Thryv Holdings Inc (THRY) 2002 Q1 法說會逐字稿

<br><br><time begin="00:11:24"> Good morning, ladies and gentlemen. Welcome to R.H. Donnelley's first quarter 2002 results investor teleconference. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. Copies of R.H. Donnelley's SEC filings may be obtained by contacting the company, its Web site, or the SEC Web site, at www.sec.gov.

<br><br><time begin="00:11:52">This transmission is the property of R.H. Donnelley Corporation. A retransmission or a broadcast, without the expressed consent of the company is strictly prohibited. Please note that today's teleconference call is being recorded, as well as Webcast live over the company's Web site at www.rhd.com. I'd now like to turn the program over to Mr. . Sir you may begin.

<br><br><time begin="00:12:16"> Thank you, and good morning. I'm Frank Calaruso, Vice President and Treasurer at R.D. Donnelley. On the call today are Frank Noonan, Chairman and Chief Executive Officer; Dave Swanson, President, Chief Operating Officer and CEO Elect; Steve Blondy, Senior Vice President and Chief Financial Officer; and , Vice President and Controller.

<br><br><time begin="00:12:37">Certain statements made today may be forward-looking within the meaning of the private securities litigational format. We call your attention to yesterday's earnings press release and management discussion and analysis of financial conditions, and results of operations in the companies annual report on form 10-K, for the year ended December 31st, 2001, <br><br><time begin="00:12:57">as well as the company's other periodic filings with the FCC, which sets forth important factors that could cause actual results to differ materially from those contained in or suggested by any forward looking statements.

Now I'll turn the call over to Frank Noonan.

<br><br><time begin="00:13:13"> Good morning, everyone, and welcome to R.H. Donnelley's first quarter investor conference call. As you know, Dave Swanson will assume the position of CEO on May 1st, so this is my last investor call with you. With 16 years of experience at Donnelley, Dave's promotion to CEO assures a seamless transition for the company.

<br><br><time begin="00:13:34">He knows every aspect of our business, he's a seasoned manager with a strong team in place, and is highly focused on creating shareholder value. I'd also like to take this opportunity to thank all of you with whom I've had the chance to interact over the years. I've really enjoyed the experience. I'm confident that Donnelley is a significantly better and stronger company today than it was the day we spun out of Dunn & Bradstreet in 1998.

<br><br><time begin="00:14:02">And our future appears even brighter. So now I'd like to turn the call over to .

Thank you, Frank. Before we begin, on behalf of everyone at Donnelley, I'd like to thank you for your leadership, inspiration and many contributions to Donnelley. And since you will continue to serve as Chairman of RHD for the remainder of the year, we look forward to taking full advantage of your counsel.

<br><br><time begin="00:14:30">Now let's focus on the quarter. I'll begin with a brief review of operations and what we're hearing back from the field. Then I'll introduce Steve Blondy, our new Chief Financial Officer, and ask him to say a few words about our results. Following that, I'll discuss recent developments in the market, and how we're addressing potential opportunities, and then spend a few moments updating our outlook for 2002.

<br><br><time begin="00:14:59">First quarter sales, while significantly better than Q4, were still down slightly year over year. And regardless of the circumstances, that's disappointing for us. Across all media, the recovering and advertising budgets has been slow to develop. While the impact on yellow pages in general, including RHD, has been less adverse than the overall advertising market, we continue to see the lingering effects of last year's economic malaise, in addition to the uncertainty from the global war on terrorism.

<br><br><time begin="00:15:37">As a result, business conditions are still pretty difficult. What's happening in the Orlando market is a good example of the business conditions we're experiencing. Tourism is still weak. There are very positive signs that the larger establishments, like Disney and Universal Studios, have begun to rehire workers, and are hopeful of having a strong summer.

<br><br><time begin="00:16:03">But the secondary hotels and resorts are still suffering. Given the annual nature of the yellow pages buy, we are still calling on customers that we've not seen since last year at this time when the economy was much stronger. As a result, we continue to experience lower than our normal advertiser renewals, driven by increased numbers of out-of-business or non-payment of the advertising bill.

