Quad/Graphics Inc (QUAD) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics first quarter 2011 conference call. During today's call, all parties will be in listen-only mode. Following the speakers' presentation, the conference call will be opened for questions. (Operator Instructions).

I would now like to turn the conference call over to Barb Bolens, Assistant Treasurer and Director of Investor Relations for Quad/Graphics. Please go ahead.

Thank you, operator, and good morning everyone.

With me today are Joel Quadracci, Quad/Graphics' Chairman, President, and Chief Executive Officer, and John Fowler, Quad/Graphics' Executive Vice President and Chief Financial Officer.

Joel will lead off today with a review of the financial and operational results for the quarter, our dividend announcement, and will also provide an update of the Worldcolor integration activities. Following Joel's remarks, John Fowler will provide a more detailed review of the first quarter financial results. We will continue to make comparisons to the pro forma Company for first quarter 2010. Following John's update, Joel will include with an overview of our key priorities for the remainder of 2011.

I would like to remind everyone that this call is being webcast, and forward-looking statements are subject to Safe Harbor provisions outlined in our quarterly news release and the slide presentation that are both posted on our website. The slide presentation can be accessed through a link on the Investor Relations section of the Quad/Graphics website at www.qg.com.

There are also detailed instructions on how to access the slide presentation and our first quarter earnings release, issued last evening. A replay of the call will also be posted on the Investor Relations section of the website after the live call continues.

I will now turn the call over to Joel.

Thanks, Barb, and good morning, everyone.

I am pleased that our first quarter 2011 results were in line with our expectations. Business trends identified in our fourth quarter call continued, which resulted in net sales that were up slightly versus pro forma first quarter 2010. Higher paper byproduct revenues, as well as volumes at legacy Quad/Graphics, contributed positively to net sales.

Those increases continue to be offset by lower legacy Worldcolor volumes, pricing headwinds due to overcapacity in the industry, and declines from contractual prices at legacy Worldcolor inherited with the acquisition. Adjusted EBITDA of $140.7 million was slightly ahead of last year, and our adjusted EBITDA margin was flat with 2010 at 12.8%.

We believe this demonstrates our ability to manage both the frictional costs of integration as well as the impact of rising commodity costs. We are working hard to manage input cost pressures and offset increases with productivity improvements.

We are very pleased to have announced last evening our decision to initiate a cash dividend and believe that this demonstrates the confidence we have in our ability to successfully complete the Worldcolor integration and achieve the synergies identified to generate sustained strong future cash flows and in our ability to continue paying down debt.

The quarterly dividend will be $0.20 per share and will be paid on June 10 to shareholders of record on May 27. This represents an annualized dividend of $0.80 per share. This is a significant milestone for Quad/Graphics, as we believe this enhances returns to shareholders through our broadened capital allocation strategy.

We have disciplined processes in place for investment and capital expenditures and growth initiatives, as well as balance sheet improvements. We believe that now is the right time to initiate a dividend and expect it will enhance our returns to shareholders both today and in the long term.

We are focused on balancing our priorities, which include meeting the needs of our customers, continued effective execution of the integration plan, optimizing operational efficiencies, investing in our platform, and continuing to pursue organic and external growth opportunities. We are impatient when it comes to improving operational results and therefore are moving aggressively to complete the integration and implement sustainable cost reductions through lean enterprise efforts throughout the entire organization.

Through these activities, we believe that we will not only be able to realize additional cost savings through a more efficient platform but also be better able to offset the impact of industry pricing pressures and commodity price increases we have already experienced and expect to incur in the future. We remain focused on serving our customers without disruption during the transition of their work between plants, and with our customers' continued support, we would not have been able to move as aggressively as we have.

Since the start of 2011, we have announced the closing of 3 additional plants, bringing the number of facilities we have announced for consolidation to 10 since the acquisition. Including these closures, the gross number of employees impacted is over 5,000, and we will have closed more than 5 million square feet of manufacturing, warehousing, and office space.

While these consolidations and closures have unfortunately impacted people's lives, it is the right thing for the business, long term. Even though we have had to downsize employees in some places, we have also hired many in other places. We have realized a net reduction of 3,300 employees.

