Thryv Holdings Inc (THRY) 2006 Q3 法說會逐字稿

Welcome to the R.H. Donnelley's third-quarter 2006 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 be given at that time. Please note that today's teleconference call is being recorded as well as webcast live over the Company's website at www.RHD.com. I would now like to turn the call over to Ms. Jenny Apker. Ms. Apker, you may begin.

Jenny Apker; Thank you and good morning, everyone. I'm Jenny Apker, Vice President and Treasurer at R.H. Donnelley. Hosting the call today are Dave Swanson, Chief Executive Officer of R.H. Donnelley, and Steve Blondy, Executive Vice President and Chief Financial Officer. Peter McDonald, President and Chief Operating Officer, is also on the call.

Certain statements made today may be forward-looking within the meaning of the Private Securities Litigation Reform Act. We call your attention to our press release for the quarter ended September 30, 2006, and the Company's Form 8-K furnished to the SEC this morning, both of which discuss the third-quarter 2006 results.

We also encourage you to review the Company's other periodic filings with the SEC which set forth important factors that could cause actual results to differ materially from those contained in or suggested by any forward-looking statements. Copies of R.H. Donnelley's SEC filings may be obtained by contacting R.H. Donnelley, searching its website at www.rhd.com, or visiting the SEC website at www.sec.gov.

This transmission is the property R.H. Donnelley Corporation. Any retransmission or broadcast without the express consent of the Company is strictly prohibited.

During this call today, we will refer to certain non-GAAP financial measures in discussing the Company's performance. For example, we will be referring to adjusted results for the third quarter, which unless otherwise indicated reflect the consolidated results of R.H. Donnelley and exclude the impact of purchase accounting and include certain other adjustments. You can find additional information about all non-GAAP measures and a reconciliation between these measures and the most comparable GAAP measures in the press release and related 8-K furnished to the SEC this morning. The press release is available on our website and can be accessed by going to www.rhd.com and clicking on press releases. Please review the risk factors described in the Safe Harbor language. Now, I would like to turn the call over to Dave.

Thank you, Jenny. Good morning, everyone, and thank you for joining us. It was another productive quarter for us at R.H. Donnelley as we took steps to improve performance, invested in new services and products that advance our online strategy, and made significant progress integrating the Dex operations. As a result of achieving synergies sooner than expected, we are raising our full-year EBITDA and free cash flow guidance.

As expected, overall ad sales declined 2% in the quarter. The results reflect improvements in our AT&T markets, solid performance at EMBARQ, and weakness in the Dex territories due to ongoing integration activities and Dex's legacy systems conversion.

I am pleased to report that the EMBARQ storyline remains unchanged, reflecting another solid quarterly performance. We are attracting new advertisers, and current advertisers are buying more, indicating a healthy business that has benefited from the RHD business process that was put in place over three years ago. Since acquiring this business in January of 2003, we have generated 14 consecutive quarters of ad sales growth.

For the first time since acquiring the AT&T business in Illinois, we recorded positive local ad sales in the quarter. In addition, overall ad sales improved on both a sequential quarter and year-over-year basis. These improvements speak directly to the heavy lifting and investments we initiated to improve these markets.

Across the AT&T business, our internal tracking is showing increased year-over-year call volumes on all advertiser metered test lines. Although this data is preliminary, it affirms the dramatic changes we have made in these markets are having the desired result, and we are increasing advertiser value.

Let me put the magnitude of these changes in the proper perspective. When we bought this business, we were publishing 129 Yellow Page titles to cover the markets that we served in Illinois and Northwest Indiana. As a result of our research, showing how consumer shopping patterns had changed over the years, we have consolidated the number of titles to fewer than 90 to cover the same households and geographic area. That means consumers are now getting directory products from us that have more buying information, from an even broader shopping area than ever before.

These changes to our core products, combined with the suite of new online search products and services we are introducing, are designed to position us for long-term sustainable growth in Illinois.

Local sales appear to be stabilizing. National sales have not and will continue to be impacted by these directory changes for another quarter or two. National buyers tend to already be purchasing ads in all of the affected books; and the same program generally costs less under the new consolidated configuration. Because we don't have a direct relationship with the national advertiser, our ability to recapture that revenue is diminished.

So in Illinois, there is more work to be done; but as we said last quarter, the worst is behind us and we're looking forward to enjoying the benefits of our investments and hard work.