<br><br><time begin="00:16:32">So conditions are still a little difficult. However we have taken actions to reduce costs which help to offset the impact of lower sales. On a positive note, we were pleased to recently announce that Donnelley extended its pre-press publishing agreement with through December of 2008.

<br><br><time begin="00:16:55">The agreement covers the 130 directories sold by . This contract extension attests to our service quality, product quality and turnaround time metrics with the Raleigh Center ranks at the top of our industry. We're very proud of the outstanding performance of our people at the Raleigh Center that enable this contract extension.

<br><br><time begin="00:17:22">Now let me take a moment to introduce Steve Blondy, Donnelley's new Chief Financial Officer. Steve has a strong corporate finance and marketing communication's background. Joining us from , where he was Senior Vice President in charge of corporate development, Steve's experience also includes two previous CFO stints, as well as more than 12 years as an investment banker at Merrill Lynch And Chase.

<br><br><time begin="00:17:50">We're very pleased to have Steve on board, and I'd like to welcome him to the team. He will now review Donnelley's financial performance for the first quarter.

Thank you, Dave, and good morning, everyone. I'm delighted to be here, and I look forward to meeting many of you over the next several months. Donnelley is a solid company, strong management team, and an enviable track record of delivering share holder value.

<br><br><time begin="00:18:23">We sell a valuable product, and we do it better than just about everybody. My goals are to live up to that standard and to continue to drive strong returns for Donnelley share holders. Now for the quarter. First quarter calendar sales declined by three percent to $124.5 million from $128.3 million last year.

<br><br><time begin="00:18:54">As most of you already know, calendar sales represent the gross value of advertising sold in both and our Sprint operations during the period. calendar sales were up by about two percent, while calendar sales in our Sprint operations fell nearly five percent. In addition to poor economic conditions, timing of certain sale campaigns at Sprint, in particular, adversely impacted sales results.

<br><br><time begin="00:19:30">However, as Dave mentioned, our actions to hold down costs, mitigated the effect of lower sales in both businesses. As anticipated, operating income in the quarter was flat over the last year. A slight increase in GNA corporate overhead offset by lower appreciation amortization expense at Raleigh, as our original investment in Raleigh was fully depreciated by the end of 2001.

<br><br><time begin="00:20:06">Interest expense in the quarter was down slightly to $6.0 million, reflecting lower average debt during the period. Factors were $8.3 million, which reflected a higher than anticipated tax rate of 38.5 percent. We expect this tax rate will hold for the rest of the year. We also took a non-cash, extraordinary charge of about $200,000 due to the pre-payment of $35 million in debt during the quarter.

<br><br><time begin="00:20:42">We took a similar charge in the first quarter of 2001. That income increased to $13.2 million, versus $12.9 million last year, and ended the quarter with net debt of 240 million dollars. There were no shares re-purchased during the quarter. Now I'll turn it back to Dave.

<br><br><time begin="00:21:09"> Thank you, Steve. Many of you have been asking about the stepped-up pace of M&A activity in our industry, and Donnelley's potential to participate. At this moment, a number of telecom companies are facing an increasing pressure to reduce debt loads and focus on their core businesses. Accordingly, they are considering the divestiture of non-core assets like Yellow Pages.

<br><br><time begin="00:21:40">As you know, this is something we have long expected, and while it's been slow to develop, recent announcements from Quest and Sprint, together with the recent Cincinnati Bell, and transactions, appear to corroborate our view that a fundamental realignment in the ownership structure of our industry may be beginning to occur.

<br><br><time begin="00:22:09">Given the changing environment, this management team plans to carefully await these new opportunities to leverage our core competencies, potentially leading to an increase share of the Yellow Pages industry. So as long as we're convinced, that will create sustainable value for Donnelley share holders. During this period, we think it's prudent to suspend our share re-purchase program to enhance and protect our financial flexibility.

