirement benefit provided to the Company’s employees. As of December 31, 2023, the Company has recorded in its financial statements a pre-tax withdrawal liability for all United States MEPPs of $24.0 million in the aggregate. The Company is scheduled to make payments to the GCIU and GCC until April 2032 and February 2024, respectively.

The Company may not be able to utilize deferred tax assets to offset future taxable income.

As of December 31, 2023, the Company had deferred tax assets, net of valuation allowances, of $86.6 million. The Company expects to utilize the deferred tax assets to reduce consolidated income tax liabilities in future taxable years. However, the Company may not be able to fully utilize the deferred tax assets if its future taxable income and related income tax liability is insufficient to permit their use. In addition, in the future, the Company may be required to record a valuation allowance against the deferred tax assets if the Company believes it is unable to utilize them, which would have an adverse effect on the Company’s results of operations and financial position.

Legal and Regulatory Risks

Unfavorable outcomes in legal proceedings could result in substantial costs and may harm the Company’s financial condition.

The Company’s financial condition may be affected by the outcome of pending and future litigation, claims, investigations, legal and administrative cases and proceedings, whether civil or criminal, or lawsuits by governmental agencies or private parties. Defending against any such claims, or any legal proceedings to which the Company is subject, can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on the Company’s liquidity and financial condition and/or cause significant reputational harm to the Company’s business.

The Company may incur costs or suffer reputational damage due to improper conduct of its employees, contractors or agents under anti-corruption or other laws governing business practices, including the United States Foreign Corrupt Practices Act.

The Company could be adversely affected by engaging in business practices that are in violation of United States or foreign anti-corruption laws, including the United States Foreign Corrupt Practices Act. The Company operates in parts of the world with developing economies that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. In certain countries, the Company does substantial business with government entities or instrumentalities, which creates increased risk of a violation of the Foreign Corrupt Practices Act and international laws. There can be no assurance that all of the Company’s employees, contractors or agents, including those representing the Company in countries where practices which violate anti-corruption laws may be customary, will not take actions that violate the Company’s policies and procedures. The failure to comply with the laws governing international business practices may result in substantial penalties and fines.

The Company and its facilities are subject to various consumer protection and privacy laws and regulations, and will become subject to additional laws and regulations in the future. If the Company’s efforts to comply with such laws or protect the security of information are unsuccessful, any failure may subject the Company to material liability, require it to incur material costs or otherwise adversely affect its results of operations as a result of compliance with such laws, costly enforcement actions and private litigation.

The nature of the Company’s business includes the receipt and storage of information about the Company’s clients, vendors and the end-users of the Company’s products and services. The Company and its clients are subject to various United States and foreign consumer protection, information security, data privacy and “do not mail” requirements at the federal, state, provincial and local levels. The Company is subject to many legislative and regulatory laws and regulations around the world concerning data protection and privacy. In addition, the interpretation and application of consumer and data protection laws in the United States and elsewhere are often fluid and uncertain. To the extent that the Company or its clients become subject to additional or more stringent requirements or that the Company is not successful in its efforts to comply with existing requirements or protect the security of information, demand for the Company’s services may decrease and the Company’s reputation may suffer, which could adversely affect the Company’s results of operations. In addition, such laws may be interpreted and applied in a manner inconsistent with the Company’s internal policies. If so, the Company could suffer costly enforcement actions (including an order requiring changes to the Company’s data practices) and private litigation, which could have an adverse effect on the Company’s business and results of operations. Complying with these various laws could cause the Company to incur substantial costs or require changes to the Company’s business practices in a manner adverse to the Company’s business.

Changes in the legal and regulatory environment or reporting requirements could limit the Company’s business activities, increase its operating costs, reduce demand for its products or result in litigation.

The conduct of the Company’s businesses is subject to various laws and regulations administered by federal, state and local government agencies in the United States, as well as to foreign laws and regulations administered by government entities and agencies in markets in which the Company operates. These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of political, economic or social events, such as the election of the new administration. Such regulatory environment changes may include changes in taxation requirements, accounting and disclosure standards, immigration laws and policy, environmental laws, and requirements of United States and foreign occupational health and safety laws. Changes in laws, regulations or governmental policy and the related interpretations may alter the environment in which the Company does business, and therefore, may impact its results or increase its costs or liabilities.

In addition, the Company and its subsidiaries are party to a variety of legal and environmental remediation obligations arising in the normal course of business, as well as environmental remediation and related indemnification proceedings in connection with certain historical activities, former facilities and contractual obligations of acquired businesses. Permits are required for the operation of certain parts of the Company’s business, and these permits are subject to renewal, modification and, in some circumstances, revocation. Due to regulatory complexities, uncertainties inherent in litigation and the risk of unidentified contaminants on current and former properties, the potential exists for remediation, liability and indemnification costs to differ materially from the costs the Company has estimated. The Company cannot assure you that the Company’s costs in relation to these matters will not exceed its established liabilities or otherwise have an adverse effect on its results of operations.

Various laws and regulations addressing climate change are being considered at the federal and state levels. Proposals under consideration include requiring climate- and emissions-related disclosures and limitations on the amount of greenhouse gas that can be emitted (so-called “caps”) together with systems of trading allowed emissions capacities. The impacts of such proposals could have a material adverse impact on the Company’s financial condition and results of operations.

If QuadMed, a wholly-owned subsidiary of the Company, fails to comply with applicable healthcare laws and regulations, the Company could face substantial penalties, and its business, reputation, operations, prospects and financial condition of the Company’s subsidiary could be adversely affected.

QuadMed provides employer-sponsored healthcare solutions in the United States to employers of all sizes, including the Company and other private and public-sector companies. These solutions include, but are not limited to, on-site and near-site healthcare clinics, occupational health services, telemedicine, and health and wellness programs. The healthcare industry is heavily regulated, constantly evolving and subject to significant change and fluctuation. The United States federal and state healthcare laws and regulations that impact the QuadMed subsidiary business include, among others, those: (a) regarding privacy, security and transmission of individually identifiable health information; (b) prohibiting, among other things, soliciting, receiving or providing remuneration to induce the referral of an individual for an item or service or the purchasing or ordering of an item or service for which payment may be made under healthcare programs; (c) prohibiting, among other things, knowingly presenting or causing to be presented claims for payment from third-party payors that are false or fraudulent; and (d) prohibiting the corporate practice of medicine.

Risks Relating to Quad’s Common Stock

Holders of class A common stock are not able to independently elect directors of the Company or control any of the Company’s management policies or business decisions because the holders of class A common stock have substantially less voting power than the holders of the Company’s class B common stock, all of which is owned by certain members of the Quadracci family or trusts for their benefit, whose interests may be different from the holders of class A common stock.