Moving to our newest acquisition, 2006 continues to be a year of transition at Dex. I am pleased to report that we have reached a tentative multiyear agreement with the CWA, which is in part due to the confidence that our employees have in the direction that we're taking this business. Upon union ratification, which we expect by year end, we will bring to a close the bargaining process at Dex until 2009.

As with our successful negotiation with the IBEW in May, we believe this agreement is fair for both sides and provides us with the tools we need to effectively compete in the marketplace. It also eliminates one more distraction for that business.

Ad sales results for directories published in the third quarter reflect sales campaigns that were taking place from December of last year up through about May of this year. So they reflect plenty of noise from both the acquisition itself, as well as the systems and error problems we have been talking about the last two quarters. As we told you on last quarter's call, we expected Q3 published ad sales to feel the greatest impact from these issues.

Back in the second quarter, we identified the systems problem and the majority of the root causes. In this past quarter, we continued to work away at that list. The backlog of over 13,000 customer complaints due to published errors and omissions and billing errors has been eliminated. This is a huge accomplishment.

The number of new complaints coming is steadily dropping each month. Our client focused customer care group continues to resolve about 90% of the calls that we receive from customers within the first 24 hours. This is a service level we believe is unrivaled in our industry and one that will pay dividends for us long-term as we migrate to a more service-oriented business model.

One by one, we are eliminating the disruptions and distractions that have affected the Dex business. We continue to be bullish on Dex due to the great markets, strength of the brand, and the outstanding product usage they enjoy, both print and online.

I also want to reiterate that these products don't need to undergo the kind of reconstructive surgery the Illinois products did. Therefore, our path to growth should be quicker.

We have been saying for the last few years in our investor presentations that two of the key investment highlights for RHD are the strength of the print product and the opportunity that we have with the Internet. Both continue to be true. Our usage share in print is holding steady in the face of an increasing competitive environment. We're seeing evidence that some of our print product initiatives, including the introduction of Plus books, is improving our usage share and that we are delivering even greater value to advertisers.

In the online side we are continuing to see significant sales growth, and advertisers continue to tell us that they're grateful that someone that they know and trust is there to help them navigate this complicated and confusing marketing opportunity. Our initiatives to improve and expand our online offerings remain on track.

First is the completion and rollout of our new DexOnline.com search site. The existing DexOnline site continues to enjoy leading market share for local commercial searches within the Dex region. The new site will be another huge leap forward with a significantly enhanced technology base, exciting new consumer features, and even more accurate, rich, deep content on who sells the products and services they seek.

The current timetable for the launch of the new site looks to be the first of the year for the 14-state Dex region, with Illinois and EMBARQ following over the next couple of quarters.

In September, we acquired LocalLaunch!, a Chicago-based company that specializes in providing innovative search engine marketing and optimization solutions. These solutions simply help businesses get exposed to consumers who may be using Google, Yahoo, or other search engines when searching for who sells the products and services they seek.

This acquisition advances our triple-play solution strategy by combining the lead-generation capabilities of our print directories and our Internet Yellow Pages with these robust search engine marketing and optimization services. By bundling these complementary directional media products, we can provide an easy, one-stop marketing solution for the small and medium-size business at a very attractive price, and get their message in front of more of the active market shopping for those products and services than anyone else. It is a very exciting opportunity.

To wrap up, we are pleased with the quarter and are happy to be exceeding expectations in terms of EBITDA and cash flow. The team has worked hard to get at synergies quicker and controlling costs to achieve. We have also been diligent about disinvesting in nonessential, nonrevenue-generating expenditures, while at the same time investing in performance-enhancing ones. Investments like Plus companion directories, online search competencies, a new IYP platform, systems that will support the new online environment and lower our future operating costs, advertising, sales training and recognition, and sales technology just to name a few. With that, I will turn the call over to Steve.

Thanks, Dave. Today, we will refer to adjusted results reflecting the Dex transaction as if it closed January 1, and removing all purchase accounting entries. Please carefully read our press release and 8-K for details.

Third-quarter EBITDA of $377 million before FAS 123, and free cash flow of $145 million both exceeded expectations, reflecting strong synergies performance and encouraging us to again increase '06 guidance for these key metrics.

We now expect year-end leverage of 6.75 times, a full 10 basis points lower than previous guidance. Q3 EBITDA minus CapEx represented a healthy 54% of revenue, reinforcing the superior value of our EBITDA versus other companies.