The focused execution of our integration plan allows us to remain confident that we will achieve somewhat more than $225 million of synergy savings. However, we measure ourselves not only on our success in achieving synergy savings, but even more importantly, on how well we manage our overall cost structure across the business. Strong progress in the integration to date was one of the factors supporting our decision to initiate the dividend earlier than we had originally anticipated.

During the quarter, we went live with our proprietary ERP software, which we refer to as Smart Tools, in the first of the legacy Worldcolor plants. Smart Tools is an integrated suite of over 40 software programs developed by Quad/Graphics that help us streamline and employ common processes, improve visibility across our network of plants, and enable decision making that leads to productivity improvements.

Our Smart Tools also extend to our customers, providing them with real-time data and tools to seamlessly integrate their production workflows with ours. The 5 main areas of software integration include manufacturing, which allows us to manage complex job workflows effectively and efficiently; sales and marketing, which coordinates sales efforts and pipelines across business segments; accounting, through more timely reporting of financial results and better financial analysis abilities; logistics, through better visibility and integrated load planning; and human resources, which allows for centralized, streamlined labor management.

These tools are in all of our legacy Quad plants, and the roll out to our legacy Worldcolor plants is a key integration milestone for us. The consolidation of one single enterprise-wide system will greatly enhance our ability to operate as one Company.

In addition to the ERP implementation, we also recently integrated all of our North American sales onto one customer relationship management system and transitioned all US payroll operations onto a single streamlined HR system. I would like to thank all of the employees who worked to make these first implementations happen seamlessly, as it was a major effort. We feel good about the status of the integration and continue to keep focused on successful completion. There is still a lot of work ahead of us, but we believe we are clearly on the right path.

We continue to invest in our core platforms to leverage or further strengthen our existing business as well. We will be making a $15 million dollar investment in our Martinsburg, West Virginia, plant to enhance our book platform. This investment complements recent multimillion dollar investments in digital press technology at our Fairfield, Pennsylvania, and Dubuque, Iowa, book facilities. As the book publishing industry migrates from long ream production to smaller batch sizes, we expect to be an industry leader.

We are also continuing to make ongoing investments in our direct mail platform as part of a $40 million dollar capital spending plan designed to assist marketers in driving their top line growth using our comprehensive data through delivery service offerings. Our latest investment involved the startup of a new gloss Sunday 2000 Web Press with advanced, data-driven, in-line personalization capabilities that runs on a wide web at faster speeds.

Additionally, in our commercial print platform, we are substantially expanding our Burlington, Wisconsin, facility to accommodate several new state-of-the-art presses is that will drive greater flexibility, quality, and efficiency for our clients. Complementing these capabilities is our already robust lineup of digital and conventional presses and comprehensive fulfillment services that support a wide range of quick-term, customized marketing needs.

While we are operationally impatient when identifying and working towards managing costs, capacity, and strengthening our competitive position, we are strategically disciplined. With the ongoing integration of Worldcolor firmly in place, we are looking forward and focusing on evaluating and pursuing opportunities that create profitable growth and long-term shareholder value.

Whether here in the US or internationally, whether organic or through acquisition, growth is a priority for us as we look forward. We view allocation of capital and management of our portfolio among the most critical decisions we make as a management team. We will follow our disciplined process of assessing, selecting what we believe are the best opportunities for future growth and increased shareholder value.

I will now turn the call over to John to present the financial review.

Thanks, Joel, and welcome, everyone. Before I start the overview, please remember that the comparisons we make to the prior year will be to the pro forma combined Company for first quarter 2010, as we believe that this is the most relevant comparison.

Slide 15 is a snapshot of the first quarter financial results compared to the first quarter 2010 pro forma results. Net sales for the quarter were $1.1 billion, up slightly versus pro forma 2010. As Joel mentioned, business trends continued from the fourth quarter, with positive impacts from increased paper and byproduct revenues, as well as a slight increase in legacy Quad/Graphics volumes.

Downward pressure on net sales resulted from lower legacy Worldcolor volumes, pricing headwinds due to overcapacity in the industry, and from lower contractual pricing inherited at acquisition. Cost of sales of $853.4 million was 1.5% higher than 2010, due in part to higher paper sales, which are sold at a lower margin than manufacturing sales.