The Company’s outstanding stock is divided into two classes of common stock: class A common stock (“class A stock”) and class B common stock (“class B stock”). The class B stock has ten votes per share on all matters and the class A stock is entitled to one vote per share. As of January 31, 2024, the class B stock constitutes approximately 78% of the Company’s total voting power. As a result, holders of class B stock are able to exercise a controlling influence over the Company’s business, have the power to elect its directors and indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions. All of the class B stock is owned by certain members of the Quadracci family or trusts for their benefit, whose interests may differ from the interests of the holders of class A stock.

As of January 31, 2024, approximately 93% of the outstanding class B stock was held of record by the Quad Voting Trust, and that constitutes approximately 73% of the Company’s total voting power. The trustees of the Quad Voting Trust have the authority to vote the stock held by the Quad Voting Trust. Accordingly, the trustees of the Quad Voting Trust are able to exercise a controlling influence over the Company’s business, have the power to elect its directors and indirectly control decisions such as whether to issue additional shares, declare and pay dividends or enter into corporate transactions.

Furthermore, in response to recent public focus on dual class capital structures, certain stock index providers are implementing limitations on the inclusion of dual class share structures in their indices and certain institutional shareholder advisory firms are updating their voting guidelines to generally withhold support for directors of companies with dual class voting rights. If these restrictions increase or these guidelines are followed, they may impact who buys and holds the Company’s stock.

The Company is a controlled company within the meaning of the rules of the New York Stock Exchange (“NYSE”) and, as a result, it relies on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

Since the Quad Voting Trust owns more than 50% of the total voting power of the Company’s stock, the Company is considered a controlled company under the corporate governance listing standards of the NYSE. As a controlled company, an exception under the NYSE listing standards exempts the Company from the obligation to comply with certain of the NYSE’s corporate governance requirements, including the requirements that (a) the Company have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and (b) the Company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Accordingly, for so long as the Company is a controlled company, holders of class A stock may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

Currently, there is a limited active market for Quad’s class A common stock and, as a result, shareholders may be unable to sell their class A common stock without losing a significant portion of their investment.

The Company’s class A stock has been traded on the NYSE under the symbol “QUAD” since July 6, 2010. However, there is still a limited active market for the class A common shares. The Company cannot predict the extent to which investor interest in the Company will lead to the development of a more active trading market for its class A common stock on the NYSE or how liquid that market will be. If a more active trading market does not develop, shareholders may have difficulty selling any class A stock without negatively affecting the stock price, and thereby, losing a significant portion of their investment.

The Company’s Board of Directors (the “Board”) recognizes the critical importance of maintaining the trust and confidence of our customers, clients, employees and communities. The Board is actively involved in oversight of the Company’s operational and strategic risk management process. With regard to cybersecurity risk, the Board (through the Audit Committee) periodically reviews information on management’s policies and processes related to cybersecurity and data-protection, including its assessment, identification and management of material risks, mitigation strategy, governance and incident reporting that are based on recognized frameworks established by the National Institute of Standards and Technology (NIST), the International Organization for Standardization and other applicable industry standards. The entire Board receives periodic updates on the Company’s cybersecurity risk management progress through the Company’s general enterprise risk management (“ERM”) program. In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

Risk Management and Strategy

As one of the critical elements of the Company’s overall ERM approach, the Company’s cybersecurity program is focused on the following key areas:

Overall

As discussed in more detail under the heading “Governance,” the Board’s oversight of cybersecurity risk management is supported by the Audit Committee of the Board, which receives periodic updates from the Company’s ERM function, the Company’s Executive Director of Information Security & Compliance, other members of management and relevant management committees and councils.

Collaborative Approach

The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.

Technical Safeguards

The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.

Incident Response and Recovery Planning

The Company has established and maintains comprehensive incident response and recovery plans that fully address the Company’s response to a cybersecurity incident, and such plans are tested and evaluated on a regular basis.

Third-Party Risk Management

The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems.

Education and Awareness

The Company launched a security awareness campaign, Be Cyber Smart, that helps employees make sure valuable data remains private, keep physical and digital workspaces secure with good security hygiene, spot potential phishing and malware threats, and avoid risky behaviors. The Be Cyber Smart campaign provides employees with tools and tips for proactive protection measures such as password management, the importance of computer restarts and software updates, security measures when working from home, recognizing and avoiding phishing and maintaining data privacy. In addition, annual compliance, security awareness and acceptable use training, as well as regular phish testing, is delivered to all employees.

The Company engages in the periodic assessment and testing of the Company’s policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, threat modeling, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning. The Company regularly engages third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are reported to the Audit Committee and the Board, and the Company adjusts its cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews.

Governance

The Board is responsible for the oversight of the Company’s operational and strategic risk management process. The Board oversees a company-wide approach to risk management, carried out by management. The Board determines the appropriate risk for the Company generally, assesses the specific risks the Company faces and receives regular reports of the steps taken by management to manage those risks. With regard to cybersecurity risk, the Board (through the Audit Committee) conducts an annual review of the Company’s cybersecurity program, and the entire Board receives periodic updates on the Company’s cybersecurity risk management progress through the Company’s general enterprise risk management program described in the foregoing sentence.

The Executive Director of Information Security & Compliance, with oversight from the Audit Committee, works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans. To facilitate the success of the Company’s cybersecurity risk management program, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity incidents. Through ongoing communications with these teams, the Executive Director of Information Security & Compliance monitors the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and reports such threats and incidents to the Audit Committee and Board when appropriate.

The Executive Director of Information Security & Compliance has served in various roles in information technology and information security for over 30 years, including serving as the Vice President of Information Technology and Executive Director of Information Security & Compliance for two large companies. The Executive Director of Information Security & Compliance holds undergraduate degrees in information systems and operations management, as well as graduate degrees in information systems and finance and has attained the professional certification of Information Technology Project Management. The Company’s CEO, CFO and General Counsel, Corporate Secretary and Chief Risk & Compliance Officer each hold degrees in their respective fields, and each have over 20 years of experience managing risks at the Company or at similar companies, including risks arising from cybersecurity threats.

Cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected or are not reasonably likely to affect the Company, including its business strategy, results of operations or financial condition.

Quad’s corporate office is located in Sussex, Wisconsin. The Company owned or leased 96 facilities located in 14 countries including manufacturing operations, warehouses and office space totaling approximately 17,580,000 square feet, of which approximately 12,610,000 is owned space and approximately 4,970,000 is leased space as of December 31, 2023.

Within the United States Print and Related Services segment, the Company operated 34 owned or leased manufacturing facilities, encompassing approximately 14,556,000 square feet as of December 31, 2023. Within the International segment, the Company operated 9 owned or leased manufacturing facilities, encompassing approximately 1,739,000 square feet as of December 31, 2023. The following table lists the Company’s operating locations with manufacturing facilities totaling over 500,000 square feet as of December 31, 2023:

(1) The Effingham, Illinois facility was announced for closure on October 24, 2023, and the Saratoga Springs, New York facility was announced for closure on January 19, 2024.