Let's move to the details. Continuing expense management in bad debt, print and paper, and IT, along with robust net synergy performance, overcame soft ad sales and net revenue during the quarter. Q3 EBITDA of $377 million before $10 million of FAS 123 expense, equaled 56.7% of revenue. That brings year-to-date EBITDA to $1.14 billion or 56.4% of revenue, and free cash flow to $571 million or $8 per share.

Most encouraging is that we are achieving these results while also investing generously in the key strategic initiatives Dave mentioned earlier. Investments that drive value to advertisers, which will translate to future top-line growth.

Q3 cash interest payments were $213 million, including a $90 million coupon in July on Dex acquisition financing. Accrued interest expense of $211 million included accretion of discount notes and deferred financing cost amortization. Q3 free cash flow included $162 million from operations and CapEx of $17 million.

Now let's switch to capital structure. Net debt at the end of Q3 was under $10.2 billion. Leverage was 6.85 times. Our pretax cost of debt at 8% excludes deferred financing costs, while our favorable after-tax weighted average cost of capital at 7.5% reflects our public LBO strategy.

We preserve that attractive WAC as we approach our target leverage of mid to high 5 times EBITDA. Delevering transfers value from debt to equity holders while increasing free cash flow and enhancing our flexibility to invest in the business for the long run. As we approach this target leverage, we will again consider sharing our abundant cash flow directly to stockholders.

Finally, we are revising 2006 guidance as follows. We expect full-year EBITDA before FAS 123 of at least $1.48 billion or at least 55% margin versus $1.46 billion and 54.5% margin previously, reflecting strong synergy performance and continued investment in key initiatives during Q4. We also expect free cash flow of at least $735 million versus $725 million previously. Please remember we are only making one coupon payment on the Dex financing in '06. Had these notes been outstanding at year-end '05, this year's cash flow would have been $90 million lower.

We expect net debt and leverage at year end to be approximately $10 billion and 6.75 times, respectively. Also, we now expect fully diluted share count of approximately 71.5 million versus between 72 million and 72.5 million previously, reflecting lower dilution from share equivalents than previously assumed.

Before wrapping up, let's briefly review the enduring nature of our valuable tax attributes, both our NOLs and our basis step up. While we plan to offer complete '07 guidance during Media Week in early December, our current forecasts indicate that cash taxes will remain below $10 million per year until 2010; and our NOLs are not consumed until 2012.

However, our section 338 basis step up will continue generating annual deductions of $650 million each year through 2016. Together with our modest CapEx needs, our robust tax assets offer powerful reasons why our EBITDA is so valuable.

That concludes our prepared remarks. Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS) Karl Choi with Merrill Lynch.

I have a few questions. The first one is a quick one. Could you just clarify whether the advertising sales in the AT&T markets were actually up net-net in the quarter?

They were actually down slightly, again, driven by national. Local was up slightly, and national continued to be down.

Okay, second question is for Steve. Using your revised guidance, it seems to imply a pretty big step up in operating costs in the fourth quarter. Just wonder, what is driving that?

Great question. What is happening is actually something we have been seeing the same kind of thing actually for the last couple years. Where we establish a budget for the year; and we execute in the first two quarters; and then what we find is that our performance -- our EBITDA margin and our cash flow -- is stronger at the end of the second quarter than we thought it was going to be.

We saw that again this year, so we deliberately have come up with investments to put more money to work in key areas, which will drive value for advertisers. By the time we look at Q2 results, and we focus on what the right initiatives are, it is really kind of into Q4 before we can actually put all that money to work. So that is really the explanation to your question.

Okay, last question is, you mentioned that you are seeing strong growth in online revenues. Just wondering; is the growth still coming from (indiscernible) Dex Plus type products? Or are you looking at -- are you sort of --? If you can update us on your efforts in monetizing the distribution agreements that you have with some of the search engine portals.

Yes, the growth is really coming equally from both our own proprietary online products, IYP products, as well as the search engine marketing and optimization products that we're offering through clicks.

Okay, thank you.

Peter Salkowski with Goldman Sachs.

Coming off of Carl's questions in regard to the IYP, if we could go into it a little bit; maybe talk about what kind of growth rates you are seeing there, either quarter-over-quarter or year-over-year on the Dex Plus products; or just your Internet revenues in general. Maybe even a sense of -- I realize it is a small percentage of revenue. But what percentage of revenues do you think you might be getting from your Internet products at this point? Then I have a follow-up.

