Quad/Graphics Inc (QUAD) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Quad/Graphics First Quarter 2012 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 call over to Mr. Kelly Vanderboom, Vice President and Treasurer for Quad/Graphics. Kelly, please go ahead.

Thank you operator, and good morning, everyone. With me today are Joel Quadracci, Chairman. President, and Chief Executive Officer; John Fowler, Executive Vice President and Chief Financial Officer; and Dave Honan, Vice President, Corporate Controller, and Chief Accounting Officer. Joel will lead off today with a high-level review of our financial and operational results for the quarter, and provide a summary of our key strategic focus areas. John will follow with a more detailed review of our financial results, which will then be followed by Q&A and Joel's concluding remarks.

The review of our first quarter 2012 financial results and prior year comparisons will exclude Canada, given the closure of our deal with Transcontinental on March 1, 2012. I would like to remind everyone that this call is being webcast and forward-looking statements are subject to Safe Harbor provisions as outlined in our quarterly news release and in today's slide presentation. 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 in our first-quarter earnings press release issued last evening. A replay of the call will also be posted on the Investor Relations section of the Quad website after the live call concludes. I will now turn the call over to Joel.

Thanks, Kelly, and good morning, everyone, and thank you for joining our call today. I am pleased to report that our first-quarter performance provided us with a solid start to 2012. Our first-quarter results were in line with our expectations, and we continue to make progress during the quarter on our key priorities -- to achieve our Worldcolor synergy objectives, improve productivity and reduce costs, reduce debt to further strengthen our balance sheet, and generate consistent and recurring free cash flow. As I've said before, it is our belief that these priorities will provide us with us the flexibility to maneuver through industry challenges, pursue our strategic objectives, and create shareholder value.

Our first quarter achievements included net sales of $990 million, adjusted EBITDA of $126 million, and adjusted EBITDA margin of 12.7%. Our results are in line with our expectations, but below prior year, primarily due to the expected volume and pricing pressures we identified in the second half of 2011. As it relates to recurring free cash flow, I am pleased to report that during the first quarter of 2012, we generated $107 million, which demonstrates our continued ability to generate strong and consistent cash flow. From a balance sheet perspective, we continued with a disciplined approach to capital deployment.

Given the continuing transformation of our industry, we again took a conservative view toward the use of cash flow. During the first quarter we did not buy back shares, and instead made a significant debt pay-down of $90 million. Since the close of the Worldcolor acquisition, we have paid down a total of $415 million. We are proud of the progress we continue to make to strengthen our balance sheet, and believe that a focused effort to pay down debt is the proper use of cash flow right now, given ongoing industry challenges. Going forward, we will continue to remain flexible and opportunistic in terms of our future plans for capital deployment. As always, the priorities of our capital will be adjusted based on prevailing circumstances and what we think is best for shareholder value creation at any one point in time.

The next two slides provide a quick update on our asset exchange with Transcontinental. The progress we are making on our integration in Mexico and the recent investment we made in the strategic partnership with India-based Manipal Technologies. As it relates to our asset exchange, I am pleased to report that as expected, we closed on our agreement to sell our Canadian facilities on March 1, 2012. The sale, originally announced in July of 2011, was part of a deal that included acquiring Transcontinental's three Mexican facilities. This part of the transaction closed on September 8, 2011, and I'm happy to report that our integration plans continue to advance as originally anticipated.

I have just returned from a tour of each of our facilities in Mexico, and I am confident that we will see market growth and additional opportunities to further expand our presence there given the expanding middle-class population. This growing middle class is attractive to both marketers and publishers, as supported by recent statistics from Zenith Optimedia, who reported a 3.8% increase compounded annually in combined newspaper and magazine ad spending in Mexico from 2000 to 2011. For 2012 to 2014, they project the combined magazine and newspaper ad spending will continue to increase at a compounded annual growth rate of 2.9%, and total media spending will increase by 4.1%.

