Quad/Graphics, Inc. (QUAD) Q3 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Quad/Graphics Third Quarter 2012 Conference Call. [Operator Instructions] I would now like to turn the conference over to David -- to Dave Honan, Vice President, Corporate Controller and Chief Accounting Officer for Quad/Graphics. Dave, please go ahead.

Thank you, operator, and good morning, everyone. With me today are Joel Quadracci, our Chairman, President and CEO; and John Fowler, our Executive Vice President and CFO. Joel will lead off today with a high-level review of our top achievements for the quarter and provide an update on 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 session. 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 that slide presentation in our third 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 call concludes. With that, I will now turn the call over to Joel.

Thanks, Dave, and good morning, everyone. Thank you for joining our call today. I am pleased to report that our third quarter performance was in line with our expectations. We continued to make progress during the quarter on our key priorities to expand and renew multiple customer agreements, implement sustainable cost reductions, maximize recurring free cash flow and maintain balance sheet strength and flexibility. It is our belief that these priorities will provide us with the flexibility to manage through ongoing economic and industry challenges, pursue our strategic objectives and create shareholder value. This morning, I will begin by touching on a few key areas of achievement for the quarter. First, our trend of generating strong recurring free cash flow continued into the third quarter where we generated $53 million. On a year-to-date basis, we generated $220 million of recurring free cash flow compared to $143 million for the same period of 2011. Second, despite being in our peak season for working capital, we continued to strengthen our balance sheet through debt reduction and maintain strong credit metrics. We paid down $16 million of debt during the third quarter and $148 million of debt on a year-to-date basis. Our leverage ratio of 2.25x remain well within our targeted range of 2 to 2.5x. As we look forward, we remain confident in the strength of our balance sheet and the cash-generating power of our company. We believe that it is our success in these 2 areas that will allow us to be flexible and opportunistic in terms of our future plans for capital deployment. A perfect example of this is our recent announcement to acquire substantially all of the assets of Vertis Communications. To those unfamiliar with Vertis, they are a $1.1 billion provider of retail advertising inserts, direct marketing and in-store marketing solutions. They have 25 production facilities in North America and employ roughly 4,400 employees. The combination of Quad/Graphics and Vertis is a natural and strategic fit. Our complementary capabilities will further strengthen our ability to provide marketers with an enhanced range of products and services. Through this acquisition, we will expand our vertical market expertise, particularly in the grocery, financial services and insurance segments. We will expand our geographic footprint to provide our clients with increased manufacturing flexibility and distribution efficiencies. We will also provide them with new opportunities to realize mailing and distribution cost savings from the combined volumes of both companies. When making investment decisions like Vertis, we take a disciplined approach that focuses on 4 key areas: First, we conduct a thorough review process to ensure that there is a good strategic fit; second, that the economics make sense; third, that the integration plan is executable; and finally, that we maintain the integrity of our balance sheet. The Vertis acquisition meets all those criteria and we believe it will be accretive to earnings, excluding any nonrecurring integration costs and create long-term value for our clients, shareholders and employees. We view our agreement with Vertis as supplemental to the core way we create value. From a core business perspective, we are focused on retaining and growing organic market share by creating customer value in 2 essential ways: First, we help maximize the revenue customers derive from their print spend by providing integrated solutions that span the continuum of our offering; And second, we help minimize customers' overall total cost of production by continually striving to increase our own productivity while reducing their mailing and distribution cost. We believe this strategy creates true value for our customers and will help retain them over the long term. Further, when combined with our low-cost producer status, we believe this strategy will allow us to gain market share. The Vertis acquisition is an extremely complicated transaction with a number of steps to go in the process. We anticipate the sale will be approved by the bankruptcy court next month and will most likely close in the first quarter of 2013, pending the receipt of customary regulatory approvals. In the meantime, it is business as usual and we remain firmly focused on day-to-day production to ensure we meet our customers' needs during this critical time of year. On Slide 5, we revisit our 5 key strategic focus areas that we believe, given our current economic and industry challenges, best position us for stability and future success. I will briefly highlight a few examples that support each area beginning with our Customer Centric approach, an important element in our ability to retain and grow market share. For example, in our Publishing Solutions group, we recently signed an agreement with a major publisher who awarded us a multi-year agreement to print more than 85% of its magazine volume. This agreement covers 19 titles and represents a 35% increase in Quad/Graphics incremental volume over the term of the agreement, beginning in 2014. We are honored to have earned this increase in market share and attribute our success to the strength of the superior manufacturing and distribution platform and workflows that speed production and improve efficiencies for this customer. As honored as we are to announce to this extended relationship, we are equally honored to have printed Newsweek for the last 35 years. As you know, Newsweek recently announced that it will cease production of its printed magazine at the end of this year. We are eternally grateful to Angelo Rivello and the Newsweek organization for taking a chance on us so many years ago when they gave my father our first big break. We performed well on the February 7, 1977 cover and have been printing Newsweek ever since. It's important to note that we view Newsweek's move from print