Peter, as we have kind of said in the past, I just don't like to go there for the obvious reasons. Suffice it to say, our online revenues are growing great. But I want to be able to maintain the flexibility to do what I think is the right thing for the marketplace in terms of the pricing and the bundling strategies that we use associated with online products.

So my hesitancy to start to break those out with you guys is that it is my job -- our job as a management team is to grow this business, period. I need that flexibility. If I start giving you that and I do things that artificially make that growth look differently through pricing and marketing strategies, I just don't want to get in that position.

Has there been any change to the contracts with Yahoo and Google with regards to the Donnelley legacy product or legacy territories?

We have a new agreement with Yahoo search marketing that covers the entire footprint, Peter. That is a change. Let me try to think about any of the other ones.

Just to kind of give you a quick, on the Google one, on the Google relationship that Dex had, our intention is to bring that into the use markets. But there are system constraints that are presenting us from doing that now. We can't get the configuration of the data in our use markets Google can accommodate. We are working on that; but we intend on doing that one.

Then we are always talking to all these guys. We think syndication is a strategy that makes sense and are going to continue to pursue different syndication strategies.

Excellent. Then lastly, or actually two last questions. One, on the cost savings from the Dex markets. I know at the acquisition point you had said that there would be $50 million in cost savings for the first 12 months; and that you would spend $75 million to sort of get to that level. If you could update us.

I know you have talked about all the initiatives (indiscernible) the additional spending you were doing in training and other things. If you can give us a sense of where you are in the savings part of that, as well as on the costs on that.

Then also just a quick update on what the expectations for CapEx are for '06. I think it is a little bit lighter than I was expecting coming into the quarter.

Yes, just on CapEx, we have not changed our guidance for CapEx -- $75 million for the year. The answer that I gave to Carl about Q4 operating expense, in terms of finding ways to invest in the business, applies equally to CapEx. So you will see CapEx come in higher in Q4 than in the first three quarters.

On the cost savings, what we said was $50 million synergy run rate by 2008, not in the first year. But we had a trajectory in mind at the time that we said that. What we are finding is that we are getting at it faster than we had previously expected.

We plan to give you more download on that in December at the Media Week conferences. We have got a presentation we have started putting together to give you more chapter and verse on that. The $75 million cost to achieve, we think that is still the right number.

One other point of clarification, though, just on your earlier question about Plus and IYP. Plus, remember, is the companion directory, the companion print product, as opposed to IYP which is the online Yellow Pages that we have been so successful with.

Right, I [might have meant clicks], sorry about that. That will to it for me. On to the next.

Lisa Monaco with Morgan Stanley.

Just a couple of questions. If you could just give us a little bit more color on the ad sales for the EMBARQ and Dex markets. You gave us a little color on AT&T.

Then when do you think that Dex ad sales will turn positive?

Then two unrelated questions. If you could give us an update on the Amdocs integration with Dex?

Then in terms of the national, particularly AT&T, have you given any thought to bringing that function in-house? Thanks.

Peter, why don't you take the color on the --?

Good morning, Lisa. It is Peter. Relative to ad sales, I think that we have talked quite a bit about -- I will start with Dex; or maybe better start with the first acquisition, EMBARQ. It was strong, continued steady performance. Kind of the processes that we put in place across the board, we see the types of results that we're looking for, that we had already always said. So 14 consecutive quarters in a row, I think that is the story there.

AT&T, we did the heavy lifting. A big part of the issue that we had in Illinois, as Dave said, is the magnitude of changes that we need to do for the products and the product cycles involved. We have done really over the last 18 months, we are seeing that come to an end.

We see our customers, the environment, the attitude, as we increase the value in the marketplace. We actually run meters, Lisa, in the marketplaces so that we can see the results for ourselves earlier than the usage reports come out. All of the meters are moving in the right direction. We're talking more than 50 meters in a row moving in the right direction, which then that will translate into improved ad sales as we give better values to the advertisers.

With regards to Dex, it has been a year. As a result of data conversions and customer complaints, where we have been through there. But the underlying value that we see in the marketplaces and the usage of that we get in those marketplaces, as I said on the call last time, I continue to be optimistic about what will be growth in 2007.

With regards to the -- I will go to national. National there is a channel CMR, certified marketing representative, which really we can't go -- or it is more efficient for us to go through the CMRs. I think even all the CMRs like what we're doing with the products, the issues that we have had in AT&T.