During the quarter we expanded our geographic footprint to Asia by entering into a strategic partnership with India-based Manipal Technologies. Manipal Tech, founded by the Pai family in 1941, supports a variety of industries with a diverse range of print products, such as debit and credit cards, pre-paid phone cards, gift vouchers, and a number of other security products. They also produce magazines, catalogs, books, brochures, annual reports, consumer goods packaging, point-of-purchase displays, and labels. We are enthusiastic about our new partnership with Manipal Tech. I have personally known the Pai family for a number of years, and believe our common Company values, combined with mutual commitment to advance the effectiveness of print in a multi-channel world, will create value for both companies.

As I've said before, given our current industry challenges, we must remain diligently focused on those key areas under our control. Those strategic areas are reflected on Slide 6, and link seamlessly together to form a solid foundation for our future success. I will briefly highlight a few key examples to support each area, beginning with our customer-centric approach. Last quarter, I shared with you the reorganization of our US sales team into three main groups -- marking solutions, publishing solutions, and enterprise solutions.

This new structure enhances our customer-centric approach and makes it easier for marketers and publishers to take advantage of the entire continuum of our integrated offering. It also allows us to remain steadfast in our focus to create true customer value in two essential ways. First, by maximizing the revenue customers derive from their print spend by providing integrated solutions that connect print to their overall marketing efforts; and second, by minimizing our customers' overall total cost of print production.

We believe this customer-centric approach will help retain and grow market share over the long term. Let me share a few brief examples to support this. First, from our publishing solutions group, I am honored to announce a letter of intent to print 100% of Bloomberg Business Week effective in January 2013. This agreement, which also includes 100% of their paper sourcing requirements, significantly expands our share with Bloomberg Business Week, essential tripling the volume we produce for this title. Additionally, we will continue to perform 100% of the pre-press work, and produce nearly 100% of its related North American direct mail volume. Our commitment to innovation and exemplary quality were key differentiators in the successful outcome of this agreement.

From our marketing solutions group, we are excited to announce a new multi-year agreement with hhgregg, a fast-growing electronics and appliance retailer. In this example, we were able to leverage our success in producing 100% of the retail inserts to obtain the retailer's direct mail volume. Hhgregg valued the power of our integrated offering, which will also include complete paper and distribution services. The third example of where we are seeing measurable results from our integrated selling approach is evident in our commercial and specialty platform, and in-store marketing division called Tempt. Both divisions experienced significant growth in the quarter that was driven by our ability to offer new products seamlessly and efficiently to our existing customers.

Before we move to our next strategic focus area, I'd like to touch on one major way we are helping our customers minimize their total cost of print production. As I shared with you on our last call, Quad/Graphics cold mailed more than 4.8 billion magazine and catalog in 2011. We are proud of this fact, as it shows our ability to earn significant discounts from USPS on behalf of our customers, and shows our commitment to help our customers reduce their mailing costs. In 2012, we continue to invest in our cold mail platform to meet increasing demand, as during the first quarter of 2012 the number of cold-mailed magazines, catalogs, and direct-mail pieces increased by 17% to 967 million pieces year-over-year.

Our next strategic focus area is redefining print, which connects to our philosophy that today's media world, it is not an either/or situation, as mobile and digital technology complement print. Our customers want to use all channels, and as their print partner, we know we are well-situated to help them integrate print with other media channels. The example I will share with you to support this point is one that we are very proud. During the quarter, Quad/Graphics collaborated with Conde Nast to produce America's first-ever mass-produced NFC-enabled ad.

The ad, which appeared in 500,000 subscriber copies of the April issue of Wired magazine, featured an NFC tag that immediately launched a mobile site when tapped by an NFC-enabled Android smartphone, immersing the reader in a video showcasing enhanced product features. Due to this project, Quad/Graphics now holds the industry record for placing the largest order of NFC chips in North America. The integration of NFC technology with print is part of our integrated print solutions offering that also includes variable QR codes, image recognition, and augmented reality.

We firmly believe that print integrated with advanced mobile technology will provide marketers and publishers an entirely new way to engage with their audience, and we have a dedicated team in media solutions positioned to help them create the experience. As a reminder, our media solutions offering brings together our existing content solutions, including creative, photography, video, and imaging, and combines them with our integrated work flow and content management systems to more effectively help our customers create, optimize, and connect their contest across all media channels.

