Quad/Graphics, Inc. (QUAD) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics First Quarter 2012 Conference Call. [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 in 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 Investors 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 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 were 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 2 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 3 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've 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 ZenithOptimedia, who recorded a 3.8% increase, compounded annually, and combined newspaper and magazine ad spending in Mexico from 2000 to 2011. For 2012 to 2014, they projected combined magazine and newspaper ad spending will continue to increase in 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. Manipaltech, 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, prepaid 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 Manipaltech. I have personally known the Pai family for a number of years and believe our common company values combined with a 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 U.S. sales team into 3 main groups: Marketing 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 2 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 BusinessWeek, effective in January 2013. This agreement, which also includes 100% of their paper sourcing requirements, significantly expands our share with Bloomberg BusinessWeek, essentially 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 are able to leverage our success in producing 100% of the retail inserts to obtain the retailer's direct-mail volume. hhgregg value the power of our integrated offering, which will also include complete paper 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. But 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 to print production. As I shared with you on our last call, Quad graphics co-mailed more than 4.8 billion magazines and catalogs 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 co-mail platform to meet increasing demand, as during the first quarter of 2012, the number of co-mail magazines, catalogs and direct-mail pieces increased by 17% to 967 million pieces year-over-year. Our net strategic focus area is redefining print, which connects to our philosophy that in 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 as their print -- 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 of. During the quarter, Quad/Graphics collaborated with Condé 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 in NFC tag that immediate 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 for the NFC chips in North America. The integration of NFC Technology with print as 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 workflow and content management systems to more effectively help our customers create, optimize and connect their content across all media channels. Moving on. Empowering employees and being a low-cost producer are 2 key strategic focus areas. They're 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 and low-cost producer status. Key to our integration success and the reason for our ability to achieve continued productivity improvements, is the ongoing rollout of the strong operational culture to our new family members. At each facility, we built 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 cost. 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 empowering 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 continue to see 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'm 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 of 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 cost 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 flow for the 3 months ended March 31, 2012, is included in the supplemental information located in our slide presentation. We have once again included an adjusted EBITDA average 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 of 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 had 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 6.2x versus 5.9x at the end of last year. Our leverage ratio at the end of the quarter was reduced to 2.2x from 2.3x 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 2.0x to 2.5x leverage range is the appropriate target. At times, we may go above or 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 had 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 6 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 deleveraging 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 this 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] Your first question comes from the line of Dan Leben.

Could you first talk about what the contribution was in the quarter from the Transcontinental assets you acquired in Mexico?

Dave?

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 onto through integration of our manufacturing platform in Mexico where we've announced closures of 2 plants, and we continue to mix that volume of business among historical Quad plants and with the new Transcon-Mexico plant. So that number, we'll probably lose some side of that, but at this point in the first quarter before the movement, 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. And then just looking at the growth margin trend, obviously suffering from the volume decline there, how much of a factor on a year-over-year basis was any dilution from Transcontinental rolling in, versus what would happen -- happening, kind of organically within the gross margin level?

Dan, it 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 at the first half, if you have a little bit of mix change that can have an impact on margin. But we're not seeing anything, from a margin point of view, as different than what we were expecting as we go through 2012.

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

We're not breaking out that detail.

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

Well, Dan, I'd say that if you kind of -- you look at magazines for instance and what's happened with ad spending, it's about down 8.2% for the quarter for -- as an industry. But first quarter last year was -- they saw some growth of I think, somewhere around 3-plus percent. We -- again, depending on mix of customers you have, you're either going to be at that number or below it. It kind of bounces around. But 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. And that could impact things to a degree. But again, I think that we're continuing to look at the industry cautiously on a go forward because the visibility, in general, linked to a -- the visibility of the economy is not great and continues to be a challenge.

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

I think, Dan, when we referred 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 are 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 2 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 MEPPs, which will be -- we'll work through the details of that in the second half of '12 into 2013. So I would -- as you know, we're conservative from a financial point of view. So we are very careful as we both establish the dividend and increase the dividend, that we're comfortable that we are on track that it was sustainable whether we are looking at the debt, whether we are looking at the pension, or whether we're looking at the free cash flow, which obviously, we're very pleased with the strong recurring free cash flow in the first quarter of this year.

Your next question comes from the line of Scott Cuthbertson.

Joel, a couple of questions. Just wondered, a 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, the print is a cyclical industry. First half is the slower half, more of the profitability comes in the second half and 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 at -- currently successful and rapidly growing business in India. It will not have a material impact on the -- our financials.

And I think when you think about the contract, with BusinessWeek, I'm not sure -- we typically won't break that out. It is a nice-sized 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 BusinessWeek for that long and I think it's a statement that multiple channels work well for people. And I think that, 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.

And John, that Manipal thing, that's just going to be equity kind of below the line?

I'm sorry?

Just the equity account for the Manipal?

It will be accounted for on a cost basis.