If you look at the national advertisers, if you look at our top 10 advertisers, they're actually spending more. It is more of the low-end, processing type issues, when you have another party in between you and the customer, that has become a little bit of an issue.

Your last question, relative to Amdocs, you know, I think that things are progressing well on that front. We feel very positive.

Lisa, just a little more color on the Amdocs integration. I know this is a bit confusing so I will try to clarify. The Amdocs integration as it relates to Dex, it really isn't an integration. What we're doing there is trying to stabilize both the data and the process environment for what had been done with that Dex conversion over the last couple of years.

But you know, in addition to that, as you know, as a part of our integration and synergies efforts we are embarking on a completely new system that will be an umbrella system for the entire enterprise. I will tell you we are thrilled. We have implemented Phase I of that within the last few weeks and converted our EMBARQ business onto that new platform; and it went flawlessly.

Next year we will be doing AT&T. Then, I believe it is like early 2008 we bring the Dex business on to that new platform.

Okay, then just on AT&T again, can you just flesh out a little bit more just on national? Really, what is going on there in Chicago?

Well, as Dave mentioned, we went from 129 products down to 90. So what really takes place there, Lisa, is those product codes are fundamentally eliminated; and you have to rewrite all of those orders, versus just processing a normal renewal type of advertising.

You take a case like a national advertiser, where we could have gone from eight books in a market down to four books in a market. As we've -- there was some consolidation that actually took place when we did that. So it is a short-term, one-year type of an adjustment that I think we have lived through this year.

I think the value that we're now delivering -- and I was just with the national advertisers last week at a conference, and I think they are very pleased with the new scopes and the products that we are delivering. They are starting to see now, as we are with our meters -- because most of them track the results the same way. They are seeing a better value with their advertising dollar for us in Illinois; which is why we feel good about going forward.

In our new Plus products that we have in Illinois, the investments we have made there, they are also seeing the type of results that we are looking to do or to get from those investments.

So I think you think about it as a one-year we made to do the right thing for the products, to drive the type of value and usage that we would then be able to use as a platform to grow going forward. Does that help?

Yes, thank you.

Michael Meltz with Bear Stearns.

Steve, I think on the second-quarter call, you made a point of saying you expect ad sales to grow in '07. Can you just update us on that, given the momentum you had here in Q3? Or is it fair to say you're sticking by that?

You know, actually, I went through the transcript as well, Michael, and I noticed that that comment was attributed to me in the transcript, but I think it was actually Peter who said it. So I think it is probably better for Peter to give us the update.

Michael, I think this has been a year of transition for us as we all look at the business. I said that last time on the call, and I still believe, that we are well positioned for '07 to grow.

Okay, did I cut you off there?

No. In ad sales.

Okay. Dave, you mentioned at the outset that Sprint or EMBARQ, your number of advertisers are growing. Can you talk a little bit more about that.

Then, Steve, can you just tell us -- of the $211 million of interest expense, what was cash and what was -- can you actually isolate the deferred fees and the discount accretion? Thanks.

Yes, Michael, I don't know that there is much to say. But other than in that EMBARQ business (indiscernible), we have positive customer growth, and we are very proud of that. It is strong recurring revenues, and we are bringing new customers in as well. So it's net-net, customer growth there.

Can you quantify at all?

We have not been disclosing that specific metric.

As far as the interest expense number, Michael, on the cash interest expense of $211 million is what I said, right? The amortization of deferred fees was about $6 million. There was also accretion on the discount notes of about 15, $16 million.

Remember, that number that I mentioned is also adjusted to remove the credit that we get from the amortization of the fair market value adjustment. So I am not taking any credit for that amortization. That is an adjusted number we think is kind of a cleaner look.

I just want to make sure I am looking at this properly. You are showing on your P&L $210.5 million.

Right.

But you're saying cash is $211 million and then there's these other factors.

No, no, no. That amount on the P&L of $210.5 million is an adjusted number that is -- really the only thing that is removed is this credit that I mentioned, which is the amortization of the fair market value. So if you look at the GAAP number you will see it was 202, $201.7 million.

So what I am saying is that we think it is unfair to take a benefit from the amortization of the fair market value, which is a purchase accounting concept. So we remove that for purposes of our adjusted presentation, to make sure that we are being balanced in terms of we're not only adding back the revenue for directories which published before we bought the business, we're also removing the good-guy purchase accounting items, also.