Moving on, empowering employees and being a low-cost producer are two key strategic focus areas that are inextricably linked, and are among the reasons why we believe we are the best operator in the industry. Our long-standing strong culture of empowering employees to think differently and act like owners has contributed to our continued productivity improvement and low-cost producer status. Key to our integration success and the reason for our ability to achieve continued productivity improvements is the ongoing roll-out of this strong operational culture to our new family members.

At each facility, we build from a foundation of open communication and mutual respect. We support our manufacturing teams with dedicated resources who help foster idea generation in all areas of the production process to drive continued productivity improvements, such as increased equipment speeds, improved up time, and reduced waste and labor costs. We couple this with a strong culture of lean manufacturing and continuous improvement, a world-class equipment maintenance program, and a long-standing employee training program that focuses on both production competencies and core leadership fundamentals to support empowing all employees to drive improved business results.

Given the transformation we are experiencing in our industry, our ability to be the low-cost producer through ongoing productivity improvements becomes increasingly important. During the first quarter, we continued to sea our productivity trend improve and exceed the levels we originally expected in our Worldcolor integration plan. As a Company, we are making great progress and I am tremendously proud of the good work we are doing. With that, I will now turn the call over to John, who will cover financial strength, our final key focus area, as he provides a more detailed financial review for the quarter.

Thanks Joel, and welcome, everyone. Slide 7 is a snapshot of our first quarter 2012 financial results compared to our first quarter in 2011. Net sales were $990 million, reflecting the volume and pricing pressures that we brought to your attention in the second half of 2011. This compares to first quarter 2011 revenue of approximately $1 billion. Cost of sales at $773 million was 1.4% lower than the first quarter 2011. SG&A expense of $92 million decreased 6% from $98 million in 2011. Depreciation and amortization was $85 million, versus $87 million in the first quarter of 2011. Interest expense was $21 million, representing a significant reduction of 28% from 2011.

Our adjusted EBITDA was $126 million, versus $142 million for the first quarter of 2011. Our adjusted EBITDA margin for the quarter was 12.7%, versus first quarter 2011 at 13.8%. These unfavorable EBITDA quarterly variances were driven by volume and price declines that were partially offset by continued productivity improvement, a focused effort to amend aggressively managed costs, and obtain our incremental synergy savings.

Recurring free cash flow, which we define as cash flow from operating activities less capital expenditures and excluding non-recurring items such as restructuring costs, was $107 million in the first quarter of 2012. We believe free cash flow is an important metric for us, and we expect our business to continue to generate a significant amount of cash flow. We will continue to actively manage working capital and the efficient investment in capital expenditures.

The reconciliation of recurring free cash throw for the three months ended March 31, 2012, is included in the supplemental information located in our slide presentation. We have once again included an adjusted EBITDA bridge in our slide deck to better explain the impacts to adjusted EBITDA in the quarter. This quarter the positive impact was due to incremental synergies of $25 million, driven by the labor improvements that Joel outlined earlier in the call.

I will note here that we continue to be on track to achieve more than $250 million in annual synergy savings from the Worldcolor acquisition, exceeding our original synergy guidance of $225 million. Offsetting our synergy savings were volume and price declines that impacted adjusted EBITDA by $33 million during the quarter. As expected, ongoing industry challenges were the largest drivers of this decline. $6 million was attributable to the book business, and the remaining $2 million resulted from other net impacts.

As you look at Slide 9, you will immediately see the improvement we have made from our December 31, 2011, debt metrics. During the quarter, we paid down $90 million of debt, and have paid down $415 million since the close of the Worldcolor acquisition. Our interest coverage ratio for the quarter increased to 6.2 times versus 5.9 times at the end of last year. Our leverage ratio at the end of the quarter was reduced to 2.2 times from 2.3 tames at the end of last year, which reflects our efforts to both manage the components of working capital as well as ensure we make the right capital expenditures.