<br><br><time begin="00:22:41">Instead we intend to use our free cash flow to pay down debt for the time being. Now I want to assure everyone that RHD is not abandoning our traditional financial discipline. However, we believe it is appropriate at this historic moment in our industry to step back and .

<br><br><time begin="00:23:05">Switching to our operating performance outlook, we are continuing to see weak but slowly improving results coming in from the field as a result of economic conditions. markets are recovering a little faster than Spring due to the harder hit tourist economies in Nevada and Florida. As I mentioned earlier, we are calling on customers today that we've not seen since last year.

<br><br><time begin="00:23:34">And as always the case, through an economic downturn, some are not in financial shape to continue to advertise at previous levels. We expect that environment to continue through the second quarter. Looking forward to our third and fourth quarter sales campaigns, leading indicators suggest to us that we should see continuous improvement in advertiser renewals.

<br><br><time begin="00:24:01">Many of these advertisers had a chance to brace themselves for the slower economy last year, and are showing much stronger payment trends. The net of all this is that while we anticipate achieving flat sales in operating income for the year, the slower pace of improvement in economic conditions and our lower than anticipated sales results to date, suggests more risk than previously thought.

<br><br><time begin="00:24:31">As a result of these factors, we expect full year EPF's in 2002 to be in the range of $2.40 to $2.44 per share. That concludes our prepared remarks for this morning. Operator, I think we're now ready to open up the call to questions.

<br><br><time begin="00:24:49"> Thank you, sir. At this time we are ready to begin the formal question-and-answer session. At this time, if you'd like to ask a question, please press star one on your touch-tone phone. You will be announced prior to asking your question. To withdraw your question, please press star two. Once again, to ask a question, please press star one. Our first question is from from .

<br><br><time begin="00:25:10"> Hi, good morning. I actually have three technical questions first, if I can.

One, on the non-payments you had of various programs or business, do you recoup the commission that's been paid to the sales force on that?

, can you, I didn't quite get that. Can you say that one more time?

<br><br><time begin="00:25:31"> Sure. You mentioned you had some low renewals and some non-payments from existing accounts. When that occurs, do you recoup commissions that have been paid to the sales force?

We don't, . We pay our sales people when they make the sale, and they are not held accountable for customers, for instance, that go out of business.

<br><br><time begin="00:25:50"> OK. Two more technical questions. Have you formerly hired an investment bank in this process?

, we have hired advisors to help us assess these emerging opportunities that we see in the marketplace.

OK. And could you be a little more specific on exactly what technical factors are preventing you from buying back shares?

<br><br><time begin="00:26:16"> Well, this is Steve, . You know, as we mentioned on the call, we think it's prudent to take a step back and evaluate new opportunities that are developing in the industry, and to ensure that we're exploring all our alternatives, to leverage our core competencies to create share holder value. And during this period, we think it's prudent for us to stop buying back stock and instead, to use our cash flow to build maximum financial flexibility.

<br><br><time begin="00:26:47"> OK. You're gonna be renegotiating your , is that correct?

, it's . We're not renegotiating. We have one that will expire, and given the level of debt we'll just let it roll off.

<br><br><time begin="00:27:01"> OK. Would the building up of the cash or reduction of that on your balance sheet enhance your refinancing flexibility at that point, is that part of your plan here?

That would seem to be the implication, sure.

OK. Thank you.

The next question is from from First Company Of The West.

<br><br><time begin="00:27:22"> Thanks. Good morning, guys. Could you help me just work up from the $2.40, $2.44 EPS estimate to a cash flow number, for your full year outlook?

Sure, . As we said, the prior cash flow really hasn't moved. If you just, you know, for the sake of starting someplace, start in the middle of that range at $2.44.

<br><br><time begin="00:27:48"> Mm-hmm.

At $2.42.

Sure.

Our shares are today, that would imply net income of around 73 million bucks.