Okay, thank you.

Paul Ginocchio from Deutsche Bank.

Remind us how big the third quarter is for AT&T pub sales? I think it is the smallest quarter in the period.

Then second, I don't know if you -- the previous question about the Dex, when you thought revenue would grow again. I don't know if I heard an answer to that or not. I just wondered when you thought that was likely.

Also, what has the churn rate been like for the Dex sales force over the last few quarters? How is it trending?

Paul, the third quarter, you are right, it is not the biggest quarter. I don't know off the top of my head, but it's -- whether it is --

(multiple speakers) smallest quarter, and it is also the smallest quarter for Dex. It is kind of a medium-sized quarter for the EMBARQ business.

The churn rate relative to Dex, I think is continually coming down. I think that it was a little higher at the beginning of the year and the trends are all going in the right directions there.

There was another part to your question though, Paul?

Did you say -- I missed it before -- about when you thought Dex pub sales would start going positive again?

Paul, I think that we are going to see -- I [am] just talking about all of RHD -- I think we are seeing that as a positive for 2007.

Okay, great. Thanks.

Remember that the Dex business is like 65% or something of the total.

We are still seeing, Paul, real good value there. A lot of what we like is the quality of the markets, the brands, the usage numbers are consistently strong.

Jeff Shelton, with Bleichroeder.

With all the positive news on the synergy front, are you starting to think maybe you're going to be realizing more synergies than the initial expectations of $50 million?

That is a great question. You know, I think that when we communicated the synergies originally, what we -- we had a bottoms-up view that added to more than $50 million. But we said, you know what? In order for the Dex transaction to be accretive from a cash flow and an EBITDA multiple point of view, we only needed $50 million in order to justify the transaction from a synergy point of view.

So is it possible that synergies are greater than $50 million? I think that is a possibility. We are not going there yet. But like I said, we're going to view a full chapter and verse on synergies in December.

On national sales, a follow-up question. If you look non-AT&T markets, how have national sales been trending? Have they been worse than local sales, better, flat?

I think it probably parallels local sales. You know, I think that what I am pleased with is our largest customers continue to see great value. Actually the auto industry or -- there's one or two sectors where we have felt some pressure this year. But overall, I think the way to look at it is, it does follow local sales. It is market by market, but I think it is a solid part of our business.

Last question. I think I remember there was some overlapping of directories with the Dex and the RHD. Where are you in the process of eliminating those? Could we see some of the same national sales effects that we saw with the AT&T markets?

Great question. I am glad you brought it up, because I think a failed to mention it in my comments this year. What we said last quarter is we are going to feel most of the impact of those overlap markets -- getting rid of the overlap markets -- in Q4 Dex numbers. So that will be reflected in there.

Okay, thank you.

Anthony DiClemente with Lehman Brothers.

First question, real basic. Can you just remind us what percentage of your pro forma revenues come from EMBARQ versus AT&T versus Dex?

Secondly, second question would be, I know that you all have consolidated the number of titles in the AT&T markets. I'm just wondering, it seems as though you have introduced the Plus or companion books in the Dex territories.

If some of your growth is coming from the unit growth in those new publications, should we be concerned at all that that leaves less room for growth going forward? Because it sort of leaves you pricing -- more so just pricing as opposed to units.

Then, sorry for the three questions, but the third one is just if you could give us some color on the complexion of the marketing of your online product. Is it still the type of thing where you're guaranteeing clicks to your customers, and then delivering them either through the IYP platform or contracting out with your search engine marketing partner? Thanks for answering those. Appreciate it.

Anthony, I will take the last one first. On the marketing of clicks, we have -- a large part of the Company right now, we are continuing to do the guaranteed clicks program. We have been experimenting, though, in some other markets with another approach or a budget-based approach to clicks that we actually adopted from LocalLaunch! prior.

So we are researching those, looking at the results of both of those now in the marketplace, and determining what strategy we think will deploy longer-term for the clicks, or search engine marketing and search engine optimization products and services.

As far as the revenue split goes, we really haven't been going there. But what I can tell you is if you go back and look at our filings, right now we are filing five separate Qs. So it wouldn't be too hard for you to piece that together yourself.

Remember at the time we bought the Dex business I think it was about $1.7 billion in revenue, something like that. The Sprint business at the time we bought it was around $600 million in revenue. The Illinois business was around $400 million in revenue, something. That is the orders of magnitude.