We also are feeling some effects from rising energy and commodity costs, and while longer-term supply contracts did protect us from the full impact of cost increases, we believe we will continue to feel increased effects of rising costs as the year goes forward. Additionally, the incremental retirement and compensation expense incurred to create a comprehensive and sustainable program for legacy Worldcolor employees was also felt during the quarter. Finally, we continued to incur frictional costs through the integration resulting from hiring and training additional employees to prepare certain plants to receive transferred volumes from closing plants, which increased cost of sales.

Partially offsetting these increases were synergies achieved. We believe we are doing a good job managing the cost of integration, commodity price increases, and the incremental retirement and compensation expense. SG&A expense of $109 million was down 7.3%.

The decline was driven by energy savings. Depreciation and amortization of $90.5 million and interest expense up $29.9 million were in line with our expectations. Restructuring, impairment, and transaction-related charges were $34.8 million in the quarter and were also in line with our expectation.

Slide 19 shows a reconciliation of the $34.8 million in restructuring, impairment, and transaction-related charges for the quarter. Employee termination costs totaled $15.1 million. Other restructuring costs, which include costs to maintain and exit idle facilities, as well as lease exit charges, totaled $12.5, and integration costs were $7.2 million.

Integration-related costs are net of a $7.1 million gain on the collection of a previously written-off note receivable from the June 2008 sale of Worldcolor's European operations. This gain was excluded from continuing operations in our calculation of adjusted EBITDA, as it represents a non-recurring gain, similar to our treatment of non-recurring expenses related to our current restructuring and integration activities.

We are very pleased with the way in which our detailed integration plans have resulted in continued progress toward the achievement of our goals. For the quarter, adjusted EBITDA was $140.7 million, and adjusted EBITDA margin was 12.8%. Adjusted EBITDA increased $0.5 million, versus pro forma first-quarter 2010 results of $140.2 million. Adjusted EBITDA margin was flat to 2010, despite reduced Worldcolor volumes absorbing pricing headwinds due to overcapacity in the industry, contractual pricing inherited acquisition, incremental retirement and compensation expense, and rising energy and commodity costs.

It is important to understand that Worldcolor had a very strong first half of 2010, due to some cost reduction measures primarily taken during their bankruptcy. These cost reductions were not sustainable, and as a result, we need to drive sustainable cost reduction and productivity improvements to offset these additional costs.

As-reported net loss in the first quarter of 2011 was $7.3 million or $0.15 diluted loss per share, as compared to an as-reported net loss of $8.5 million or $0.30 diluted loss per share in 2010. Excluding the effects of restructuring, impairment, and transaction-related charges in both years, net earnings were $11.1 million or $0.24 diluted earnings per share in the first quarter 2011, as compared to an as-reported net earnings of $0.1 million or 0 diluted earnings per share in 2010.

Slide 22 is our summarized balance sheet as of March 31. Our book equity of approximately $1.5 billion and the strength of our balance sheet, as well as strong cash flows resulting in reductions in both debt and pension liabilities since closing the acquisitions, were key factors that contributed to our confidence in initiating the dividend earlier than we had expected.

Slide 23 shows a snapshot of our cash, debt, and leverage ratios as of March 31, 2011. Since the close of the acquisition, we have reduced net debt by $224 million. Our interest coverage ratio is 5.2, and our pension, MEP, and post-retirement benefit liabilities have decreased $114 million since close of the acquisition.

As of March 31, our borrowings under our $530 million revolver were $53 million, down from $57 million at the end of the fourth quarter. The blended interest rate on our total debt balance is 6.2%, with the outstanding principal balances being 54% floating and 46% fixed. Long-term fixed rate debt, consisting of private placement notes, is at an average interest rate of 7.5% and has an average maturity of 11 years and a weighted average life of 6.5 years. Our floating rate debt today is at an average rate of 5.1%.

We believe we have sufficient liquidity for both current business needs and future investments. We believe we have made strong progress towards investment grade metrics, and continue to target a leverage ratio of approximately 2 times. Over time, we are comfortable operating in a leverage range of 2.0 to 2.5 times but may operate above or below that range, given timing of investment and growth opportunities.

As I conclude the financial review, I would like to review the guidance we gave in March for 2011. We continue to expect adjusted EBITDA for 2011 to be slightly in excess of $700 million. We are pleased that our first quarter was on track, as that allows us to reiterate this guidance. We have a lot of work ahead of us this year in continuing our integration and profitability improvement initiatives to ensure we can offset both industry and commodity price pressures. We continue to expect normal industry seasonality, which means we expect the second half of the year to be stronger than the first half and also expect that revenues and adjusted EBITDA will peak in the fourth quarter.