The Company is subject to various legal actions, administrative proceedings and claims arising out of the ordinary course of business. The Company believes that such unresolved legal actions, proceedings and claims will not materially adversely affect its results of operations, financial condition or cash flows. For additional information, see Note 9, “Commitments and Contingencies — Litigation,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

The following discussion of the financial condition and results of operations of Quad should be read together with Quad’s audited consolidated financial statements for each of the two years in the period ended December 31, 2023, including the notes thereto, included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. The Company’s actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Cautionary Statement Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors,” included earlier within this Annual Report on Form 10-K.

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the Company’s 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:

• Overview. This section includes a general description of the Company’s business and segments, an overview of key performance metrics the Company’s management measures and utilizes to evaluate business performance, and an overview of trends affecting the Company, including management’s actions related to the trends.
• Results of Operations. This section contains an analysis of the Company’s results of operations by comparing the results for the year ended December 31, 2023, to the year ended December 31, 2022. 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 and table 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.
• Critical Accounting Policies and Estimates. This section contains a discussion of the accounting policies that the Company’s management believes are important to the Company’s financial condition and results of operations, as well as allowances and reserves that require significant judgment and estimates on the part of the Company’s management. In addition, all of the Company’s significant accounting policies, including critical accounting policies, are summarized in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.

Overview

Business Overview

Quad is a global marketing experience (MX) company that helps brands make direct consumer connections, from household to in-store to online. The Company is focused on providing a better marketing experience for its clients, so they can focus on delivering the best customer experience to theirs. Quad does this with a suite of marketing solutions that is flexible, scalable and connected. Supported by state-of-the-art technology and data-driven intelligence, these solutions are designed to streamline the complexities of marketing and remove friction from wherever it occurs in the marketing journey. Quad tailors its solutions to its clients’ objectives, driving cost efficiencies, improving speed to market, strengthening marketing effectiveness, and delivering value on their investments. The Company supports a diverse base of 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.

For a full description of the Company’s business overview, refer to Part I, Item 1, “Business,” of this Annual Report on Form 10-K.

The Company’s operating and reportable segments are aligned with how the chief operating decision maker of the Company currently manages the business. The Company’s operating and reportable segments, including their product and service offerings, and a “Corporate” category, are summarized below.

The United States Print and Related Services segment is predominantly comprised of the Company’s United States printing operations and is managed as one integrated platform. This includes print execution and logistics for retail inserts, catalogs, long-run publications, special interest publications, journals, direct mail, directories, in-store marketing and promotion, packaging, newspapers, custom print products, as well as other commercial and specialty printed products, along with global paper procurement, and marketing and other complementary services, such as 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 the manufacture of ink. The United States Print and Related Services segment accounted for approximately 86% and 87% of the Company’s consolidated net sales during the years ended December 31, 2023 and 2022, respectively.

The International segment consists of the Company’s printing operations in Europe and Latin America, including operations in England, France, Germany, Poland, Colombia, Mexico and Peru. 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 14% and 13% of the Company’s consolidated net sales during the years ended December 31, 2023 and 2022, respectively.

Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal and finance, as well as certain expenses and income from frozen employee retirement plans, such as pension benefit plans.

Key Performance Metrics Overview

The Company’s management believes the ability to generate net sales growth, profit increases and positive cash flow, while maintaining the appropriate level of debt, are key indicators of the successful execution of the Company’s business strategy and will increase shareholder value. The Company uses period-over-period net sales growth, EBITDA, EBITDA margin, net cash provided by 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, 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 provided by 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 operating activities. The Company uses net cash provided by operating activities as a metric to assess liquidity. The Company’s management assesses net cash provided by 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 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 decreased by $47.5 million during the year ended December 31, 2023, primarily due to the use of cash and cash equivalents, cash provided by operating activities and proceeds from the sale of property, plant and equipment.

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.

For a full description of the Company’s industry and competition overview, refer to Part I, Item 1, “Business,” of this Annual Report on Form 10-K.

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 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. 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 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 will potentially continue into the future. As a result of these financial difficulties, the USPS has continued to adjust its postal rates and service levels. Additional price increases may result in clients reducing mail volumes and exploring 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 Consumer Price Index cap, which may result 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 and are expected to continue to do so in the future. This has led 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. The uncertainty as to how much of the authority the USPS will use on any specific rate increase also creates potential volume declines as rate predictability with respect to cost is no longer known for mailers.

The Company has invested significantly in its mail preparation and distribution capabilities to mitigate the impact of increases in postage costs, and to help clients successfully navigate the ever-changing postal environment. Through its data analytics, unique software to merge mail streams on a large scale, advanced finishing capabilities and technology, and in-house transportation and logistics operations, the Company manages the mail preparation and distribution of most of its clients’ products to maximize efficiency, to enable on-time and consistent delivery and to partially reduce these costs.

The Company continues to face several other industry challenges that have been, and are expected to continue to, adversely impact the Company’s results of operation. The Company continues to operate in a high interest rate environment, which is expected to continue through 2024. Additionally, the price and availability of paper has been, and may continue to be, adversely affected by paper mills’ permanent or temporary closures, and mills’ access to raw materials, conversion to produce other types of paper, and ability to transport paper produced. 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. This reduced volume has 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 into 2024.

Results of Operations for the Year Ended December 31, 2023, Compared to the Year Ended December 31, 2022

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 year ended December 31, 2023, changed from the year ended December 31, 2022, as follows (dollars in millions, except per share data):

(1) Restructuring, impairment and transaction-related charges increased $32.7 million ($24.5 million, net of tax), to $77.5 million during the year ended December 31, 2023, and included the following:

a. A $27.8 million increase in employee termination charges from $7.3 million during the year ended December 31, 2022, to $35.1 million during the year ended December 31, 2023;

b. A $23.0 million increase in impairment charges from $2.2 million during the year ended December 31, 2022, to $25.2 million during the year ended December 31, 2023;

c. A $2.2 million increase in transaction-related charges from $2.0 million during the year ended December 31, 2022, to $4.2 million during the year ended December 31, 2023;

d. A $0.3 million increase in integration-related charges from $0.7 million during the year ended December 31, 2022, to $1.0 million during the year ended December 31, 2023; and

e. A $20.6 million decrease in various other restructuring charges from $32.6 million during the year ended December 31, 2022, to $12.0 million during the year ended December 31, 2023.

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 $4.9 million ($3.7 million, net of tax) primarily due to the following: (1) the impact from print product pricing; (2) a $14.1 million decrease in selling, general and administrative expenses; (3) a $12.5 million decrease in depreciation and amortization expense; (4) impacts from improved manufacturing productivity; and (5) savings from other cost reduction initiatives, partially offset by print volume decreases.