to digital as an exception and not the beginning of a trend. The publishing story is not about print versus digital but rather managing content, audience and channels. Many publishers have figured this out and are seeing paid print subscriptions increase. For example, according to the Audit Bureau of Circulation, 8 print subscriptions for The Economist in North America have increased 7% since 2009 to more than 800,000 as of June 30, 2012. In addition, Bloomberg BusinessWeek's paid print subscriptions have decreased 8% since 2009 to 914,000 as of June 30, 2012. While nearly all amazing titles have digital editions, monetization of those remains elusive for publishers. This is why digital magazine circulation comprises only 1.7% of total magazine in circulation according to ABC data as of June 2012. A second example that supports our Customer Centric approach is our renewal with USA WEEKEND, who awarded us additional volume and expanded freight logistics and distribution services in a new multi-year agreement. USA WEEKEND has a circulation of more than 22 million and approximately 50 million readers. A key to growing our share of work with the customer was our ability to implement a new manufacturing plan that further optimizes the strengths of our coast-to-coast printing and distribution network. We're honored to have additional future volume, and we look forward to expanding our growing service relationship with Gannett, the publisher of USA WEEKEND. Our next 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 partner. We know we are well-situated to help them integrate print with other media channels. Over the last few quarters, I have shared with you a number of examples where we have helped our clients redefine print with Actable, our interactive print solution. Today, I'd like to provide you with some update on 2 Actable projects we did with Maxim and Teen Vogue. Maxim has been publishing -- has been using Actable to power its Maxim Motion App, which has now become the largest print-to-mobile application in magazine history. More than 1.3 million scans of Maxim Motion content have been tabulated to date, with that number rising steadily each month. The first Maxim issue featuring a Maxim Motion cover was a big seller on newsstands, and the publisher says advertisers are looking for more Augmented Reality experiences in future issues. Teen Vogue is also having great success with its own branded app, which is also powered by our Actable technology. Not surprisingly, the young readers of the magazine appeared to be perfect early adopters of interactive print. They're using app-enabled smartphones or other mobile devices to engage with Teen Vogue articles and advertising in an increasing rate. The app has been downloaded 80,000 times in the 3 months since its launch and according to Jason Wagenheim, Vice president and Publisher Teen Vogue, there have been over 250,000 scans of magazine pages and over 550,000 user sections. During the quarter, we also partnered with Milwaukee Magazine, a Quad/Graphics-owned subsidiary to make its October issue cover-to-cover interactable. Every editorial and advertising page had an Actable interactive print experience, a total of 146 experiences in all. Our goal was to show publishers and advertisers that many creative and engaging ways interactive print can be used to create powerful reader experiences. Empowered Employees is our next key strategic focus area. No example better demonstrates the trust we place in our employees to think and act like owners and do the right thing than the many heroic stories connected to Hurricane Sandy. Unlike many offices, our New York city sales and media solution never lost power, water or heat. Our employees there acted quickly and decisively to help the number of our clients who faced urgent deadlines but had no electricity or dry place to work. The first day after the storm, a handful of intrepid employees made their way into the office to prepare space for our client to use. Some employees literally walked into the city, covering many miles on foot. Others hopped buses and car pool, leaving home in the middle of the night with the hope of avoiding the traffic. They all converged on our West 50th Street location, along with multiple clients who set up shop in our conference rooms, which we configured with banks of fully-networked computers. In total, we hosted more than 50 people, some of whom will continue to work from our offices for the next few weeks until they can return safely to their office space. I'm happy to report that all of our East Coast manufacturing facilities weathered the storm without significant damage or service disruption. I appreciate all the extra effort our employees put forth in the aftermath of the storm. They took empowerment and personal pride to a new level and it was truly inspiring. Our hearts go out to those hardest hit by the hurricane, and we wish them well as they handle cleanup in the face of yet another storm that has moved in today. We will continue to closely monitor the impact of these storms on our business. Our fourth key strategic focus area is our position as low-cost producer and plays a critical role in how we price work. As you know, industry pricing has been a consistent theme on our calls, and we continue to have a disciplined approach to pricing work in a way that will generate strong free cash flow and create value for our shareholders. Given the difficult period of industry consolidation we are experiencing, our ability to be the low-cost producer becomes increasingly important. As a company, we are making progress toward this goal by remaining focused on 3 areas: First, we continue to execute on our plan to implement sustainable reductions in nonlabor and indirect labor spend. Second, we continue to take a disciplined approach to improving capacity utilization and productivity across our platforms. And, third, our team remains relentless in our pursuit to take out direct costs through a variety of means, including the maximization of labor mix and the expansion of continuous improvement programs to reduce waste, eliminate redundancies and shorten cycle times. I will close with the fact that we remain confident in the strength of our balance sheet and our ability to generate strong recurring free cash flow. We had a strong quarter from a customer renewal perspective, and we remain optimistic about the opportunity we have with the acquisition of Vertis. We will remain focused on those areas in our control and believe that we are well-positioned to take market share and succeed in this industry despite ongoing economic and industry challenges that we expect to continue. With that, I will hand it over to John, who will present a more detailed financial review.

