Thryv Holdings Inc (THRY) 2007 Q1 法說會逐字稿

Good morning and welcome to the Idearc's first quarter 2007 earnings conference call. We will have a question and answer at the end of the Company's prepared remarks.

Some statements made by the Company today during this call are forward-looking statements. These statements include the Company's beliefs and expectations as to future events and trends affecting the Company's business and are subject to risks and uncertainties. The Company advises you do not place undue reliance on these forward-looking statements and to consider them in light of the risk factors set forth in the reports filed by Idearc, Inc. with the Securities and Exchange Commission. The Company has no obligation to update any forward-looking statements.

At this time I'd like to turn the call over to Dee Jones, Senior Vice President of Investor Relations. Please go ahead, Dee.

Good morning everyone and thank you for joining us today. With me today are Kathy Harless, President and Chief Executive Officer; Andy Coticchio, Executive Vice President and Chief Financial Officer; and Eric Chandler, President of our Internet organization.

We will refer to some non-GAAP measures that exclude one-time costs related to the spin-off and other special items that are intended to present our 2006 quarterly financial results as if we had been a stand-alone entity at the beginning of the period presented. Given that our spin-off from Verizon occurred in November 2006, management believes these non-GAAP measures provide investors with a more meaning view of our performance and a better benchmark to compare future performance. We have provided reconciliations of these non-GAAP measures with the most directly-comparable GAAP measures at our web site at idearc.com under the Investor Relations tab.

Please note that an archived version of this call will be available on our web site at idearc.com under the Investor Relations section. Additionally, a replay of this conference call will be available through May 13th, by dialing 877-519-4471. International callers should dial 973-341-3080. The replay access code is 8696099.

And now I'd like to turn the call over to Kathy Harless, our President and Chief Executive Officer.

Thank you, Dee. Good morning everyone and thank you for joining us today. As we discuss our first quarter earnings results, I would like you to take away four important points from this call. First, we are reiterating our full-year guidance that includes achieving close to flat multi-product revenues for 2007.

Second, we are reporting a healthy cash flow that will fund another dividend to stockholders.

Third, we are reporting an improvement in multi-product advertising sales of more than 400 basis points, compared to performance in the first quarter of 2006.

And fourth, we are reporting more than 30% growth in Superpages.com revenue and a 36% increase in overall network searches.

Andy will give you financial details about all four of these points shortly. In the meantime, I'd like to give you some detail about our continued progress and what is driving these results. We are seeing strong customer loyalty. Our sales force productivity is exactly in line with what we expected. And, our product innovations are increasing consumer references.

It is important to know that, with our print business, we have a three-year product launch strategy. In year one, we launched products into selected markets [just as a] business model. In year two, as the products prove successful, we expand into other markets. And in year three and beyond, we focus on driving customer penetration. A prime example is our companion directories, which are in the third year. We launched companion directories in selected markets in 2005. The following year, in 2006, we doubled the number of companion directories. Currently, we publish more than 170 companion directory titles, more than any other publisher. Now, in 2007, we are focusing on driving customer penetration. You will recall that the companion strategy is through [same] customers and capture [inaudible] advertiser dollars.

Another example is our vertical products. Our SOLUTIONS magazine and direct advertising postcards are in their second year, so our focus for these products is expanding to other markets. SOLUTIONS ON THE MOVE, our coupon booklet for new movers, is in the first year. We are now testing this product in our mid-Atlantic market, and I can tell you we are very pleased with how our advertisers are embracing these products.

We are also energizing our multi-product performance with a national advertising campaign, which kicked off in March. These national commercials are building awareness by underscoring the connection between the new Idearc brand and the established brand equity of Verizon Yellow Pages and SuperPages.com. The commercials are expected to be seen by more than 89 million people nationwide. I would say that we're hearing that our customers and our sales force that are seeing the commercials, and they are very pleased that we are supporting the products. Our commercials are on idearc.com, and I hope you'll take a minute to go to our website and view them.

Now, turning to expansion markets, we are working on an aggressive strategy. As we have reported before, we are currently in more than 40 expansion markets, and we are evaluating other markets. The potential markets we are studying must demonstrate the ability to generate more advertising sales, enhance SuperPages.com's content, and strengthen the appeal to large national advertisers. In the first quarter, we opened a new sales office on the West Coast in Stockton, California, to fill out our footprint in northern California. We'll announce other new markets as they are identified and the timing is appropriate.