As I mentioned earlier, Worldcolor's first half 2010 results were unsustainably strong, due to the cost-cutting measures primarily initiated during bankruptcy. As a result, we expect second-quarter pro forma comparisons to be challenging, as it is traditionally is our lowest quarter for both revenue and EBITDA.

We continue to expect depreciation and amortization to be in the range of $345 million to $365 million, interest expense to be $105 million to $115 million, capital expenditures to be $170 million to $200 million, cash taxes to be less than $10 million, and as expected, we made a cash tax payment of $24 million in the first quarter, related to 2010. We expect to make pension cash contributions of $54 million and record $8 million of non-cash pension expense during 2011.

We have spoken, since the close of the acquisition and becoming public, that we intend to balance our allocation of capital between debt payment, reduction in our pension and post-retirement liability, and investment in the business. We are very pleased to have now added a dividend to balance our capital allocation and increase return to shareholders.

I would now like to turn the call back to Joel, who will provide some concluding remarks.

Thanks, John.

The initiation of a cash dividend today is significant for us, because we believe it demonstrates our confidence in the integration of Worldcolor, the improvement in our balance sheet, and in the sustainability and strength of our cash flows. As we continue moving through 2011, I am very pleased with the success we have achieved to date in the integration.

We are not yet a year into the acquisition and believe we are clearly on track to achieve the benefits of a more efficient platform that we initially set out to achieve. I am very proud of the excellent work our employees are doing around the world and thank them for their continued all-out efforts in making this happen. Additionally, thank you to our customers for your continued strong support.

Our 40th year began last August, and as we move through this important year, we remain as focused on meeting and exceeding our customers' expectations for service and quality as we were 40 years ago. As we progress through the integration, we continue to ensure our customers' work is transitioned smoothly, and equally important, to ensure we are helping them find solutions to operate more efficiently and productively.

We are also investing in our platform to build more capabilities for our customers to operate in our multi-channel world. We remain operationally impatient to achieve synergies, implement lean solutions, and improve profitability, but at the same time, we are strategically disciplined and continue to systematically pursue profitable growth initiatives. We are working to ensure we are equally focused in the future on operational achievements and profitable growth.

What often goes unspoken is our steadfast commitment to creating and sustaining a safe work environment for all employees. We remain focused on implementing consistent safety policies throughout all of our newly-acquired plants and continuing to improve our safety programs to protect our employees in the best way possible.

And finally, I would like to take a few minutes to thank Mark Angelson for his contributions to our Board. Earlier, Mark tendered his resignation from our Board, due to his appointment as Deputy Mayor of the City of Chicago and Chairman of the Mayor's Economic, Budgetary, and Business Development Council.

Mark has played a significant role in ensuring the success of merging and integrating the 2 companies and creating a smooth transition to a public company. Mark is immensely talented, and the experience and success he has had in the private sector will add tremendous value in his new role. Welcome back to the Midwest, Mark.

That concludes our prepared remarks. Operator, we are ready for the Q&A portion of the call.

(Operator Instructions).

Scott Cuthbertson.

First of all, congrats on a good quarter. Seems like the work's going very well. Just wondered if you could give us a little bit of color on the volumes -- some of the dynamics. You mentioned the paper effect and some commodity pressure, some ongoing issues with the legacy Worldcolor but some better volumes with the legacy Quad. Can you help us sort that out in terms of the relative size of those different drivers in the quarter?

I will start by saying that the print economy is still working on recovering, and as we look at what the economy is doing, we have seen some moderate growth in terms of what our customers are doing. But I will emphasize the word moderate.

We knew that Worldcolor would have some downward pressure on it because of their challenges, and that had continued to play out. But at the same time, we saw some of that moderate growth on the legacy Quad side. I think we are seeing customers who have more of a variable ability to mail, mailing more because they are prospecting more. We hope that continues.

Certainly, commodity cost increase and any of that stuff will put additional pressure on them. But at this point, I think we are continuing to see what we have said all along, that there is downward pressure on the legacy World side, but overall in the industry, we are seeing some moderate recovery.

I know visibility is tough in this business, but would you expect kind of the same trends to roughly continue going forward?