Thanks, Joel, and welcome, everyone. Slide 6 is a snapshot of our third quarter 2012 financial results as compared to our third quarter in 2011. Net sales were $1.04 billion, which compares to revenue of $1.1 billion, reflecting a 6% decline due to expected volume declines and pricing pressures on print and byproduct revenue. Cost of sales at $798 million was lower by $42 million and SG&A expense of $87 million was also lower as compared to $96 million. Depreciation and the amortization was $83 million as compared to $85 million. Interest expense at $22 million was 15% lower than $25 million, primarily due to our focus on debt reduction. Our adjusted EBITDA was $155 million versus $174 million. And our adjusted EBITDA margin was 14.9% as compared to 15.6%. We have once again included an adjusted EBITDA bridge in our slide deck to better explain the impacts to adjusted EBITDA in the quarter. There are 2 major positive impacts for the quarter: First, our incremental synergies of $23 million; and second, a reduction in selling, general and administrative expenses of $9 million. This reduction was due to our focused effort to create sustainable cost reductions over and above the Worldcolor integration synergies. These positive impacts were offset by volume declines and pricing pressures on print and byproduct revenues that impacted adjusted EBITDA by $45 million during the quarter, and $6 million that was attributable to the book business which reflects both volume and productivity issues. As Joel mentioned, we are proud of our consistent recurring free cash flow and the work we are doing to maintain a strong and flexible balance sheet. Our recurring free cash flow, which we define as cash flow from operating activities, less capital spending and excluding nonrecurring items such as restructuring costs, was $53 million in the third quarter and $220 million on a year-to-date basis. We believe this is an important metric for us, and we expect our business to continue to generate a significant amount of recurring free cash flow. A reconciliation of recurring free cash flow for the 3 and 9 months ended September 30, 2012 is included in the supplemental information located in our slide presentation. Our strong recurring free cash flow provides us with the ability to pay down our debt and pension liabilities, invest in our business and return capital to our shareholders. Despite being in our peak season for working capital use, we paid down debt of $16 million during the quarter and $148 million on a year-to-date basis. This represents a total of $472 million of debt paid down since the close of the Wordcolor acquisition. Our pension -- multiemployer pension plans or MEPPs and post-retirement liabilities were $547 million as of July 2, 2010, when we acquired Wordcolor. As of September 30th, this liability was $334 million, representing a reduction of $213 million, of which $73 million was reduced in 2012. We anticipate this liability will increase as of December 31, 2012, as compared to the September 30th balance due to the negative impact of an anticipated lower discount rate. Before leaving Slide 8, I would like to announce that due to our efforts to generate consistent recurring free cash flow, we are raising our full year 2012 recurring free cash flow guidance in excess of $300 million, now equal or surpass the $340 million we generated in 2011. This adjustment in guidance is partially a result of managing working capital and cash taxes being an anticipated net refund of $15 million in 2012 versus our original expectation of less than $10 million of payments for the year. We will continue to the maintain a disciplined capital deployment strategy that we adjust based on current circumstances and what we think is best for shareholder value creation. Slide 9 provides a summary of the improvements we continue to make on our debt metrics. Our interest coverage ratio for the quarter increased to 6.8x versus 5.9x at the end of last year. Our leverage ratio of 2.25x represents a reduction as compared to 2.31x at the end of 2011. This reflects our efforts to both manage the components of working capital, as well as ensure we make the right capital allocation decisions. During the third quarter, we continued with our conservative view toward the use of cash and chose not to buy back shares but instead focused on paying down debt and pension liabilities. We are pleased to be within our targeted range and continue to believe that operating in the 2.0 to 2.5x leverage range is the appropriate target. However, we acknowledge that at times we may decide to go above or below that range given economic changes, working capital seasonality, timing of investments and growth opportunities. At the top of Slide 10, you will note that we continue to have no borrowings under our $850 million revolver at the end of the third quarter 2012. Interest expense decreased 15% to $22 million as a result of our debt paydown. Our floating rate debt today is at an average interest rate of 3.1%. Long-term fixed rate debt, consistent -- consisting of private placement notes, continues to be an average interest rate of 7.5% and has an average maturity of 10 years, with a weighted average life of 6 years. The blended interest rate on our total debt is 5.0% and the outstanding principal balances are 55% floating and 45% fixed. We have no significant debt maturity until July 2016, which includes our main revolver that was successfully refinanced in July 2011. Given the significant flexibility under our revolver and our strong recurring free cash flow, we believe we have sufficient liquidity for current business needs of sustaining the dividend and supporting future investments. Slide 11 is a snapshot of our year-to-date September 2012 financial results as compared to year-to-date September 2011. Net sales were $2.96 billion as compared to $3.1 billion. Cost of sales at $2.3 billion was 3% lower. Year-to-date SG&A expense was $260 million as compared to $290 million -- $299 million. Depreciation and amortization was $253 million as compared to $256 million. Interest expense was $64 million, representing a 25% reduction from $85 million. Adjusted EBITDA and adjusted EBITDA margin were $393 million and 13.2% respectively, as compared to $431 million and 13.9%. A component of our financial strength is having a balance sheet that is strong and flexible so that we can adjust to changing economic conditions, invest in our business, pursue growth opportunities and return value to our shareholders through cash dividends. Our fourth quarter dividend of $0.25 per share will be payable on December 14, 2012 to shareholders of record as of December 3, 2012.As we move forward in this challenging economy and industry, we will continue to stay focused on those areas under our control that includes improving productivity and implementing sustainable cost reductions to be the low-cost producer and generating consistent and strong recurring free cash flow to maintain balance sheet strength and flexibility to pursue appropriate investments that create long-term value for our shareholders. I would now like to turn the call back to the operator who will facilitate taking your questions. Operator? Operator, we're ready for questions now.