(3) Interest expense increased $21.6 million ($16.2 million, net of tax) during the year ended December 31, 2023, to $70.0 million. This change was due to higher weighted average interest rates on borrowings and a $6.1 million increase in interest expense related to the interest rate swaps, partially offset by lower average debt levels during the year ended December 31, 2023, as compared to the year ended December 31, 2022.

(4) Net pension income decreased $10.9 million ($8.2 million, net of tax) during the year ended December 31, 2023, to $1.7 million. This was due to the following: (1) a $7.9 million increase from interest cost on pension plan liabilities; (2) a $2.4 million decrease from the expected long-term return on pension plan assets; and (3) amortization of actuarial loss of $0.6 million in 2023 that did not occur in 2022.

(5) The $19.5 million increase in income tax expense as calculated in the following table is primarily due to the following: (1) a $10.7 million increase in the Company’s liability for audit assessments and unrecognized tax benefits; (2) a $5.1 million increase from the loss on the sale of its Argentina print business in 2022; and (3) a $1.3 million increase from valuation allowance reserves.

(dollars in millions)

Operating Results

The following table sets forth certain information from the Company’s 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:

(dollars in millions)

44

Net Sales

Product sales decreased $194.2 million, or 7.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following: (1) a $117.3 million decrease from paper sales; (2) a $65.4 million decrease in sales in the Company’s print product lines, mainly due to decreased print volumes; and (3) a $26.4 million decrease in net sales (which includes $8.3 million in paper sales) due to the divestiture of the Company’s print operations in Argentina, partially offset by $14.9 million in favorable foreign exchange impacts.

Service sales, which primarily consist of logistics, distribution, marketing services, imaging and medical services, decreased $65.1 million, or 9.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $59.2 million decrease in logistics sales from lower print volumes and a $5.9 million decrease in marketing services and medical services.

Cost of Sales

Cost of product sales decreased $171.5 million, or 8.0%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following: (1) a decrease in paper costs; (2) the impact from lower print volumes; (3) the impact from the divestiture of the Company’s print operations in Argentina; (4) impacts from improved manufacturing productivity; and (5) savings from other cost reduction initiatives.

Cost of service sales decreased $66.1 million, or 14.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to decreased freight volumes and other cost reduction initiatives.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased $14.1 million, or 3.9%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following: (1) a $6.6 million decrease in employee-related expenses; (2) $6.5 million in favorable foreign exchange impacts; and (3) $2.2 million in lower professional fees. Selling, general and administrative expenses as a percentage of net sales increased from 11.1% for the year ended December 31, 2022, to 11.6% for the year ended December 31, 2023.

Depreciation and Amortization

Depreciation and amortization decreased $12.5 million, or 8.8%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, due to a $9.5 million decrease in depreciation expense, primarily from property, plant and equipment becoming fully depreciated over the past year, a decrease in purchases of property, plant and equipment and a $3.0 million decrease in amortization expense.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges increased $32.7 million, or 73.0%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(dollars in millions)

(a) Includes $25.2 million and $2.2 million of impairment charges during the years ended December 31, 2023 and 2022, respectively, which consisted of the following: (1) $17.5 million and $2.2 million, respectively, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities; (2) $4.1 million for software licensing and related implementation costs from a terminated project in 2023; and (3) $3.6 million for right-of-use assets in 2023.

(b) Includes a $9.2 million gain on the sale of the Merced, California facility during the year ended December 31, 2023.

(c) Includes a $23.1 million loss on the sale of its Argentina print business and $1.8 million in charges from foreign currency losses as a result of the economy in Argentina being classified as highly inflationary during the year ended December 31, 2022. The Company considered the economy in Argentina to be highly inflationary since June 30, 2018.

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 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 year ended December 31, 2023, compared to the year ended December 31, 2022, were as follows:

(dollars in millions)

46

EBITDA decreased $51.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to $32.7 million of increased restructuring, impairment and transaction-related charges and the impact from lower print and logistics volumes, partially offset by the following: (1) an increase in print product pricing; (2) impacts from improved manufacturing productivity; and (3) savings from other cost reduction initiatives.

A reconciliation of EBITDA to net earnings (loss) for the years ended December 31, 2023 and 2022, was as follows:

(dollars in millions)

(1) Net earnings (loss) included the following:

a. Restructuring, impairment and transaction-related charges of $77.5 million and $44.8 million for the years ended December 31, 2023 and 2022, 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:

(dollars in millions)

Net Sales

Product sales for the United States Print and Related Services segment decreased $176.9 million, or 8.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to an $89.3 million decrease from paper sales and an $87.6 million decrease in sales in the Company’s print product lines, primarily due to decreased volumes.

Service sales for the United States Print and Related Services segment decreased $63.5 million, or 9.5%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $56.4 million decrease in logistics sales from lower print volumes and a $7.1 million decrease in marketing services and medical services.

Operating Income

Operating income for the United States Print and Related Services segment decreased $51.7 million, or 47.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $54.2 million increase in restructuring, impairment and transaction-related charges and the impact from decreased print volumes, partially offset by the following: (1) the impact from an increase in print product pricing; (2) a $11.0 million decrease in depreciation and amortization expense; (3) impacts from improved manufacturing productivity; and (4) savings from other cost reduction initiatives.

The operating margin for the United States Print and Related Services segment decreased to 2.2% for the year ended December 31, 2023, from 3.9% for the year ended December 31, 2022, primarily due to the reasons provided above.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the United States Print and Related Services segment increased $54.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(dollars in millions)

(a) Includes $23.2 million and $1.1 million of impairment charges during the years ended December 31, 2023 and 2022, respectively, which consisted of the following: (1) $15.5 million and $1.1 million, respectively, for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction; (2) $4.1 million for software licensing and related implementation costs from a terminated project in 2023; and (3) $3.6 million for right-of-use assets in 2023.

(b) Includes a $9.2 million gain on the sale of the Merced, California facility during the year ended December 31, 2023.

International

The following table summarizes net sales, operating income (loss), operating margin, and certain items impacting comparability within the International segment:

(dollars in millions)

Net Sales

Product sales for the International segment decreased $17.3 million, or 4.3%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $28.0 million decrease in paper sales and a $26.4 million decrease in net sales (which includes $8.3 million of paper sales) due to the divestiture of the Company’s print operations in Argentina, partially offset by a $22.2 million increase in print pricing and volume, primarily in Mexico, Peru and Colombia, and $14.9 million in favorable foreign exchange impacts, primarily in Mexico.

Service sales for the International segment decreased $1.6 million, or 7.8%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $2.8 million decrease in logistics sales, partially offset by a $1.2 million increase in marketing services sales.