OK.

<br><br><time begin="00:27:58"> is in the range of five to six million depreciations capital since we get paid in arrears, is around five to seven. And following, you know, the fourth quarter charge, we have some severance payments some more the after-tax impact of all those in a full year basis is around eight or nine million.

<br><br><time begin="00:28:26">So when you total them all up, cash flow is in the .

This is from from .

No, it's . Just, about the environment, , I guess you may or may not have been in that process. And you know, Quests is obviously a very large transaction with 900 million . Sprint's own groups would be also significantly larger deal.

<br><br><time begin="00:29:03">I just wanna get a little more color on how you think the environment is, 'cause those deals are perhaps too, are any of those deals too large for R.H. Donnelley to participate in?

<br><br><time begin="00:29:16">I think they would be. And you know, why wouldn't you, with all the focus here, I mean, a lot of these private equity firms have had a chance to talk with you, you know, a year and a half ago when you had started and then stopped your own process. And you know, why wouldn't you be, why wouldn't this be the time to do the recapitalization with a private equity backer.

<br><br><time begin="00:29:40">You would think that, I talked to some of these guys and it seems like there's more interest now in this section now that they've gotten burned with all the other dumb things they've done the last two or three years, and that this is an area in a communications or media landscape where they can actually put money to work and earn a more predictable return.

<br><br><time begin="00:30:01">And there seems to be more, there's renewed interest here, or maybe interest, perhaps, for the first time. Maybe you could just shed some light on the color of how the, how what you've stated in the past, which was you know, look forward to recapitalization because our debt levels are getting too low, and how that sort of dovetails strategically with some of the changes, or you may be in the middle of your thinking on how you wanna proceed. But clearly there are opportunities to do one or the other.

<br><br><time begin="00:30:31"> , hi. This is Dave. First off, we don't think it's appropriate to comment on a specific transaction aside of any of these transactions. But I do wanna emphasize that, as we mentioned earlier...

Do you think you could do a $7 billion deal? Is that what you're saying?

<br><br><time begin="00:30:52"> Well, I'm not sure that passed the common sense test, , but we really do believe that it is an environment right now, we're seeing these codes facing this increasing pressure to reduce step loads and divest these non-core assets. And it is something that is, that very much leverages our core competencies and our abilities to find ways to create sustainable share holder value.

<br><br><time begin="00:31:18">So we think that it simply could create some opportunities for us, and it would be prudent of us at this time to fully explore what those opportunities might look like.

OK, I don't know what I'll -- thanks.

Our next question is from from Investments.

<br><br><time begin="00:31:44"> Hi, everyone. You mentioned several times these opportunities. Can you tell us what are the opportunities please? Just list them, if you will. And as far as I know, the prices of the deals that were, that are mentioned or have been executed, were quite higher than your stock in terms of multiple . How do you reconcile the two? Thanks.

<br><br><time begin="00:32:24"> Well, this is Steve, . As far as listing the specific opportunities, I don't think it's appropriate for us to go in that direction at this point. You know, we did mention announcements. There's been some press about things going on at Quest and at Sprint, you know, there are other situations which may make sense for us, but going into greater detail is not appropriate at this point.

<br><br><time begin="00:32:57">As far as the second part of your question, could you rephrase that again?

The multiples of assets sold in the sector are at the double digits of . Your current share price is eight times or lower. How do you reconcile the two with the, in view of the opportunities available to you?

<br><br><time begin="00:33:23"> Oh, our multiple is lower than the multiples of the sales that have taken place. I mean, you know ...

Right.

I'm not sure what else I can say about that at this point. It's hard for us to be intelligent about answering that question in the absence of anything specific, and we're not in the position to comment about anything specific right now. You know, the Broadwing deal, as it turns out, was done at a multiple lower than eight times, for example. But other transactions are taking place at multiples higher than that.