[Operator Instructions] Your first question comes from the line of Dan leben.

Joel, could you just talk about what you're seeing within the different segments of the business, specifically with kind of mag/cat retail within those 3 segments, just the demand -- underlying demand trends would be helpful.

Yes, sure. I mean, I'd say that, in general, in the quarter, our plants saw some pretty good volumes. I think that in second quarter, if you look at [indiscernible]for catalog, they talked about it being a negative 3.5% forecast, but they actually changed it to 2.2% growth in the second quarter. They continue to kind of think that there was a 3.3% decline in Q3, but I'd say that, in general, we've seen volumes kind of hold up there. Retail has been pretty strong. I think one of the things we saw this past year was a significant retailer tried to redefine themselves and decide that retail insert didn't make sense, and they significantly cut those volumes early in the year but have since rebuilt all those volumes when they discovered that, even though they're not sexy, retail inserts are a significant driving factor of traffic in the stores. And I'd say that on the magazine side, I think advertising in general out there has been weak. I think that a lot of companies and I talk to a lot of people in a lot of industries, people have been freezing up with what they're seeing in the economy and with the pending election that was happening. But I'd say that to date, there were about 8% decline in advertising as published. With our mix, we've seen less than that. In fact, I mean, actually better advertising pages. But still a decline. So in general, I'd say that right now we're not seeing kind of this aggressive fallback, but we remain very skeptical about what the economy is going to do in the future here.