You are absolutely right; visibility is tough. It used to be that our customers had visibility several months out, and now it's about a foot out and hasn't seemed to change much. With some of the advertising spend that is out there, the auto companies coming back and such, maybe a little bit more, but not much more. We continue to see maybe some of this moderate trend continue.

Again, the second half of the year is always busier than the first half. But we are still going to be managing to some of the downward pressure that legacy World had.

And further on that point, I was curious -- I know that's an issue for you, was an issue in Q1 -- but specifically with respect to the pressures coming from the Worldcolor legacy stuff, was that fairly even in Q1 and Q2 of last year, or was there any material difference between the 2 quarters which will impact the toughness of the comps you are facing?

I think it was pretty equal in both quarters, Scott, because a lot of the strong results that Worldcolor had in the first half of 2010 was a lot of the cost reduction initiatives that they did regarding compensation and retirement, deferring other costs in the maintenance area, et cetera. Those were done pretty consistently through both quarters. I have not fully dissected it, but I would expect the impact to be the same as we go through the second quarter.

John, roughly speaking, a proxy for that would be an estimate of the costs at Worldcolor times roughly 10%, reflecting the cap program that was in place at that time. Is that a reasonable proxy for the impact of that driver in Q1 and Q2?

Scott, it's really hard to break out, because they were closing down plants; we've continued to close down plants and move things around, so it really becomes hard to do that. The only thing I can break out for you is that -- is the retirement, because that is kind of finite, we can measure that one very easily.

The incremental retirement expense for Worldcolor legacy, Worldcolor employees, and the increase that we had in the first quarter was approximately $9 million. I can break that out for you. The others are impossible with as many changes as we have made with the 10 plants, 5,000 people, people being hired back, putting new programs into place, et cetera.

In general, for either Joel or John, I know price pressure is an ongoing issue for the industry. Is there anything that you can tell us anecdotally from recent contract renewals or recent competitive bidding processes that would indicate if the overall trend of that is changing at all, or if there is anything being done in a broader industry level to address here for capacity?

Anecdotally, I can say that pricing pressure is alive and well. Unfortunately, I think that as you look at the industry and you continue to see excess capacity, people are making decisions that don't necessarily make sense. As we have managed with our own 4 walls, we are really aggressively working on pricing discipline for what we will go after.

We will be very competitive where we need to, but I think there are points where people will do things that just don't make long-term sense for shareholder value that at times we will have to back away from.

I guess what I'm saying is pricing pressure continues to be there. But we are going to continue to manage within our own 4 walls as we continue to pull the unproductive capacity down and lower our cost for producing as we compete with people who are making less than intelligent decisions, that we can do it a more profitably and more consistent with our goal of long-term shareholder value.

With respect to your main businesses -- catalog, retail, magazines -- can you comment on trends in those businesses as we enter the second quarter?

From a volume standpoint, you're asking?

Yes.

If we look at the different segments, clearly the one place that we do think there's secular decline that we manage to is really the directory business. That will continue, and that is pretty much a known entity, but a good business while you have it.

When you think about the book marketplace, I think there is a lot being played out right now, as you all know. It really depends on the segment within book. Some of it will have to do with some of the state budgets and their adoption rates. But I think the ongoing focus in book is going to be about fixing the supply chain from the standpoint of helping book customers manage their inventories down.

And so that's where some of the investment that we've been making is to help customers manage that. You will see some mixed challenges in books, whether it's from hardcover to softcover, and again, back to the different categories, they will get impacted differently.

When we think about more the advertising-related print, such as retail, I think that you continue to see strong retail sales out there. Even with high gas prices and food prices, for whatever reason, and this is a good thing, the consumer keeps spending. So, when we think about retail, but also the consumer-driven media of, call it direct mail and catalog, that's where we have seen some good stabilization. But again, I stress the word moderate growth.

I think that this industry once upon a time was more of a -- on a regular basis more of a GDP growth industry, and I'd say that right now it's acting a little bit more like GDP minus. How that continues to play out with a recovering economy, we will have to see.

But in those categories, too, people have become much more targeted to their customers. So the spend that they are incurring here, on the direct mail side or the catalog side, they are getting smarter about who they mail to, so there's a little bit of an efficiency play going on as well. I think, generally speaking, and for the most part, when you look at the bulk of business, we have seen some stabilization and expect that to continue, unless the economy does some strange things, which certainly it could.