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

Well, I think that 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. So 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 '11 that we didn't have in '12. As we said, we expect '12 cash taxes to be less than $10 million. Additionally, we had -- because of the significant amount of debt we have paid down, I mean, frankly, we paid down between Q4 and Q1, $250 million of debt, so 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 '12 was approximately $19 million less. But there is nothing unusual that we are seeing from a working capital, and 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 happen in working capital. And from a working capital point of view other than the cash taxes that I talked about in '11, there was nothing unusual in the first quarter.

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

Yes. It's -- with the synergies that we currently have in that line item, that's an approximation of -- 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. And also, just looking at the -- I know it's the minority of your business, but maybe 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, the combination of the integration and different 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 the -- 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 in the international division could be a little bit higher than U.S. print-related, ultimately?

I think you're going to see it vary -- it's going to kind of vary by location. But I think the more significant thing, more than the margins, Scott, is the opportunity for top line growth on 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 underway, sponsored by the governments, to increase the literacy level. So we actually see good volume driven by the educational sector in our Latin America business.

Great. And just the last one, just -- I was skipping [ph] on EMEA, the $50 million deposit refund, that's the end of all the adjustments related to that transaction?

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

Your next question comes from the line of Drew McReynolds.

So 3 questions. A little bit bigger picture. And maybe for you, Joel, starting out on just the international footprint, obviously, making a little bit of an entrance into the India market. I guess historically, we've seen Québec or World have some success in some international markets but also struggle in many, in its hay day, and then Transcon, obviously, took a while to get going in Mexico. So how are you kind of 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 certainly differentiated from perhaps other obvious markets?

Yes, I mean, first of all we're kind of doing it with eyes wide open. I think that's an important point whenever going into a new marketplace. We're not new to international. We've been in Brazil and Argentina for a good 14 years. We've been in Poland for almost 14 years as well. So in those cases, I think our original strategy was let's find a good partner, let's find someone who could use our technology and our operational excellence because I think you really do have to be knowledgeable how these markets work. And that's going well for us. I think India is another one of those places. I think there is huge opportunity over the long-term here. It's obviously an economy that you can't ignore. And it's obviously, a country that has proven to be fairly difficult for people to do business in. And that's why, I feel so strongly that our selection of a partner was a key factor here. I think we went to kind of, gone in there just kind of saying let's be there and let's go, unless we had someone who would help navigate. In the Pai family [indiscernible] Pai, who runs that part of the company is really a talented entrepreneur. And so we're going in there. We're giving him some capital he needs to continue his growth and together, I think we're going to learn a lot because 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. So I think we'll 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. And that really implies that you got fast-growing middle classes and countries that are sort of coming into their own. So again, we don't do any of this on a whim. India wasn't sort of decided upon in 2 months. It was a relationship I've built for over 5 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. So again, I think 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.

And then if I look at this particular instance in India, did 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, 5, 10 years later? Presumably, it's the former not the latter, but can you give us any sense of that path?

Well, I mean, you probably look at our history a little bit and that is I think we've -- that there's 2 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 Trias [ph] family. And that's worked well for both of us, and will continue to work well for both of us. In Poland, we got a great start with a great entrepreneur. He built the company to a significant size and there we had clear path, mutually agreeable to actually then go 100% ownership in operating. I think you have to take it, depending on the situation and depending on the opportunity, and I think you can't try to be locked in to any one way because a lot changes over time and you've got to -- as you learn different marketplaces, 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. And that will play out over time. So 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.

Okay, now that's helpful, Joel. Second question for you, John. You have the 2, 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, 6, 12 months ago. I'm just wondering why the 2, 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, and then obviously, you'll have some balance sheet there for future acquisitions?

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, and I'm not sure if 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. And 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. And 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? And I think that one of the benefits we've had over the years is really having a very modern platform, and I think as a result of the successful integration of Worldcolor into Quad, I think we've augmented that competitive advantage. So 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. And as you know, our guidance for CapEx this year was $125 million to $150 million, so 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 revenues. So a long winded way of saying there's nothing that we see that would change our view on the 2.0 to 2.5.

Okay, John, and then 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 was just wondering if you're seeing anecdotal 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 probably be inappropriate for me to be specific on those thoughts other than to say that it it's also a huge industry. I mean, it's over $100 billion in terms of size. And a lot of companies, both big and small, have gone through a lot of rocky times here. I mean, this was this -- the recession was obviously tough for everybody but the industry got hit pretty hard with it. And I think a lot of companies or -- made it through that. And I think you're going to see consolidation continue. I think it has to. There's still just too much capacity. And I think there's a lot of smaller players who have been through hell and probably don't want to go though it again, and are not necessarily set for being competitive in the future as sort of the multi-channel world continues to evolve. So yes, it is a tough industry. It's a big industry and it's fragmented. So that being said, you will continue to see, I think, things evolve. 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 at all those priorities that we've outlined to you. And we look forward to speaking to you all again in -- next in August. Take care.