Great. And then looking forward to the Vertis transaction, could you talk a little bit about the level of customer overlap that you already have with Vertis on the retail side?

Well, there's certainly -- there's definitely a customer overlap. We don't breakout sort of what it looks like. But as we said in the script, we are picking up other segments that we're not strong in. And when you think about grocery, that hasn't been one of our strong points or insurance or pharmaceuticals, so we're excited about adding some new verticals to the retail side.

And when you're looking forward to synergies, still early in that process, obviously. But just help us understand how much of the opportunity is kind of cost cutting on the Vertis side versus some additional volumes coming into Quad plans?

Dan, this is John. We're early in the process. As Joel indicated, this is a complicated process that has got to go through a bankruptcy auction process as opposed to a traditional acquisition. So until we get through that process and get to close, we felt it was inappropriate to be commenting on where we'd be finding the synergies.

Your next question comes from the line of Drew McReynolds.

Just a couple of follow-ups. Just first, just on one of the smaller segments of book printing. We cover a couple of publishers and they're just indicating that the migration to digital has somewhat slowed down, which is, all have been equal kind of reloaded the print side of the channel and we're just wondering if you're seeing any of that trend play out?

Yes. I think we've heard some of the same stuff. You saw this rapid increase last year in the growth of sort of digital editions. But then, in general, from what I've heard from customers anecdotally is, there's been a rapid leveling off or not a leveling off, but a rapid slowdown in that growth. One of the things that are affecting us, and I'd say the volumes haven't been the challenge, it's actually the -- with digital print and with sort of kind of looking at the supply chain and how the book companies have to manage inventories, is that we're seeing a big increase in shorter runs as people try and lower the batch size, so they're not carrying all those inventory. The good news is, is digital print allows you to do that. The bad news is it really changes your whole production flow within the plant. Even though you may be able to print 1,000 books instead of lots of 20,000 books, you still need on the admin resources to key up those jobs. And so we deal with a lot of just changing, I guess, a face of how the book flow works within a book plant. But yes, I mean, I've -- we've heard some of the same thing and I think you'll continue to sort of see this game play out.

Okay, that's helpful, Joel. Just shifting gears, just broadly, just in light of the Vertis proposed transaction. You went through your 4 criteria for M&A. Just wondering if you can kind of hone in on the economics. When you look at doing a deal like this, what are some of the financial criteria that must be met? Where is your focal point in terms of accretion? How do you measure or size up a transaction like this?

Let me start, and I'll let John kind of jump in as well. First and foremost, I think, when you're looking at this industry right now, we are going kind of a tipping point of consolidation. And it can be a challenged to kind of understand what the opportunity is, especially when you're dealing with a company that's been challenged. You have to understand what is the true value, not just today but tomorrow, because the world keeps changing. So I think we've been pretty disciplined about when we see opportunities of knowing when we think that is at the right price to be able to, along with synergies, et cetera, all the things we know how to do, to make a goal of it. We're certainly not quick to jump at opportunities because we think the world will continue to change. So I'd say that, that's really important because I think a lot of times you can overpay for an asset that really ultimately takes all the equation out of the game of why you did it in the first place. I think also the -- we talked about integration. What we've learned in Worldcolor is that true integration when you're in manufacturing -- and a lot of companies, they integrate but they don't end up truly operationally integrating. But that's key to everything, whether it's your IT resources, whether it's the sort of backbone from an accounting standpoint, but also truly calling cost out and making sure that you end up with the best platform, which includes making tough decisions, but you can't be scared of them. So our ability to really understand that and know that it is integratable in the way that will create value is awfully important. We spend a lot of time on that, probably more so than most companies when they're looking at acquisitions. So those to me are the 2 of the biggest drivers. John, you want to follow up here?