Dan Leben.

To follow up on that last question, could you comment on the magazines business?

I'm sorry. Yes. The magazine business, we continued -- when you look at the top 100 publishers out there, in general, from a circulation standpoint, things have held up pretty good. There has been some troubled properties that may affect that number, but when you take those out, circulation has held up okay compared to what has gone on in the industry.

But advertising spend, and we have seen a pickup in ad pages, and we hear from our clients, they are a little more optimistic about what that means. When you look at some of the specials we just did because of the big wedding across the pond, there has been some pretty strong support from an advertising spend standpoint. Now, this is still compared to relative highs before the recession, and so even though we are seeing some recovering ad spends, it's again -- I would continue to use that moderate term.

One for John real quick. Could you talk about the impact in the quarter of the paper and byproduct sales? How big of a swing factor was that?

The paper and byproduct represented a little under 4% on the revenue side.

When we're thinking about the cost side of the equation, with the net reduction in the head count of 3,300 people, how should we think about that in terms of average compensation for those people? Thinking about the levels of cost that have been taken out of the business that we have to offset with the compensation increases that we talked about earlier from Worldcolor?

You've got such a blend of different people at different levels and the balancing what we are doing between what we are doing with full-time and part-time, that would be a number that would be difficult for us to state and one that we have not broken out, Dan.

Keep in mind, as we are reducing some numbers, we are hiring back in other areas. And the thing that further complicates it is, it is not necessarily a one-to-one ratio because of automation and the efficiency of the platforms. So to John's point, I think it's hard to quantify that.

Just to get us in the ballpark, what does the average compensation look like, both legacy Quad and legacy Worldcolor?

I think we said on a call a while ago, early on, the compensation between the 2 companies, post the cap program that they did, were relatively similar. The difference was really on the benefit side and especially on the retirement benefits that had been excluded. We don't break out publicly, Dan, what our compensation is at different levels.

Talking about the dividend, you talked about the debt levels and paying down the retirement obligations. Looking at EBITDA guidance, it looks like maybe in the next 12-plus months or so, you would be down to the low end of the debt range with most of the pension caught up on. Is the thought, longer term -- have you given any discussion to thinking about dividend payout rates and potentially increasing the dividend when you get to that point?

I think the way -- the we thought about the dividend was from 2 points of view. Number one, we were trying to balance something that was going to be meaningful from an investor point of view and something that we thought was totally sustainable.

We also want to make sure we are balancing in our capital allocation model between the return on shareholders and growth opportunities. And frankly, both Joel and I feel there are going to be growth opportunities both in the US and outside the US. So, we really have not tried to get ahead of ourselves with a specified payout ratio. I think we tried to pick a number that we thought made sense.

We thought it was very consistent with the goals we had to be at investment grade metrics and to continue to pay down debt. And I think as the integration goes further -- again, we are only at 10 months out of 24 months -- and as we see how we are able to take additional cost out and what the other opportunities are, I think it is something that we would re-evaluate on an annual basis.

And determined based upon earnings and increases in cash flow, balanced by growth opportunities to drive shareholder value. That's what we have been good at for a lot of years here at Quad. We'll do that balancing and evaluate what we are going to do.

Drew McReynolds.

First, John or Joel, just with respect to the contractual pricing on Worldcolor, how does that flow through for the next couple of years? Is this going to be a drag until you have an average duration and those contracts roll off, or is there another dynamic we should watch?

Clearly, the reality is, as Worldcolor was coming out of bankruptcy and in a weakened position, the way they had to compete was very heavily on price. That happened up until the time we did the announcement. In order to continue their market position and maintain their revenues, they were doing that through closing. As most people know, print contracts sometimes go into effect immediately, sometimes they have a retroactive element to them, sometimes they have a deferred pricing reduction.

Once we are through 2011, I think all of the noise from what we inherited at acquisition will be behind us. It is going to be hard to ultimately break out, because to the point Joel made, as long as the industry has excess capacity and as long as people compete for market share on something other than their cost advantage, we are going to have that pricing pressure. We are going to continue to see that, but as far as, I'll call it the noise of things inherited acquisition, that will be past us in 2011.