We are pleased to be within our targeted range, and continue to believe that operating in the 2.0 to 2.5 times leverage range is the appropriate target. At times we may go above our below that temporarily, given the economy, working capital seasonality, timing of investments, and growth opportunities. Our focus remains on ensuring that our balance sheet continues to be strong and flexible, so that we can adjust to changing economic conditions, invest in our business, and return value to our shareholders through our quarterly cash dividend.

As we look at Slide 10, I would like to point out that we no borrowings under our $850 million revolver at the end of the first quarter in 2012. Interest expense decreased 28% to $21 million, representing a significant reduction from 2011. Our floating-rate debt today is at an average rate of 3.1%. Long-term fixed rate debt, consisting of private placement notes, continues to be at an average interest rate of 7.5%, and have an average maturity of 10 years, with a weighted average life of six years.

The blended interest rate on our total debt is 5.1%, and the outstanding principal balances are 53% floating and 47% fixed. Consistent with last quarter, we have no significant debt maturity until July 2016, which includes our main revolver that was successfully refinanced in July 2011. Given the increased flexibility under our revolver and our strong free cash flow, we believe we have sufficient liquidity for current business needs, sustaining the dividend, and supporting future investments.

Before we move to Q&A, I would like to note that our quarterly dividend of $0.25 per share, which represents an increase from the prior year of 25%, will be payable on June 22, 2012 to shareholders of record as of June 11, 2012.

I will close by stating that we will continue to make decisions that are in the best interest for our shareholders, like aggressively de-leveraging our balance sheet through debt and pension reductions, continuing our efforts to further improve productivity and reduce costs, while maintaining strong and recurring free cash flows to pursue our strategic objectives and create shareholder value. With the strong foundation in place, coupled with our performance during the quarter, we believe that we are on track to meet the annual 2012 guidance given on our fourth quarter 2011 call. I would now like to turn the call back to the operator, who will facilitate taking your questions. Operator?

(Operator Instructions)

Dan Leben

Thank you, good morning. Could you first talk about what the contribution was in the quarter from the Transcontinental assets you acquired Mexico?

Good morning, Dan. The assets in Mexico contributed about $18 million in gross sales in the quarter. That's going to be a difficult number to continue to track as we continue on through the integration of our manufacturing platform in Mexico, where we've announced closures of two plants, and we continue to mix that volume of business among historical Quad plants and with the new Transcon Mexico plants. That number -- we'll probably lose some sight of that, but at this point in the first quarter before the movement of a lot of those volumes, it contributed about $18 million, and then I'll point out on a net basis our international revenues were up about $11 million.

Great. Just looking at the gross margin trend, obviously suffering from the volume declines there. How much of a factor on a year-over-year basis was any dilution in terms of Transcontinental rolling in versus what was happening organically within the gross margin level?

Dan, there really wasn't the Mexico revenues that Dave Honan referred to of $18 million wasn't enough to really have any impact. When we look at the gross margin, for us there weren't any surprises in the quarter. We had a little bit more paper and pass-through type of items that have a low margin, so when you have a --when you're in your lower-volume period of the first half, if you have a little bit of mix change that can have an impact on margin. We're not seeing anything from a margin point of view is different than what we were expecting as we go through 2012.

What was that -- the year-over-year change in the paper and pass-through piece?

We're not breaking out that detail.

Okay, great. To the extent that very difficult second half last year in the industry, any signs you can give us that point to stability in the market, either on the pricing or volume side that you saw incrementally in the first quarter?

Well Dan, I would say that if you kind of -- if you look at magazines, for instance, and what's happened with ad spending, it's about down 8.2% for the quarter as an industry, but first quarter last year was -- they saw some growth of, I think, somewhere around 3% plus. Again, depending on mix of customers you have, you are either going to be at that number or below it. It kind of bounces around. I think that as we sort of have looked at some of the industry numbers for April and May, it seems like there's some sort of stabilization. I continue to think that a lot of people are lacking -- a lot of our customers are lacking visibility because the times are still uncertain. You look at the economy. I think everyone's wishing it well, but I don't know that everyone has the full confidence here.