Operating Income (Loss)

Operating income (loss) for the International segment increased $22.8 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $21.1 million decrease in restructuring, impairment and transaction-related charges and a $1.3 million decrease in depreciation and amortization.

Restructuring, Impairment and Transaction-Related Charges

Restructuring, impairment and transaction-related charges for the International segment decreased $21.1 million, or 68.7%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(dollars in millions)

(a) Includes $2.0 million and $1.1 million of impairment charges for machinery and equipment no longer being utilized in production as a result of facility consolidations, as well as other capacity reduction activities, during the years ended December 31, 2023 and 2022, respectively.

(b) Includes a $23.1 million loss on the sale of its Argentina print business and $1.8 million in charges from foreign currency losses as result of the economy in Argentina being classified as highly inflationary during the year ended December 31, 2022.

Corporate

The following table summarizes unallocated operating expenses presented as Corporate:

(dollars in millions)

Operating Expenses

Corporate operating expenses decreased $1.1 million, or 2.2%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to lower employee-related costs and a $0.4 million decrease in restructuring, impairment and transaction-related charges.

Restructuring, Impairment and Transaction-Related Charges

Corporate restructuring, impairment and transaction-related charges decreased $0.4 million, or 20.0%, for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the following:

(dollars in millions)

48

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 $454.3 million as of December 31, 2023, which consisted of up to $401.4 million of unused capacity under its revolving credit arrangement, which was net of $31.1 million of issued letters of credit, and cash and cash equivalents of $52.9 million. Total liquidity is reduced to $406.7 million under the Company’s most restrictive debt covenants, and consists of $353.8 million available under its revolving credit arrangement and $52.9 million in cash and cash equivalents. There were no borrowings under the $432.5 million revolving credit facility as of December 31, 2023. Due to a portion of the revolving credit facility maturing on January 31, 2024, the total capacity under the revolving credit facility was reduced to $342.5 million as of this date.

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 Provided by Operating Activities

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash provided by operating activities was $147.6 million for the year ended December 31, 2023, compared to $154.6 million for the year ended December 31, 2022, resulting in a $7.0 million decrease in cash provided by operating activities. The decrease was primarily due to a $92.6 million decrease in cash from earnings, offset by a $85.6 million increase in cash flows provided by changes in operating assets and liabilities.

Net Cash Used in Investing Activities

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash used in investing activities was $46.4 million for the year ended December 31, 2023, compared to $60.5 million for the year ended December 31, 2022, resulting in a $14.1 million decrease in cash used in investing activities. The decrease was primarily due to the following: (1) a $27.1 million increase in proceeds from the sale of property, plant and equipment; (2) a $2.6 million decrease in cost investment in unconsolidated entities; and (3) a $1.1 million decrease in cash used in acquisition of businesses. These decreases were partially offset by (1) a $10.5 million increase in purchases of property, plant and equipment; (2) a $5.6 million increase in cash used in other investing activities; and (3) a $0.6 million increase in loan to an unconsolidated entity.

Net Cash Used in Financing Activities

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022

Net cash used in financing activities was $73.6 million for the year ended December 31, 2023, compared to $248.7 million for the year ended December 31, 2022, resulting in a $175.1 million decrease in cash used in financing activities. The decrease was primarily due to the following: (1) a $175.6 million decrease in net payments of debt and lease obligations in 2023 compared to 2022; (2) a $1.3 million decrease in payment of accrued dividends from vested equity awards; and (3) a $0.8 million decrease in equity awards redeemed to pay employees’ tax obligations. These decreases were partially offset by a $2.6 million increase in purchases of treasury stock.

Free Cash Flow

Free Cash Flow is defined as net cash provided by 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 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 provided by 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 years ended December 31, 2023 and 2022, was as follows:

(dollars in millions)

Free Cash Flow decreased $17.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $10.5 million increase in capital expenditures and a $7.0 million decrease in net cash provided by operating activities. See the “Net Cash Provided by 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.

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 the 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 provided by 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, letters of credit and surety bonds 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 the exclusion of the outstanding balance of the surety bonds from debt and netting domestic unrestricted cash with debt.

The Debt Leverage Ratio as of December 31, 2023 and 2022, was as follows:

(dollars in millions)

The calculation of Adjusted EBITDA for the years ended December 31, 2023 and 2022, was as follows:

(dollars in millions)

The Debt Leverage Ratio, at December 31, 2023, decreased 0.15x to 2.01x compared to December 31, 2022, primarily due to a $75.2 million decrease in net debt, partially offset by an $18.5 million decrease in Adjusted EBITDA. The Debt Leverage Ratio, at December 31, 2023, is within management’s desired target Debt Leverage Ratio range of 1.75x to 2.25x; 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.

Description of Significant Outstanding Debt Obligations as of December 31, 2023

As of December 31, 2023, the Company utilized a combination of debt instruments to fund cash requirements, including the following:

• Senior Secured Credit Facility:
• $432.5 million revolving credit facility (no outstanding balance as of December 31, 2023); and
• $825.0 million Term Loan A ($511.1 million outstanding as of December 31, 2023);
• Master Note and Security Agreement ($2.5 million outstanding as of December 31, 2023).

Senior Secured Credit Facility

On April 28, 2014, the Company entered into its Senior Secured Credit Facility, which included a revolving credit facility, Term Loan A and Term Loan B (Term Loan B was retired in July 2019). The Company completed the fifth amendment to the Senior Secured Credit Facility on November 2, 2021. The Senior Secured Credit Facility was amended to (a) reduce the aggregate amount of the existing revolving credit facility from $500.0 million to $432.5 million, and extend the maturity of a portion of the revolving credit facility such that $90.0 million under the revolving credit facility is due on the existing maturity date of January 31, 2024 (the “Existing Maturity Date”) and $342.5 million under the revolving credit facility is due on November 2, 2026 (the “Extended Maturity Date”); (b) extend the maturity of a portion of the existing term loan facility such that $91.5 million (of which a principal payment of $87.7 million was due upon maturity on January 31, 2024) of such term loan facility is due on the Existing Maturity Date and $483.9 million is due on the Extended Maturity Date; (c) make certain adjustments to pricing, including an increase of 0.50% to the interest rate margin applicable to the loans maturing on the Extended Maturity Date; (d) modify certain financial and operational covenants; and (e) modify the interest rate provisions relating to the phase-out of London Interbank Offered Rate (“LIBOR”) as a reference rate.

The Company completed the sixth amendment to the Senior Secured Credit Facility on March 25, 2022, which expanded the number of currencies available for letters of credit. The Company completed the seventh amendment to the Senior Secured Credit Facility on January 24, 2023, which transitioned the Company’s reference rate from LIBOR to SOFR effective February 1, 2023. The Company elected the practical expedient outlined in Accounting Standards Update (“ASU”) 2020-04 and ASU 2021-01 which allowed the Company to prospectively adjust the effective interest rate after the reference rate change. The transition from LIBOR to SOFR did not have a material impact on the condensed consolidated financial statements.