On the pricing dynamic, certainly looking at the industry for a long time, there has always been pricing pressure. What I have observed, certainly in recent years, is clearly you are taking a ton of capacity out of the system, and arguably, we have now gone from 3 major commercial printers in the US to 2, albeit there's thousands others out there that have an impact. So my question is, is there any light at the end of the tunnel here?

And, furthermore, Joel, when you look at the irrationality of pricing from some of the smaller players, do you actually see a number of these smaller players going out of business on a regular basis? Or is there any other dynamic we are missing?

I guess I can't speak for why some people will be doing certain things from a pricing standpoint, but it is a large industry. I'd love to say that there's just 2, but there really isn't. It's a big, fragmented industry. And I will say that you will continue to see consolidation.

There is a tremendous number of players out there who have made it through the recession and are probably thinking, I don't know if I want to go through this again. And so some of these businesses you will see trade hands or consolidate out.

But I guess the light at the end of the tunnel is doing exactly what we are doing, and that is just managing within our 4 walls to manage to the pricing levels that people are willing to pay us. I think that low-cost producer always wins and can sustain itself with the different types of opportunities that we want to execute on to create long-term shareholder value.

We cannot control what is going to happen on the outside, but we can control what happens in our 4 walls. And as we manage this platform and as we continue to make sure we have got all the right work on the right equipment and in the right plants and have the discipline to exit out of less-efficient equipment, melt those machines, we will continue to be able to manage to the pricing levels that are thrown at us.

Again, we will be disciplined about not going after certain things, and I think that's the opportunity we have. It's hard to sit across the table from an employee and give them the piece of work that there's no way you could have a good return on. Maybe it pays for the lights, but I think the myth out there is that you can price things to such a point to fill up volume and use that level of work to pay for the lights.

But the problem in this industry is that level of pricing has always -- always rolls through your whole portfolio, because for every action there is a reaction. And I think that is the danger that people play when they start doing pricing to fill up volume or fill up capacity just to pay for the lights and then hope you are going to make profit on the rest of it. Because typically, it rolls through the rest of the portfolio. That's why we are having a pretty strong discipline on not following that path.

Joel, just on growth opportunities that you talk about, you are clearly through the integration or well through the integration in terms of visibility on how that is unfolding. You instituted a dividend, which was great.

When you look at growth opportunities, acquisition or organic, I think we get a sense of in organic where your focus is. On the acquisition side, are you still focused on core print? Or are you looking outside the core print in diversifying your revenue stream, and geographically, are we more international at this point, or are there still opportunities in the US?

At the end of the day, we are a printer, and most of our revenue comes from print and will continue to come from print. But what we are really focusing on is core competencies. We are really good at putting ink on substrates. We're really good at implementing a process improvement to drive cost out. We have a technology company that has developed technology for multiple parts of the industry and has gotten us into new areas.

But I think you will see us continue to look at print as an opportunity. I don't think it print is going away. I think that the opportunity is to continue to make it more aggressive.

We are doing all the things such as QR codes and helping customers bridge the gap between print and digital media. We will certainly play where it makes sense, but I think a big opportunity is continuing to show clients how they can use data and variable print in new technologies to make the core product of print much more aggressive. So, from a product standpoint, we are a printer. But we are also willing to expand our core competencies and get into different places.

Through this acquisition, we obviously have expanded the number of products we are in, but also the geographies we are in. We're the largest printer in Latin America. We have got a really good foothold in Central Europe with Poland.

And there are many places in the world where you have fast growing middle classes. They are going to be consumers of print. They already are, and as the rest of those economies follow suit, we will be looking for places where our core competencies can be deployed to be a low-cost producer, to be successful within whatever product line we are in.

We don't want to just be in the product line for the sake of doing it or be in a location for the sake of being there. We want to use some of this as planting seeds and looking for opportunities to deploy the effectiveness of our organization.

And I will say what has been great to watch -- and we are only 10 months into a 2-year process here, but what has been great to watch is the team has the playbook now for integration, and we have got plenty of really talented people who -- throughout our organization -- who are executing on that playbook. So now, I feel much more comfortable spending more time personally in looking for those opportunities.

I think that -- what those opportunities are, that's one of the most important parts of my job. And it's not always simple to find them, but we know they are out there, both big and small. And we will continue to be disciplined in balancing the uses of capital that we have and the cash flow that we have from all the things that we talk about including growth initiatives, whether they are organic or from an acquisition standpoint.