I think that the other things that kind of come into play are some of the stuff that's going on with the post office. The Senate did push through a bill that thankfully didn't have provisions that would allow for a huge price increase, but now we still have to go through the House on that project. That could impact things to a degree. Again, I think that we're continuing to look at the industry cautiously on a go-forward, because the visibility in general linked with the visibility of the economy is not great and continues to be a challenge.

Great. Last one for me. When you're thinking about the dividend and the opportunities to potentially increase that going forward, help us understand how you're thinking about the roughly $400 million in pension obligations as it relates to total leverage. Should we think about that 2 to 2.5 range, including pension, being a point where you're comfortable stepping up on the dividend side?

Dan, when we refer to the 2 to 2.5 on the leverage, we're looking at that as being the funded debt and the capital leases separate from the pension obligations. We were very careful when we did an early initiation of the dividend in May of last year, and when we did the increase in the first quarter of this year, being very comfortable that we were on track for the funded debt leverage reduction, as well as on track to what we were doing in reducing the overall pension obligations, which two major components of that was the transaction that we did with Transcontinental, where they assumed the pension obligations related to the Canadian business, and the successful efforts that our HR team had in 2011 in negotiating the exit from the [MEPS], which we'll work through the details of that in the second half of 2012 into 2013.

So I would -- as you know, we're conservative from a financial point of view, so we're very careful as we both establish the dividend and increase the dividend that we're comfortable that we're on track that it was sustainable, whether we're looking at the debt, whether we're looking at the pension, or whether we're looking at the free cash flow, which obviously we were very pleased with the strong recurring free cash flow in the first quarter of this year.

Great. Thanks, guys.

Thanks, Dan.

Your next question comes from the line of Scott Cuthbertson.

Good morning, Scott.

Good morning, Joel. Couple questions. Nice first quarter, so I don't imagine there's any change to the guidance you guys provided last quarter?

No, I think that as we all know, print is a cyclical industry. First half is the slower half. More of the profitability comes in the second half. As Joel indicated, the quarter was as we expected it, and while as we're pleased, especially with the debt pay-down, no change.

Great. With respect to -- can you give us any sort of metrics around the impact of Manipal and the new Bloomberg contract?

Manipal was a total investment of about $18 million for a minority interest. It's both a -- currently successful and rapidly growing business in India. It will not have a material impact on our financials.

I think when you think about the contract with Business Week, we typically won't break that out. It is a nice size contract. It's a nice size increase for us. I think the exciting thing about that is Bloomberg really is a multi-channel sort of company, that really is dealing with all sorts of data, and they haven't owned Business Week for that long. It's a statement that the multiple channels work well for people. I think that's one of the things I'm very excited about with this contract is our ability to partner with them to continue to push the limits on how we can link print to everything else.

John, that Manipal thing, that's going to be equity accountable over the line?

I'm sorry?

Equity account for the Manipal?

It will be accounted for on the cost basis.

Okay. The other thing I was wondering about. You had a pretty big -- you spoke, John, to your active management of working capital. That was certainly evident in the first quarter, a big swing there. Can you help us out at all with what you expect from that line item on the cash flow statement for the full year?

Well, I think, number one, Scott, normally first quarter is a quarter that we generate cash from working capital, because we've come off the strong fourth quarter with the higher revenues, and you're collecting those amounts. We normally expect the first quarter to generate cash out of working capital. I think the other things that were impacting it is 2011 was frankly unusually low because we had a large cash tax payment of $23 million in the first quarter of 2011 that we didn't have in 2012. As we said, we expect 2012 cash taxes to be less than $10 million.

Additionally, we had -- because of the significant amount of debt we have paid down, frankly, we've paid down between Q4 and Q1 $250 million of debt. Between that and the successful refinancing that Kelly and his team did, that reduced our interest expense by $7 million, positively impacting free cash flow, as well as just the timing of CapEx. That CapEx in the first quarter of 2012 was approximately $19 million less. There's nothing unusual that we're seeing from a working capital. When we provided our original guidance of recurring free cash flow in excess of $300 million, it was on the basis of what we expected to have in working capital, and from a working capital point of view. Other than the cash taxes that I talked about in 2011, there was nothing unusual in the first quarter.