The Company completed the eighth amendment to the Senior Secured Credit Facility on January 4, 2024, which added an additional $25.0 million principal value to the Term Loan A (under the Extended Maturity Date). On January 31, 2024, the Company used liquidity available under its revolving credit facility and available cash on hand to fund the repayment on maturity of $87.7 million aggregate principal amount, outstanding at the time, of its Term Loan A.

Borrowings under the revolving credit facility and Term Loan A made under the Senior Secured Credit Facility bear interest at 2.75% in excess of reserve adjusted SOFR, or 1.75% in excess of an alternate base rate with a SOFR floor of 0.75% for the extended tranche and bear interest at 2.50% in excess of reserve adjusted SOFR, or 1.50% in excess of an alternate base rate with a SOFR floor of 0.75% for the non-extending tranche.

At December 31, 2023, the Company had no outstanding borrowings on the revolving credit facility, and had $31.1 million of issued letters of credit, leaving up to $401.4 million available for future borrowings. The amount available for future borrowings is reduced to $353.8 million under the Company’s most restrictive debt covenants. The Senior Secured Credit Facility is secured by substantially all of the unencumbered assets of the Company. The Senior Secured Credit Facility also requires the Company to provide additional collateral to the lenders in certain limited circumstances.

Master Note and Security Agreement

On September 1, 1995, and as last amended on November 24, 2014, the Company entered into its Master Note and Security Agreement. As of December 31, 2023, the borrowings outstanding under the Master Note and Security Agreement were $2.5 million. The senior notes under the Master Note and Security Agreement had a weighted average interest rate of 8.09% at December 31, 2023, which is fixed to maturity, with interest payable semiannually. Principal payments commenced September 1997 and extend through 2026 in various tranches. The notes are collateralized by certain United States press equipment under the terms of the Master Note and Security Agreement.

Senior Unsecured Notes

The Company issued $300.0 million aggregate principal amount of its unsecured 7.0% senior notes due May 1, 2022 (the “Senior Unsecured Notes”) on April 28, 2014. During the first quarter of 2022, the Company repurchased $2.4 million of its outstanding Senior Unsecured Notes in the open market. All repurchased Senior Unsecured Notes were canceled. The Company used cash flows from operating activities and borrowings under its revolving credit facility to fund the repurchases. These repurchases were completed primarily to reduce interest expense.

On May 2, 2022, the Company used liquidity available under its revolving credit facility and available cash on hand to fund the repayment on maturity of all $209.1 million aggregate principal amount, outstanding at the time, of its Senior Unsecured Notes.

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 December 31, 2023:

• Total Leverage Ratio. On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exceed 3.75 to 1.00 (for the twelve months ended December 31, 2023, the Company’s Total Leverage Ratio was 2.18 to 1.00).
• Liquidity, defined as unrestricted cash and permitted investments of the Company and its subsidiaries (subject to certain conditions) plus the aggregate amount of the unused revolving credit facility commitments, shall not be less than $181.6 million at any time during the period commencing December 15, 2023 and ending when all obligations owed under the Senior Secured Credit Facility to lenders that are not extending lenders are paid in full.
• 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 (a) 3.50 to 1.00 for any fiscal quarter ending prior to December 31, 2023, and (b) 3.25 to 1.00 for any fiscal quarter ending on or after December 31, 2023 (other than, in the case of this clause (b), any fiscal quarter ending September 30 of any year, each of which shall be subject to a maximum Senior Secured Leverage Ratio not to exceed 3.50 to 1.00) (for the twelve months ended December 31, 2023, the Company’s Senior Secured Leverage Ratio was 1.99 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 December 31, 2023, the Company’s Interest Coverage Ratio was 4.10 to 1.00).

The Company was in compliance with all financial covenants in its debt agreements as of December 31, 2023. 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 December 31, 2023, was 2.18 to 1.00, the limitations described above are not applicable at this time.
• 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 the Senior Unsecured Notes or any other 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 currently not applicable, as the Company’s Senior Secured Leverage Ratio was 1.99 to 1.00 and Total Net Leverage Ratio was 1.99 to 1.00, as of December 31, 2023.

Net Pension Obligations

The net underfunded pension and MEPPs obligations decreased by $1.2 million during the year ended December 31, 2023, from $64.6 million at December 31, 2022, to $63.4 million at December 31, 2023. This decrease was primarily due to a $4.3 million decrease in MEPPs obligations, primarily due to payments totaling $6.2 million made to the MEPPS during the year ended December 31, 2023. The underfunded defined benefit plan obligations increased by $3.1 million during the year ended December 31, 2023, due to an overall decrease of $9.7 million in pension plan assets from $36.6 million in benefits paid, offset by an actual gain on pension plan assets of $26.2 million or 10.67% during the year ended December 31, 2023, which was above the expected return on plan assets assumption of 6.75% and employer contributions of $0.7 million. The decrease in plan assets was partially offset by a decrease in overall pension obligations of $6.6 million from $36.6 million in benefits paid, offset by a $17.6 million increase in interest cost due to a 35 basis point decrease in the pension discount rate from 5.46% at December 31, 2022, to 5.11% at December 31, 2023 and $12.4 million from an actuarial loss.

The Company continues to focus on reducing pension obligations through cash contributions to the plans, lump-sum settlements and plan design changes.

Share Repurchase Program

On July 30, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $100.0 million of the Company’s outstanding class A common stock. Under the authorization, share repurchases may be made at the Company’s discretion, from time to time, in the open market and/or in privately negotiated transactions as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchase will depend on economic and market conditions, share price, trading volume, applicable legal requirements and other factors. The program may be suspended or discontinued at any time. The following repurchases occurred during the years ended December 31, 2023 and 2022:

(1) Excluding commissions, total repurchases were $12.6 million and $9.9 million during the years ended December 31, 2023 and 2022.

As of December 31, 2023, there were $77.5 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 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements are prepared in accordance with GAAP. The Company’s most critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations, and which require the Company to make its most difficult and subjective estimates. Management is required to make judgments and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The Company’s management believes that such judgments and estimates are made with consistent and appropriate methods based on information available at the time, and that any reasonable deviation from those judgments and estimates would not have a material impact on the Company’s consolidated financial position or results of operations. Actual results may differ from these estimates under different assumptions or conditions. To the extent that the estimates used differ from actual results, adjustments to the consolidated statements of operations and corresponding consolidated balance sheets would be necessary. These adjustments would be made in future statements.

The Company has identified the following as its critical accounting policies and estimates.