<br><br><time begin="00:34:02">So in the absence of a specific transaction, you know, it's hard to comment. I think what we can say definitively is, we've got a very sharp buy on growing and protecting share holder value and we're not gonna do anything that jeopardizes that.

Any time horizon associated with the M&A activities please?

<br><br><time begin="00:34:32"> We wouldn't wanna speculate on that, .

OK, thanks.

The next question is a follow-up question from from .

<br><br><time begin="00:34:45"> And a follow-up to question. I know you're not giving us a time horizon, but you mentioned you're not abandoning your traditional financial discipline, and I'm pretty confident I remembering you indicating you would be very unwilling, almost, to consider highly transactions. It seems to me, you can't be a buyer of these properties without taking on substantial financial leverage and earnings per share dilution. Would you comment on that, please?

<br><br><time begin="00:35:12"> Yeah. , this is Dave. I don't think it's appropriate at all for us right now to comment on what type of transactions we would or we wouldn't do. But I wanna be clear. What we said is that we believe it's prudent to step back and maybe out there, that would enable us to leverage once again, our core competencies to create sustainable share holder value. And that is, that's really the mission here.

<br><br><time begin="00:35:37"> I think the question investors would like to hear you specifically react to, is are you prepared to take on multiple years of earnings dilution to build longer term share holder value? 'Cause that's the mathematical question.

, again, it's like, that's where we just don't think it's appropriate to comment on that specific at this time.

OK.

Next question is a follow-up question from , from .

<br><br><time begin="00:36:06"> Hi. I think it is appropriate because basically you have a new management team coming in. We know how the old guys thought. We have no idea, I have no idea how you guys think, really, even though I've met with you several times. This is all new ground, and as shareholders for clients in your company, it would be nice to know what your philosophy is. Are you a growth company? The last I recall, we were looking forward to a recapitalization this year.

<br><br><time begin="00:36:32"> , this is Frank. Let me just step in here for second. We do have a new management team here. Steve is new, but Dave has been part of this team for the last number of years. We still have the same board of directors, I'm still chairman of this company. There is nothing changed relative to our philosophy about how to create shareholder value, or our focus, high degree of focus on share holder value, which I think was delivered consistently in a difficult market over the last four years.

<br><br><time begin="00:37:14">It is prudent for any in line with our area of core competencies to look at those. Number one, to keep our financial flexibility at its maximum during that period of time, while we put forth that assessment. At this point in time, we can't indicate any specifics about, you know, any transactions, how it might be structured, and whatever, but I assure you that this management team and this board, there is no change in our philosophies about how to drive shareholder value.

<br><br><time begin="00:37:50"> OK, thanks.

Our next question is from from .

This is a follow-up to all these last questions for clarity. Is a recapitalization still one of the options that are on the table, or is that now off the table, and you are looking at acquisitions?

<br><br><time begin="00:38:12"> I think it's prudent to say that we look, as we've always said, that we look at all possible ways to create shareholder value. There is significant activity in our industry that is very important to us to look at at this point in time. I think that's consistent with everything we've said in the past.

<br><br><time begin="00:38:34"> Did you explore selling the company, and then with all these properties coming on line, did it just become not prudent with, is there a seller's market out there now, a buyer's market, I'm sorry.

The sale of the company was a couple years ago, before any of this activity started.

<br><br><time begin="00:38:52"> I mean, I guess my question is, are there just too many properties on the market now to make exploring the sale of R.H. Donnelley just not feasible?

Again, let me just go back, but I feel compelled to comment on that, is that you know, we've said in the past that we have a company that has a narrowly defined set of core competencies in an industry where there are limited opportunities. <br><br><time begin="00:39:21"> At this point in time, there are a lot more opportunities that have either happened, or companies have announced their intention to make these things happen.

There's a potential of things to be announced in the future for other properties. So with a limited availability of things for us to do in our field of competency here, we've gotta take a look at it. It's as simple as that, I think.

<br><br><time begin="00:39:49"> Great. Thanks very much.

Our next question is from from .

