Patrick Henry:  This is Pat Henry, Executive Editor of WhatTheyThink, and with me today is Terry Tevis.  Terry is President of TATevis and Company, financial and investment advisors to the printing and publishing industries.  Terry is very well-known to many folks in our industry for his previous stint as a group business president at RR Donnelley.  He has been CEO at Signature Graphics Printing Arts America, the architect of many M&A’s and other high level transactions in the industry.  Terry, thank you for being with us. 

Terry Tevis:  Nice to be here.  Thanks Pat. 

Patrick Henry:  Okay.  Terry, I’m wondering what you are advising your printing clients about when it comes to technology?  What capabilities are you urging them to acquire and what developments do you see as transformative? 

Terry Tevis:  Well, it’s obviously transformative right now when you think about what’s going on in Dallas.  Eighteen hundred folks visiting the HP exhibits down there to learn about the Indigo Press platform.  Having known Francis McMahon is the man in the HP staff for years and worked closely with several entrepreneurs in the digital space, notably Roy Grossman, which we all know and Mike Cunningham at DG3.  It seems obvious to anyone in our space that the movement into the digital press room is key to the survival of the printer and to making sure that the necessary finances are in place to invest in this technology to keep themselves as a low cost producer. 

When you look at what’s happening in our industry that for the most part, the industry continues to shrink and what’s causing the only real significant growth is the ability to customize a direct mail piece, a piece of marketing collateral on the digital press.  They brought down the cost of the digital application, and more importantly, as you see now with the new Prosper 1,000 and 5,000 from Kodak and the work off the Indigos is that the quality off the digital press now rivals that of the offset, Pat. 

Patrick Henry:  Terry, we recall that you were President of a company called Digino back two years ago. 

Terry Tevis:  Oh yes. 

Patrick Henry:  Digino was one of the very first implementations of an internet based B2B portal for print procurement.  And with a ten-year vantage point in the opposite direction, what’s e-commerce industry looking like these days?  Has it reached the potential that you envisioned for it back when you were chairing Digino? 

Terry Tevis:  Yeah, in fact, Pat, I wish I had started Digino five years later.  It would have been perfect.  That was a great time because you recall, back in the late ‘90’s, the printing industry was losing a lot of talent to Noosh, to Silicon Valley as that whole internet play came into a bunch of industries, and of course into print.  What we’ve seen over the last five years are two companies really kind of capitalized on a model similar to Digino, but better executed, and those two companies are VistaPrint and InnerWorkings. 

If you look at VistaPrint, the model of any successful printer going forward with its digital platform and with its offset platform is going to be the CAD Print as a foundation and then develop a host of services around print to better – to get closer to its customer and what its customer’s customer is doing.  So, VistaPrint started primarily with a business card and a little bit of marketing collateral, and today, it’s the only printing company that went right through the recession with double digit growth in revenue, double digit growth in earnings, and more importantly, double digit growth in R&D to continue to invest in this platform.  So as far as B2B and as well as that, B2C, there’s a company that used the web and developed a template-type technology that made it very simple for anyone to buy print. 

Now, the second one that’s still evolving is a wonderful company called InnerWorkings.  And basically, InnerWorkings is very much like we thought about Digino, but a far better application because what they’re trying to do, you think of 20,000 printers and you think of all the people buying print, we’ve always had too much capacity for the amount of print.  Having a third party provider like InnerWorkings in between that label somebody in one part of the country to buy print from 2,000 to 3,000 people that are well qualified printers in another part of the country and by that incremental press time at a better price, InnerWorkings has done a nice job of developing that arbitrage model.  The only next step that they need to do is that printing is primarily a template and they need to take – they have some people involved in Chicago that you have to kind of call and deal with in certain transactions, if they can make it more of a template like VistaPrint, then I think they have the same home run as VistaPrint.  So, B2B is working well in that particular area of matching unused capacity to print buyer needs. 

Patrick Henry:  So e-commerce meets distribute and print and it’s a happy matter. 

Terry Tevis:  Yes sir.  Very much so, Pat. 

Patrick Henry:  Terry, what continues to be an issue for many expansion minded printers this year, is access to capital, access to capital for equipment acquisition, for client expansion.  Terry, I guess the question is, will there be more money available do you think in 2010, and if so, who is going to get it?