Revenue Recognition

Performance Obligations

At contract inception, the Company assesses the products and services promised in its contracts with customers and identifies performance obligations for each promise to transfer to the customer a product or service that is distinct. To identify the performance obligations, the Company considers the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company determined that the following distinct products and services represent separate performance obligations:

• Pre-Press Services
• Print
• Other Services

For Pre-Press and Other Services, the Company recognizes revenue at point-in-time upon completion of the performed service and acceptance by the customer. The Company considers transfer of control to occur once the service is performed as the Company has right to payment and the customer has legal title and risk and reward of ownership.

The Company recognizes its Print revenues upon transfer of title and the passage of risk of loss, which is point-in-time upon shipment to the customer, and when there is a reasonable assurance as to collectability. Revenues related to the Company’s logistics operations, which includes the delivery of printed material, are included in the Print performance obligation and are also recognized at point-in-time as services are completed. Revenues related to the Company’s imaging operations, which include digital content management, photography, color services and page production, are recognized in accordance with the terms of the contract, typically upon completion of the performed service and acceptance by the customer. Under agreements with certain customers, products may be stored by the Company for future delivery and revenue is recognized upon shipment to the customer. In these situations, the Company may receive warehouse management fees for the services it provides.

Certain revenues earned by the Company require judgment to determine if revenue should be recorded gross as principal or net of related costs as an agent. Billings for third-party shipping and handling costs, primarily in the Company’s logistics operations, and out-of-pocket expenses are recorded gross in net sales and cost of sales in the consolidated statements of operations in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. Many of the Company’s operations process materials, primarily paper, that may be supplied directly by customers or may be purchased by the Company and sold to customers. No revenue is recognized for customer-supplied paper. Revenues for the Company-supplied paper are recognized on a gross basis. In some instances, the Company will deliver print work for a customer and bill the customer for postage. In these cases, the Company is acting as an agent and billings are recorded on a net basis in net sales.

Significant Payment Terms

Payment terms and conditions for contracts with customers vary. The Company typically offers standard terms of net 30 days. It is not the Company’s standard business practice to offer extended payment terms longer than one year. The Company may offer cash discounts or prepayment and extended terms depending on certain facts and circumstances. As such, when the timing of the Company’s delivery of products and services differs from the timing of payment, the Company will record either a contract asset or a contract liability.

Variable Consideration

When evaluating the transaction price, the Company analyzes on a contract by contract basis all applicable variable considerations and non-cash consideration and also performs a constraint analysis. The nature of the Company’s contracts give rise to variable consideration, including, volume rebates, credits, discounts, and other similar items that generally decrease the transaction price. These variable amounts generally are credited to the customer, based on achieving certain levels of sales activity, when contracts are signed, or making payments within specific terms.

Product returns are not significant because the products are customized; however, the Company accrues for the estimated amount of customer allowances at the time of sale based on historical experience and known trends.

When the transaction price requires allocation to multiple performance obligations, the Company uses the estimated stand-alone selling prices using the adjusted market assessment approach.

Impairment of Property, Plant and Equipment, Right-of-Use Assets and Finite-lived Intangible Assets

The Company performs impairment evaluations of its long-lived assets whenever business conditions, events or circumstances indicate that those assets may be impaired, including whether the estimated useful life of such long-lived assets may warrant revision or whether the remaining balance of an asset may not be recoverable. The Company’s most significant long-lived assets are property, plant and equipment, right-of-use assets and customer relationship intangible assets recorded in conjunction with an acquisition. Assessing the impairment of long-lived assets requires the Company to make important estimates and assumptions, including, but not limited to, the expected future cash flows that the assets will generate, how the assets will be used based on the strategic direction of the Company, their remaining useful life and their residual value, if any. Considerable judgment is also applied in incorporating the potential impact of the current economic climate on customer demand and selling prices, the cost of production and the limited activity on secondary markets for the assets and on the cost of capital. When the estimated future undiscounted cash flows to be generated by the assets are less than the carrying value of the long-lived assets, the assets are written down to fair value and a charge is recorded to current operations. The Company uses internal discounted cash flow estimates, quoted market prices when available and independent appraisals, as appropriate, to determine fair value. This fair value determination was categorized as Level 3 in the fair value hierarchy (see Note 13, “Financial Instruments and Fair Value Measurements,” to the consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for the definition of Level 3 inputs).

The Company classifies long-lived assets to be sold as held for sale in the period in which: (i) there is an approved plan to sell the asset and the Company is committed to that plan, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable, (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Assets held for sale are initially measured at the lower of the carrying value or the fair value less cost to sell. Losses resulting from this measurement are recognized in the period in which the held for sale criteria are met while gains are not recognized until the date of sale. Once designated as held for sale, the Company stops recording depreciation expense on the property, plant and equipment. The fair value less cost to sell of long-lived assets held for sale is assessed at each reporting period until it no longer meets this classification.

Based on the assessments completed during the years ended December 31, 2023, and 2022, the Company recognized property, plant and equipment and right-of-use assets impairment charges of $21.1 million and $2.2 million, respectively, primarily related to facility consolidations and other capacity reduction. There were no finite-lived intangible asset impairment charges recorded during the years ended December 31, 2023 and 2022.

The Company continues to monitor groups of assets to identify any new events or changes in circumstances that could indicate that their carrying values are not recoverable, particularly in light of potential declines in profitability that may result from the highly competitive industry landscape and continued uncertainty in the global economy. In the event that there are significant and unanticipated changes in circumstances, such as significant adverse changes in business climate, adverse actions by regulators, unanticipated competition, loss of key customers and/or changes in technology or markets, or that actual results differ from management’s estimates, a provision for impairment could be required in a future period.

Workers’ Compensation

The Company is self-insured for a significant portion of its expected workers’ compensation program. Insurance is purchased for individual workers’ compensation claims that exceed $0.8 million. The Company establishes reserves for unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims. These reserves and estimates of IBNR claims are based upon an actuarial study, which is performed annually as of October 31st and is adjusted by the actuarially determined losses and actual claims payments for November and December. The Company also monitors actual claim developments, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of the reserves. As of December 31, 2023, the Company has net reserves for workers’ compensation of $28.7 million, of which $6.7 million was recorded in other current liabilities and $31.0 million was recorded in other long-term liabilities in the consolidated balance sheets (see Note 8, “Other Current and Long-Term Liabilities”). These reserves are net of $9.0 million recorded in other long-term assets in the consolidated balance sheets for claims covered by purchased insurance.

New Accounting Pronouncements

As of December 31, 2023, there have been no new accounting pronouncements requiring disclosure within the consolidated financial statements of this Annual Report on Form 10-K.

The Company is exposed to a variety of market risks which may adversely impact the Company’s results of operations and financial condition, including changes in interest and foreign currency exchange rates, changes in the economic environment that would impact credit positions and changes in the prices of certain commodities. The Company’s management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These risk management strategies may not fully insulate the Company from adverse impacts due to market risks.