Okay, so really a weak comp thing. Okay. With respect to corporate expenses, I notice they ticked up a bit. Is that a run rate that we should be looking for going forward?

With the synergies that we currently have in that line item, that's an approximation, a good approximation of an annualized run rate for the corporate cost. Nothing unusual in that line item in the first quarter.

So you said there was nothing unusual in that line item.

Right.

Okay, thank you. Also, just looking at -- I know it's the minority of your business, but looking at the operating losses in the international division, and they were higher despite almost a 10% improvement in revenues. I assume that's just to do with the -- all the work you guys are doing on integration there?

Yes, it's a combination of the integration and differing levels of activities. Candidly, things in Brazil are slower in the first quarter of 2012 than they were in the first quarter of 2011, but you're right, it's a lot of the integration activities, is the primary driver. Nothing unusual happening there that's causing us any concern, and as Joel indicated, we're very enthusiastic about both the success we've seen so far in the actual integration in Mexico, and the opportunities for future growth in Mexico.

Is it safe to assume that the margin for the international division could be a little bit higher than US print related, ultimately?

I think you're going to see vary. It's going to kind of vary by location. I think the more significant thing, more than the margin, Scott, is the opportunity for top-line growth. The fact that you've got expanding economies that you've got growth in print that's taking place. In a lot of these countries there's a major education effort under way sponsored by the governments to increase the literacy level, so we actually see good book volume driven by the educational sector in our Latin America business.

Great, and just a last one. The $50 million deposit refund, that's the end of all the adjustments related to that transaction?

Well, we'll have a final -- you always have the final reconciliation of working capital as it relates to the Canadian piece, but, yes, that represents the major thing. That $50 million was returned in conjunction with the March 1 closing. I will note, Scott, that that $50 million is not part of the recurring free cash flow of $107 million.

Yes, okay. Thanks, guys.

Your next question comes from the line of Drew McReynolds.

Good morning, Drew.

Good morning, thanks very much. Three questions, a little bit bigger picture. Maybe for you, Joel, starting out on just the international footprint, obviously making a little bit of an entrance into the Indian market. I guess historically, we've seen Quebecor World have some success in some international markets, but also struggle in many in its heyday. Transcon obviously took a while to get going in Mexico. How are you navigating the globe? Obviously, mass market print volume is important, but are there things that -- criteria that you're looking for in these types of market that's certainly differentiated from perhaps other obvious markets?

First of all, we're kind of doing it with eyes wide open. I think that's an important point, whenever you're going into a new marketplace. We're not new to international. We've but in Brazil and Argentina for a good 14 years. We've been in Poland for almost 14 years as well. In those cases, I think our original strategy was let's find a good partner, let's find someone who could use our technology, our operational excellence, because I think you really do have to be knowledgeable how these markets work. That's gone well for us.

I think India is another one of those places. I think there's huge opportunity over the long term here. It's obviously an economy you can't ignore. It's obviously a country that has proven to be fairly difficult for people to do business in. That's why I feel so strongly that our selection of a partner was a key factor here. We wouldn't have gone in there kind of saying let's be there and let's go, unless we had someone who would help navigate. The Pai family, Gautham Pai, who runs that part of the Company, is really a talented entrepreneur. We're going in there. We're giving him some capital he needs to continue his growth. Together, I think we're going to learn a lot. Not only are we going to learn about the market, but we're also going to learn some of the product lines that he's in, and figure out how else can we leverage that.

I think we will continue to look internationally as a place for opportunity, and I think we like to see places where there's going to be demand for marketing. That really implies that you've got fast-growing middle classes and countries that are sort of coming into their own. Again, we don't do any of this on a whim. India wasn't decided upon in two months. It was a relationship I built for over five years, and I feel good about where we're going. We're not making such a big bet there that it has any impact negatively on us. I think it's only positive that we're going to see there. Again, more of the same. We'll be careful where we go, but when we go, we'll make sure we put our full resources behind whatever investment we do to make sure we're successful.