Yes, Drew, as you know, we are very free cash flow-oriented. So our focus is building the model over a 5-year period of time that is going to be oriented around the free cash flow generated. We frankly don't count revenue synergies. I think many companies do that and they always prove to be elusive. We try to be very realistic about what we see as trends, whether it is in that particular product line or, as Joel indicated, when a company has struggled financially, there are things that they have done that we know we have to restore, and whether it's in the benefits area or things similar to that or in the maintenance on the equipment and the performance of the platform. So it's a free cash flow discounted basis that we look at it and where we try to have the discipline is to really make sure we're very realistic about industry trends and the condition of what we're buying. And I think it served us well in the Worldcolor that, at the end of the day, we were able to do a little bit better than we had thought on our synergies, and we were able to come in at our cost-to-achieve. So that's the discipline that we look at there.

Okay, that's really helpful, actually. And just a follow-up here, just as it pertains big picture to, I guess, the margins -- the consolidated adjusted EBITDA margins that you're generating. Just kind of 2-part question here. One, when we look at your centralized printing facilities, obviously, state-of-the-art and some of the most impressive manufacturing plants that I've seen within the space, when you look at the pressure on volume, is there a point where you lose in terms of step-down efficiencies of the big centralized plant? Are you near kind of that volume threshold, if one exists? And maybe just a follow-up in terms of frictional costs. We obviously the Worldcolor integration in the rearview mirror, just wondering if you think you can still gain further efficiency in the current revenue environment from where you are today?

You've got about 2 or 3 questions there, Drew. Let me try it out. Test my memory and get this. Look, we understand the reality of our industry is the pricing pressure that we've talked about and the declining volumes that we're facing, so we understand that we have to look at our entire cost structure as variable. And we've got to be able to operate that, whether that's taking down an additional plant, whether that's consolidating a sell within a plant, whether that's installing some automation that is able to bring up the productivity dealing with indirect labor, et cetera. So I feel comfortable that we continue to see opportunities and our continuous improvement program will allow us to achieve those.

And John, while you're thinking of the other 2 questions, just to add to that, I think when you look at these big facilities and you look at the fact that we are very aggressive in terms of lean manufacturing as the basis of how we kind of look for cost as opposed to maybe just blindly kinking the hoses. It's amazing how process improvement is a never-ending sort of chore here. And I think that we continue to figure out further -- even though we've got the state-of-the-art platform, the interactions between the different processes always have opportunity, further automation, not to mention that your product is always changing over time, so you always have new opportunities. And I think as we brought this platform together, we've also diversified some of the product types within these mega plants. So suddenly our new big magazine catalog plant is not just doing magazine catalogs, we're able to fill some of the cracks with, call it, retail inserts that they didn't do before. And of course, that involves adding some equipment here and there on those existing presses. But it's really -- it's beyond just filling the platform. It's also looking for new opportunities to fill the cracks between the big chunks of business that we have going through them. So, John, go ahead.

And I think as you started out -- the start of question is, we look at the -- our adjusted EBITDA margin. I think one thing that we've seen that's a little bit different than our expectation in 2012 is related to product mix. We have seen some additional paper and outsourced services sales which is basically done on a pass-through basis. So as we sort of look at the year, we're a little bit higher than we would have expected at revenue line and a little bit lower than an adjusted EBITDA margin percentage as a result of that. But that's the only thing that's really changing there that I'd say is a little bit different. Did the combination of Joel and I answer the[indiscernible]

Yes, that's great. And just one final one for you Joel. Just -- what we see here in Canada and just wondering if it generally applies to the U.S. is, a lot of kind of the advertising mentality, particularly from a national advertising front, is kind of predicated on, if you see more than kind of 3% GDP growth, it just convinces a lot of folks out there to start spending. Here in Canada, we're stuck in the 2% to 3% GDP growth range. It looks like the U.S. is not that different from that. Do you guys view, from a cyclical perspective in your business, kind of that 3% GDP growth threshold as relevant and it's just a question of getting the economy up another gear?