Interest Rate Risk

The Company is exposed to interest rate risk on variable rate debt obligations and price risk on fixed rate debt and finance leases. The variable rate debt outstanding at December 31, 2023, was primarily comprised of $511.1 million outstanding on the Term Loan A. As of December 31, 2023, there was no outstanding balance on the revolving credit facility. In order to reduce the variability of cash flows from interest payments related to a portion of Quad’s variable-rate debt, the Company entered into a $130.0 million interest rate swap in March 2019, and two $75.0 million interest rate collars in February 2023, and has classified $280.0 million of the Company’s variable rate debt as fixed rate debt. Including the impact of the $280.0 million interest rate hedges of variable rate to fixed rate debt, Quad had variable rate debt outstanding of $229.9 million at a current weighted average interest rate of 7.5% and fixed rate debt and finance leases outstanding of $292.8 million at a current weighted average interest rate of 6.3% as of December 31, 2023. A hypothetical 10% increase in the market interest rates impacting the Company’s current weighted average interest rate on variable rate debt obligations would not have a material impact on the Company’s interest expense. In addition, a hypothetical 10% change in market interest rates would change the fair value of fixed rate debt at December 31, 2023 by approximately $0.1 million.

Foreign Currency Risk and Translation Exposure

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in most countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent revenues and expenses are not in the applicable local currency, the Company may enter into foreign exchange forward contracts to hedge the currency risk.

Although operating in local currencies may limit the impact of currency rate fluctuations on the results of operations of the Company’s non-United States subsidiaries and business units, rate fluctuations may impact the consolidated financial position as the assets and liabilities of its foreign operations are translated into U.S. dollars in preparing the Company’s consolidated balance sheets. As of December 31, 2023, the Company’s foreign subsidiaries had net current assets (defined as current assets less current liabilities) subject to foreign currency translation risk of $88.7 million. The potential decrease in net current assets as of December 31, 2023, from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be approximately $8.9 million. This sensitivity analysis assumes a parallel shift in all major foreign currency exchange rates versus the U.S. dollar. Exchange rates rarely move in the same direction relative to the U.S. dollar due to positive and negative correlations of the various global currencies. This assumption may overstate or understate the impact of changing exchange rates on individual assets and liabilities denominated in a foreign currency.

The Company’s hedging operations have historically not been material, and gains or losses from these operations have not been material to the Company’s results of operations, financial position or cash flows. The Company does not use derivative financial instruments for trading or speculative purposes.

These international operations are subject to risks typical of international operations, including, but not limited to, differing economic conditions, changes in political climate, potential restrictions on the movement of funds, differing tax structures, and other regulations and restrictions. Accordingly, future results could be adversely impacted by changes in these or other factors.

Credit Risk

Credit risk is the possibility of loss from a client’s failure to make payments according to contract terms. Prior to granting credit, each client is evaluated in an underwriting process, taking into consideration the prospective client’s financial condition, past payment experience, credit bureau information and other financial and qualitative factors that may affect the client’s ability to pay. Specific credit reviews and standard industry credit scoring models are used in performing this evaluation. Clients’ financial condition is continuously monitored as part of the normal course of business. Some of the Company’s clients are highly leveraged or otherwise subject to their own operating and regulatory risks. Based on those client account reviews and the continued uncertainty of the global economy, the Company has established an allowance for credit losses of $25.7 million as of December 31, 2023.

The Company has a large, diverse client base and does not have a high degree of concentration with any single client account. During the year ended December 31, 2023, the Company’s largest client accounted for less than 5% of the Company’s net sales. Even if the Company’s credit review and analysis mechanisms work properly, the Company may experience financial losses in its dealings with clients and other parties. Any increase in nonpayment or nonperformance by clients could adversely impact the Company’s results of operations and financial condition. Economic disruptions could result in significant future charges.

Commodity Risk

The primary raw materials that the Company uses in its print business are paper, ink and energy. At this time, the Company’s supply of raw materials are available from numerous vendors. The Company generally buys these raw materials based upon market prices that are established with the vendor as part of the procurement process. The price of such raw materials has fluctuated over time and has caused fluctuations in the Company’s net sales and cost of sales. This volatility may continue and the Company may experience increases in the costs of its raw materials in the future as prices in the overall paper, ink and energy markets are expected to remain beyond its control. The price and availability of paper may also be adversely affected by paper mills’ permanent or temporary closures, and mills’ access to raw materials, conversion to produce other types of paper, and ability to transport paper produced.

Approximately half of the paper used by the Company is supplied directly by its clients. For those clients that do not directly supply their own paper, the Company makes use of its purchasing efficiencies to supply paper by negotiating with leading paper vendors, uses a wide variety of paper grades, weights and sizes, and does not rely on any one vendor. In addition, the Company generally includes price adjustment clauses in sales contracts for paper and other critical raw materials in the printing process. Although these clauses generally mitigate paper price risk, higher paper prices and tight paper supplies, as well as changes in the United States import or trade regulations may have an impact on client demand for printed products. The Company’s working capital requirements, including the impact of seasonality, are partially mitigated through the direct purchasing of paper by its clients.

The Company produces the majority of ink used in its print production, allowing it to control the quality, cost and supply of key inputs. Raw materials for the ink manufacturing process are purchased externally from a variety of vendors. The price and availability of ink and ink components may be adversely affected by the availability of component raw materials, labor and transportation.

The Company may not be able to fully pass on to clients the impact of higher electric and natural gas energy prices on its manufacturing costs, and increases in energy prices result in higher manufacturing costs for certain of its operations. The Company mitigates its risk through natural gas hedges when appropriate. In its logistics operations, however, the Company is able to pass a substantial portion of any increase in fuel prices directly to its clients.

To the extent the cost of other raw materials increase and the Company is not able to increase selling prices of its products, then the Company may experience margin declines.

Management believes a hypothetical 10% change in the price of paper and other raw materials would not have a significant direct impact on the Company’s consolidated annual results of operations or cash flows; however, significant increases in commodity pricing or tight supply could influence future client demand for printed products.

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report and has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the fiscal quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management, including the Company’s Chairman, President and Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

The Company’s management, including the Company’s Chairman, President and Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management has concluded that, as of December 31, 2023, the Company’s internal control over financial reporting was effective based on that framework.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Ernst & Young LLP (PCAOB ID No. 42) the Company’s independent registered public accounting firm, issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, which is included herein.

Audit Report of Independent Registered Public Accounting Firm

The audit report required under this Item 9A, “Controls and Procedures,” is contained in Item 8, “Financial Statements and Supplementary Data,” of Part II of this Annual Report on Form 10-K under the heading “Report of Independent Registered Public Accounting Firm.”