If I look at this particular instance in India, do you structure something like this where there's a path to control? Alternatively, do you have your interest there but then maybe set up shop five, ten years later? Presumably it's the former, not the latter, but can you give us any sense of that path?

You probably look at our history a little bit, and that is I think we've -- there's two ways. I mean, good partnerships can be really good partnerships over the long term. In Brazil, our original investment there is a partnership with the family [Frias] family, and that's worked well for both of us, and will continue to work well for both with us. In Poland, we got a great start with a great entrepreneur. He built the company to a significant size, and there we had a clear path, mutually agreeable, to actually then go to 100% ownership and operating.

I think you have to take it, depending on the situation, and depending on the opportunity. I think you can't try and be locked into any one way because a lot changes over time. As you learn different market places, sometimes keeping that partnership intact is the right way to do it. In other cases, how do you continue to leverage the success to make sure we're getting the most of it? That will play out over time. We've kind of gone both ways on that historically, and I think in the future we'll continue to think through things, opportunity at a time.

That's helpful, Joel. Second question for you, John. You have the 2 to 2.5 target range. You're obviously on a dollar basis paying down debt nicely over the last kind of few years. Presumably, there's a little bit more underlying EBITDA pressure than I'm sure you would have guessed six, 12 months ago. I'm just wondering why the 2 to 2.5 target range? Is there any magic behind that? Would you go to a lower net debt to EBITDA target range, just given that underlying pressure, some of the reinvestment you guys have historically done on the platform? Then obviously, you'll have some balance sheet there for future acquisitions.

You know, Drew, we've actually operated in the 2.0 to 2.5, I don't know, for probably the last 10 years, so prior to becoming a public Company. I'm not sure there was any necessarily magic to it, other than we found in that range that we always had the flexibility to be able to access capital markets even if the capital market situation was difficult. You could deal with bumps in the road. You could stretch to take advantage of an opportunity. When we look at -- I think you have to look at the leverage target in conjunction with your confidence around your recurring free cash flow. I think the more confident you can feel about your recurring free cash flow, the less you need to think about, do I need to take the leverage down a notch below where it is?

I think that one of the benefits that we've had over the years is really having a very modern platform. I think as a result of the successful integration of Worldcolor into Quad, I think we've augmented that competitive advantage. When we look at our capital spending on a going-forward basis, we believe we can maintain our superior modern platform with maintenance CapEx of about 2% of revenues, which is about $80 million. As you know, our guidance for CapEx this year was $125 million to 150 million. That's leaving us $45 million to $75 million that we can be investing in things that can drive EBITDA by either taking cost down or by investing to generate revenue. Long-winded way of saying there's nothing that we see that would change our view on the 2.0 to 2.5.

Thanks for that, John. Final question, I guess maybe back to you, Joel. We look at your performance and clearly you guys are very good operators with a great platform and in addition, have cost synergies cycling through, yet there's clearly underlying volume and pricing pressure. I'm just wondering, when you look around you, are there some dominoes and pillars falling? I know it's a notoriously fragmented industry, and you can't really kind of look at it like that, but I'm just wondering if you're seeing anecdote or actual evidence that a couple of folks out there are -- that are meaningful in the marketplace -- are not going to be around?

Well, I think it would be inappropriate for me to be specific on those thoughts, other than to say that it's always huge industry. It's over $100 billion in terms of size. A lot of companies, both big and small, have gone through a lot of rocky times here. The recession was obviously tough for everybody. The industry got hit pretty hard with it. I think a lot of companies made it through that, and there's -- I think you are going to see consolidation continue. I think it has to. There's still just too much capacity. I think there's a lot of smaller players who have been through hell and probably don't want to go through it again, and are not necessarily set for being competitive in the future as sort of the multi-channel world continues to evolve. Yes, it is a tough industry, it's a big industry, and it's fragmented. That being said, you will continue to see, I think, things evolve.

Thank you very much.

Okay, operator? I believe there are no more questions?

That is correct, sir.

Okay. Well, thank you everyone for participating on our call today. We are very pleased with the first-quarter performance and proud of the progress we've been making on all those priorities that we've outlined to you. We look forward to speaking to you all again next in August. Take care.