The other question, though, about the number of titles in Plus directories and unit volume, etc., could you ask that question again? I am not sure we got the question.

Yes, it is just sort of the idea that if you are generating revenue growth from the introduction of new companion books, then is that leg of growth sustainable? Meaning, assuming that the number of publications you have out in a given market stabilizes at some point, does that impact your revenue drivers in that market?

Anthony, I will take -- I will start with that. Then if Peter or Steve wand to add anything. But the Plus directories first -- if you kind of think about the strategy for Plus directories, first and foremost before increasing revenue, it is about driving incremental usage and improving our usage share in the marketplace, and cannibalizing usage away from our competitors.

All the research that we're seeing, first and foremost, says we are doing that. The amount of usage that we are generating in the markets that we have introduced Plus for our advertisers is increasing, market by market. But at some pretty impressive rates.

So at the end of the day we are delivering more value, delivering more value to advertisers, and it represents these revenue opportunities.

But that said, in terms of have we -- is there any legs or future to that? You know, first off, whatever new product you introduce in a given year, that takes some of the share of wallet that your advertisers have to spend. So if it is Plus this year, they invest in Plus. Next year, it may be more of the search engine marketing side; or a larger ad under a different heading.

You know, they tend to not just -- when you add these incremental products and services on, it doesn't all become incremental spend. It is just where the spend goes that an advertiser had budgeted for that year.

Anthony, I think I would add to Dave's comments that one of the things that we have done deliberately, because we want to understand the dynamics of what takes place when we launch a Plus directory; and what does it do to the current usage of the current directories?

One of the nice things that we are seeing is the core directories, not only -- especially in Illinois, the core directories are retaining their usage and even growing from our meters; as well as they are getting additional incremental value from the Plus directories.

As we look at this, at the end of the day, the advertisers are going to reward us for getting more leads to their businesses. So we are very bullish on what this has done for us and what it will do for us going forward.

I guess, one of the ways I think to think about it is -- maybe you grew up with one TV in your house, and probably people have more than one in their house today, and it actually drives more usage as it is easier and more convenient for the consumer.

These smaller Plus directories have terrific content and are a size that we are finding they're next to computers, they are used in their car, they're put on their desk. And so it is driving the better usage for us.

Hopefully that helps.

That does help. I appreciate the answers. Thanks a lot.

Meridith Alin with Bear Stearns.

Just a couple of questions. Most of my questions have been asked and answered. I rely that you're not getting into 2007 guidance until Media Week in December. But I know you have talked about 2007 directionally. Could you give us a little color as to whether or not you think that on a reported basis we might see some growth in 2007 revenues?

Yes, that is a great question, you know, especially considering how this year our guidance for ad sales stands at -1.8 to -2. So we're going to have some headwind next year. The answer to your question is going to all depend on when the ad sales turn positive next year. So more than that we are really not ready to talk about today.

Could I just get some clarity then on the Dex side? With the discussion that Dex ad the sales would turn, is it that they would be positive potentially in '07 or turn positive in '07?

I really -- all I'd tell you was I have looked at 2007, the question was, and I saw growth for R.H. Donnelley. I didn't break it out by group. But as Steve noted, that is our biggest component of our businesses.

Okay, and then just a housekeeping issue. If you could give us just some sense of your revolver availability as of quarter end, even if you aggregated across the credit facilities.

Yes, that is not something that we are prepared to talk about today. We have got plenty of availability.

Okay, it is just to help debt analysts with their calculations. Can you give us a range?

Yes, you know what? We're filing our 10-Q in -- I guess at the end of the month, so you should be able to pick it up there.

All right, we will look for it then. Thanks very much.

William Deitrick with Citigroup.

I may have missed this earlier in the call, but I was wondering if you could tell us a little bit about your plans for free cash flow for the year; and any plans for debt reduction. Thanks.

Yes, so we are raising guidance today for free cash flow. Our previous guidance was $725 million. The current guidance is raised to $735 million. We plan to use all available cash flow for debt repayment, other than the modest amount that we used for the LocalLaunch! acquisition.

Any guidance on which debt you're thinking about repaying first?

The only debt that is prepayable is bank debt. So that is really what we are going after. We are doing it in a balanced way across the different credit facilities.

Great, thanks very much.

All right, I would like to thank you all for joining us this morning. We appreciate having an opportunity to update you on our progress, hope that you share our enthusiasm for the future, and wish you all a good day.