Terry Tevis:  Well, there has to be more money available in 2010 for both growth industries as well as industries that are mature like print.  There was no money available in 2008 and 2009.  I think when you look at our industry, when you look at who has access to capital and who’s going to get it, you take a company like Quad, $1.2 billion they were able to borrow to complete the acquisition of World Color.  Now, there’s a well run company, it’s a low cost producer, it’s got a great balance sheet, it’s got a long history of good leadership, and they’re able to come up with the money and possibly even take the company public.  So, for those types of companies, whether it’s a Quad, which is a billion dollar company, or whether it’s a small company in a geographic part of the country that’s been around for 10 or 15, 20, 30, 40 years, has run its plant well, has moved nicely into the digital platform.  I think where the money’s going to go on that, Pat, it’s not going to go on a roll up type where you’re going to pay six or seven times EBITDA so that they can grow bigger.  Where it’s going to go is to that small printer that wants to buy a weaker printer across town that’s not making it, because as the industry continues to shrink, there’s going to be 20,000 printers going down to 15,000 printers, maybe down to 10,000 printers. 

So, the well-capitalized printer with a good relationship with its bank will get the money to buy, on the margin, the printer across town or around the other county that’s not doing so well, they’ll pick up its revenue, they’ll pick up the key sales people, some of the good assets, and then they’ll bring that into and run it five days a week, three shifts and they’ll begin to have that same type of financial profile that big companies have on print, and they will get the access to the money, Pat. 

Patrick Henry:  I see.  Terry, I’m looking ahead toward the fall.  The news, we’ve all heard it, a couple of the major press manufacturers have elected to not exhibit at Graph Expo in Chicago and I wonder if that took you by surprise and whether you think that there is a continuing need for an annual gathering in Chicago or anyplace for that matter.  How relevant is Graph Expo? 

Terry Tevis:  Well, let me answer that on two levels.  It didn’t take me by surprise that Heidelberg and Kamori and possible some other of the major sheet fed players are not going to be in Chicago.  It’s a very expensive show and, as you know, over the last couple of years, we haven’t sold very many sheet fed presses in the domestic market here and in Europe.  So, there’s a need to cut back in terms of expense on the show.  To my way of thinking, when you think of that show and for as long as I’ve been going, when you walk into the door, forever, there was the Heidelberg exhibit with a brand new press running sheets at 10,000, 15,000, 20,000 sheets an hour.  A wonderful booth set up to demonstrate the technology and engineering of a Heidelberg press.  Those days are over.  We’re not going to see any robust growth in the unit sales of sheetfed presses. 

Who is replacing Heidelberg at the show, prime space, is HP.  And that really says it all about the transformation of our industry because when you think about the growth areas of China and India, they’re not going to go into the offset the same way we did in the United States and Europe.  They’re going to jump from a sheetfed press maybe right into a digital press and they’re going to have a completely different business model in those countries and we’re going to have a complete different business model in five years down the path in our country here. 

So, no it didn’t surprise me.  I’m sorry to see it, but there are too many manufacturers out there for too small a market. 

Now with regards to the show; I’d have to say, have you ever gone to that show when you haven’t met somebody that taught you something, saw an exhibit that really created an idea about something you could do for your company or your customer, or network with somebody that you might want to hire as it relates to growing your business, and more importantly, there are always good educational systems, classroom systems there, that lift up the technology and life up the knowledge base of our industry.  So, I don’t think it will be that big, but when you stop and think about it, Heidelberg could still bring one unit, and with a 20 x 30 high definition screen, link back to their lab in wherever it’s going to be located, they could still demonstrate their pressroom capabilities, but not have to bring all those people in and spend all that money because meanwhile, most of the dollars being spent over the next five years in the United States and around the world is going to be on digital presses, not necessarily on offset presses, Pat. 

Patrick Henry:  Well, Terry, the old expression is “Forewarned is forearmed,” and you’ve given us some excellent forewarning and forearming here.  And we appreciate your sharing your thoughts with us today. 

Terry Tevis:  Thank you, Pat.  It’s nice to be here. 

Patrick Henry:  Okay.  Pat Henry, WhatTheyThink, thanks for watching.