Look, economic growth is the primary driver of value for everybody, and it's been incredibly frustrating to operate a big complicated business in a low-growth environment. If I look at -- in our past conference calls, we've been pretty clear that the visibility for business has been really tough. And so in a low-growth environment, you don't have that cushion of growth that makes up for being wrong or not understanding which way the world is going to go. So you have to be on your A game and assume the worst. And if growth comes back, then you're even better prepared. Before, I mean, the so what? of this is, before, when I was looking forward to try and understand what was happening, it was like looking through pea soup. Now with the election here and the country seeming to be okay with all the challenges that have happened with a divided government that has proven not to be able to kind of work together, now it's like looking at a bowl of oatmeal. And so as I think forward in 2013, I remain very concerned about our economy to weather some pretty serious issues that are coming. I mean, the fiscal cliff. You may say that, "Okay, they're all going to, sooner and later, get it together and they're going to come up with a solution." They may kick the can down the road little bit to give themselves more time, but what we learned last year is that the process of getting there is very damaging. And you may get to a solution, but if it's a messy process, business gets scared. And I'd say that advertising, to your point, I mean, if businesses are unsure about what the growth rate will be and that is ho-hum growth rate, advertising is the first thing that they can pull back on. If the consumer is not spending, why do you spend money on advertising when every business is looking for -- pulling cost out. And so I feel really confident about our position to deal with this storm, whichever way it takes. But I am concerned about our ability to deal with the big macroeconomic issues in a go-forward basis. I just think that the process is going to be rough, and running a business today is going to be about planning for the worst and managing your business really hard, there's not a lot of margin for error, and hope that we can get out of our own way. But I'd say you're right, we see the same thing. I'm going to tell you, without the meaningful growth, it could be difficult to create jobs and create confidence that ultimately allows the business to kind of say, "Okay. It's time to spend again." So that's the environment we're in down here, and I think it's here for a while.

I think we have one more question, operator.

Your next question comes from the line of Jamie Clement.

Just a -- most questions have been asked and answered, but, Joel, from a high level, obviously compared to Worldcolor, the integration of Vertis, it's still complicated by industry standards, but it's not as complicated as the one you just went through. Can you talk about the lessons learned from the Worldcolor integration and what may be applicable to Vertis that you know now that maybe you didn't know 3 years ago?

Yes. Yes, I can, absolutely. And let me start by saying that I don't care how big or small it is, every integration is difficult. You know I think we are very proud of what we learned and how we pulled off the Worldcolor integration for a company that hasn't done something of that size. But our team is geared up and understands that, just because you won one game, you've got to go right back to it and have that focus. What we've learned is that having a very good, disciplined process in place for all the different swim lanes involved in integration, whether it's on the sales front, the plant front, you name it, HR is key to everything. And I think that what they say is true. The trick is, go fast, go fast, go fast. And when you think you're going fast enough, go faster. And at the same front though, I think, some of the lessons learned is that, you can continue looking at your plan -- and you've got to be careful because you may find that you can end up spending more money at certain times that maybe you could have pulled back later. I'm proud of what we did with World Color. We ended up actually spending less than we expected. But I'd say that, as you look at equipment moves or things like that, you just got to be cautious about making sure that you've got the right answer because, again, the math in this economy is going to continue to change. You have to pay attention to the workload, you have to pay attention to what truly will make the best platform for our customers at the end of the day. And so I think that's one of the big lessons learned is really think about that. The other big difference here, and I think this is an important one, in the World Color integration, a significant amount of integration was in the overlapping business of magazine and catalog. And their amazing catalog platforms are very complicated because you have lots of magazines and catalogs coming together, you got press, you got finishing operations, you've got co-mailing operations. In retail, it's is really more product-to-press. So the product is printed. It's put on a sched and shipped out the door to the newspapers. So there is a whole level of complexity that we don't have to think about as much because the whole finishing operations is fairly minimal. Now on the direct-mail side of the acquisition, we do have those complexities, but we feel good about what they bring to the platform here, as well as what we have. So there's always a lot of lessons learned. There are things you wish you had done differently. But I'd say that the key is we've learned from some of the process things that we had and actually improved that methodology, because we also got to test it again down in Mexico. And so even though that's a smaller integration that's going on, we were able to kind of use some learnings there to further hone that sort of methodology that's very disciplined and incorporate it. Does that answer your question?

Absolutely.So thank you, everybody, for joining us. We are very proud of how we continue to weather the storm. But I want to be clear that we are concerned about what is happening in our world with the economy and with, therefore, the industry. But again, I feel that our team is second to none, and what I've seen them do in dealing with this time in our economy is just impressive. And I thank all of our employees for continuing to help us through this. So thank you, and we'll see you next quarter.

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