Hi guys, how are you doing? Just maybe to, I don't wanna sort of beat a dead horse here, but I think everyone's getting a little hung up on what you're saying you will do, you might do, you might think about. <br><br><time begin="00:40:08">Maybe there's a better way to characterize this is saying, you're looking at things, and we're not saying we're gonna do anything, we're not saying we're not gonna recapitalize the company.

Just to correct some things that were said earlier, I mean, if you buy an asset at eight times , its or dilution are all earnings per share is contingent on how you finance it. <br><br><time begin="00:40:27"> In fact, if you finance it with eight percent money, which after taxes, five percent money, it's ridiculously to earnings per share if financed appropriately, far more than a recap would be. It's contingent on the good will. So people are trying to you know, box you in here, because they haven't heard this before, and people feel, I think, slightly taken aback by the change in strategy.

<br><br><time begin="00:40:54">But maybe you should sort of succinctly and I think Frank, you just did it, but I just wanna reiterate it, that you're exploring, you're not guaranteeing you're gonna do deals. You're not guaranteeing you're not gonna do a recap. You're not guaranteeing you're not gonna sell the company. You might go down this road and find out that everything for sale is 10 times and bigger than you wanna do, and you might need some people who wanna buy us for 10 times.

<br><br><time begin="00:41:16">Maybe it makes sense to just remind people that we're exploring and we're not guaranteeing we're gonna go either way, but this is a change in strategy, 'cause before we weren't exploring. Is that a fair characterization of what...

<br><br><time begin="00:41:29"> I think it's well said. I will say that it's not a change in strategy, 'cause we've always said we'd look at opportunities within our field of, of competency here. Activity happens to be alive today, but other than that, you know, other than the opportunities today, there is no change in strategy here.

<br><br><time begin="00:41:57"> I welcome you guys taking a look at this stuff, and I welcome a more opportunistic position. I think that the deals that are getting done here by financial players who don't bring anything to bear from an operational standpoint, we certainly should be looking at those.

<br><br><time begin="00:42:12">We can operate those businesses better and if we were to pay eight times and these are tremendous free cashflow generating businesses, we could pay down the debt very, very quickly and have a much stronger asset base three to five years out. So I actually welcome you looking at these opportunities. I think sitting back at this point and paying down $50 million of debt or doing a one-time recap and getting an extra 30 cents incremental shares, is a one-time event.

<br><br><time begin="00:42:39">And that's not how you run a business for a five to 10 year time period. So I welcome the opportunity for you guys to look at these. I appreciate, and as I've known you for five years, you're gonna be diligent in your due diligence. You're gonna be diligent in thinking about shareholder value, and you're not gonna do anything that's stupid, so I welcome you doing it.

<br><br><time begin="00:42:55">I wish you luck, and as long as you balance everything the way you've always balanced it for five years, my guess is I'll come out being far better off and I have always been, so good luck, and you have my support.

Thank you, .

<br><br><time begin="00:43:10"> Once again, if you'd like to ask a question please press star one on your touch-tone phone. This is a follow-up question from from Investments.

Yes, hi. Can you please go through, if you have a set of the criteria for acquisition, that you had and you have now, and if you have changed them in any way? Thanks.

<br><br><time begin="00:43:40"> Well, , if I understand you correctly, what we've always said and what we still believe is we will only look at things that are in a very kind of narrow field of leveraging our core competencies. As Frank said there are very specific things that we do and do well, and we have kind of narrowed our focus to only evaluate things that we think leverage those core competencies. So that's the criteria.

<br><br><time begin="00:44:07"> But that's not, it's not a change. I mean, it's always been the case, right?

Yes.

I'm showing no further questions as this time. I'll now turn the meeting back over to Mr. Swanson for any closing remarks.

<br><br><time begin="00:44:24">Thank you again for joining us this morning. Should you have any further follow-up questions I would encourage you to please call Steve Blondy or . Thank you.

That concludes today's conference call. You may disconnect at this time.