Could you tell us what the CapEx was in the quarter, just for modeling purposes this morning?

I think it was approximately $40 million. Let me just take a kind of a quick look and stuff.

If you want to just e-mail me that, that's great.

I think it was right around 40 or the low 40s. I will follow up with you on that.

(Operator Instructions). [Sam Sakheen].

What are your plans for investor relations, and how are you guys trying to improve visibility and help trading in the stock?

I'm sorry, what's our plan for investor relations? And trading of the stock? We are continuing to be active. We participated in a conference back in December. We did a conference in February. Barb Bolens has been doing a great job of responding to some of the investors that have expressed interest.

We had a very successful Investor Day back in December. So, we will continue to do all of those things and continue to provide the education of people. And whenever we -- people are interested in meeting with us, Barb has been making herself available and Joel and myself available. So we will continue to do that, and frankly, when we did the acquisition, we felt the right way to do this acquisition was as a fixed-share exchange.

We understand that we ended up being public without a traditional IPO, and therefore, we were going to have this light float, because frankly, both companies were relatively closely held. So what we are experiencing right now is what we expected.

We knew it was going to be a several year process to migrate to a more normal float, and in the interim, we will do everything that we can to facilitate new investors that are interested and existing investors who would like to expand their position but are trying to understand things. I think we are doing everything that we would do if we had normal float, and that is something that will happen over time.

And also, would you be able to talk a little about working capital needs, how do you guys manage? I know you have a couple of revolvers come into maturity soon?

No. We have 1 revolver, the $530 million. It's a 4-year facility that goes through July 2 of 2014. We don't have anything currently maturing. We only had about $53 million of usage. We actually had debt pay down in the first quarter as compared to what we had -- we had actually some, about $10 million of debt usage in the first quarter of 2010.

We think there's a lot of opportunities, candidly. One of the ways that Worldcolor competed, in addition to price was pretty aggressive credit terms. We've been a tight credit term shop. We think there is significant opportunity in the whole working capital area, especially as we implement our smart tools through the organization, implement our new tools, operate as one Company.

So, you've identified something that is a key focus for us, which is generating cash out of working capital. That will be an ongoing process through 2011 and into 2012.

Last for me, what are your thoughts on certain mergers and acquisitions? I know you guys are closing plants and trying to just tighten things up, but are there some geographies or niches that you guys are looking into?

Again, acquisitions, we think, is just a tool in growth, and certainly it's a muscle that we have strengthened. I think there is opportunities thrown at us all the time, but just because they are available doesn't mean that they make sense. They will come up in all regions and all product lines, but we will continue to be very disciplined in our approach of evaluating them.

Can you speak a little about those disciplines, like what are some of the multiples that you guys are looking at?

We won't comment on multiples or things like that, but we'd really focus on is it something that is consistent with creating long-term share value and is it something that plays on the strengths that Quad has? But in terms of what we are willing to pay, for obvious reasons, we really don't discuss that.

We have shared this before. We view there are 4 drivers to share value. There's profitable growth; there's margin improvement; there's capital management; and there's multiple expansion. As you look at any acquisition and as you think about what's the appropriate price, it's all going to be looking at how many of those four drivers is that acquisition going to bring to you, and what do you think that is going to do, as far as creating value?

I don't like to get caught in the trap of, we can buy at -- this at 3 times or why in the world would you pay 10 times. I think you have to really put it through your formula and your discipline and really understand and be able to firmly make the case for yourself and then to our Board, exactly how is this acquisition going to create value. Frankly, that's the biggest key, more than it is how you negotiate the deal.

At this time, there are no further questions. Presenters, do have any closing remarks?

Thank you all for joining us today, and as we conclude, know that we are very pleased with and proud of our success to date on this very complex integration that we have undertaken. That success is one of the key reasons we had the confidence in initiating our dividend today versus in the future when we were further down the integration path. We are committed to improving operational efficiency, increasing our returns to shareholders through the strategic and disciplined allocation of capital between investment and profitable growth, debt reduction, and returns of capital in ways such as dividends.

We still have a lot of work ahead of us in the integration, but are confident in our ability to successfully complete the integration and achieve the synergies. Thanks for being with us today, and we look forward to our second quarter update in about 3 months. Have a good weekend.

This concludes today's conference call. You may now disconnect.