Now, with that, let's focus on SuperPages.com and what contributed to our more than 30% revenue growth and 36% increase in network searches. As you can tell, our Internet product is growing at a rapid pace. In February, we launched new performance-based advertising packages to increase revenue and attract new customers who have not used Internet advertising before. These packages create a more simplified sale for our sales reps, and we are seeing great demand for them in the marketplace. Our sales reps have told me that some customers are asking for these Internet advertising packages before we can even present them.

We also advanced our value proposition of presenting relevant advertising content to high-quality, targeted leads. In the first quarter, we signed agreements with Local.com and the abcsearch.com network to place SuperPages.com advertisers on their sites. SuperPages.com now has agreements that place our customers' ads on more than 200 other Internet sites, including Google, Yahoo! and MSN. We increased our national Internet sales presence by opening an additional office in Alpharetta, Georgia. This office is focused solely on selling our Internet products. This expansion increases Idearc's capacity to attract new advertisers and capture additional revenue.

Now just this past week we announced our relevance search launch, in which we pair the highest quality advertisements with user search queries, instead of simply displaying ads at the highest bids. This encourages our advertisers to be sure their ads are rich in content and include the kind of information that will result in more valuable leads.

Today we are formally introducing a new consumer experience on SuperPages.com. I encourage you to go to our site and experience a much more personalized local search. The new design showcases a sleek and simplified look. As you conduct a search on the new site, using the simplified [inaudible] search bar, SuperPages.com remembers where you searched, so the next time you visit, you'll see the SuperPages.com home page with a graphic of the city's skyline, along with your area's weather. The re-launch is another step in our evolution as a leading local search provider.

Now I would like to turn the call over to Andy Coticchio, our Executive Vice President and Chief Financial Officer, to give you financial details about our 2007 guidance, our second dividend to stockholders, the improvement in our multi-product ad sales, and SuperPages.com revenue and search growth. Andy?

Thank you, Kathy, and good morning everyone. First, I need to mention that we will refer to GAAP and non-GAAP results, so that you can readily adjust first quarter 2007 for comparison to 2006 adjusted pro forma results. Here are the financial headlines. One, we experienced continued improvement in multi-product advertising sales. Two, we delivered strong revenue growth in SuperPages.com. Three, adjusted multi-product pro forma revenues were flat in the first quarter of 2007, compared to the same period in 2006, and grew by 0.6% versus fourth quarter 2006. And four, our continued strong cash flow enabled us to declare a dividend to be paid in the second quarter.

Within these results, I want to give detail about our Internet growth, which is a phenomenal story. We reported Internet revenue of $68 million in the first quarter of 2007. This reflects continued strong performance, with more than 30% revenue growth and a 36% increase in overall network searches, compared to the same period in 2006. SuperPages.com's consistent performance was driven by solid growth from all sales channels, increased traffic and pay-for-performance product offerings.

In the first quarter of 2007, we generated $356 million of OIBITDA, on an adjusted pro forma basis. Excluding one-time costs of $25 million, OIBITDA for the first quarter of 2007 was $381 million, an expected decline of 4.5%, as compared to adjusted pro forma OIBITDA for the first quarter of 2006.

We completed the ramp-up in hiring sales reps in the second quarter of 2006. Therefore, first quarter 2006 did not have the full expense impact of these investments, which accounts for most of the contraction we are reporting.

Let me put a little more color on this. When you look at sequential-quarter basis, comparing first quarter 2007 adjusted pro forma OIBITDA to the fourth quarter of 2006, we reported a significant increase of 18 million, or 5%, because of improved revenue, reduced bad debt, and the timing impact of selling expense. From an overall perspective, these results reflect the investments we are making in the business, such as hiring new sales reps, market expansions, new print product innovations, and new Internet initiatives. Again, as Kathy mentioned, our strategy is working, and we believe our strong first quarter results position us well as we look forward to the remainder of 2007.

Now, let's look at some other components of our financial results. We reported net income of 104 million, or $0.71 per diluted share for the first quarter 2007, which is consistent with our expectations. Net income includes the effect of one-time costs of 16 million after tax, or $0.11 per diluted share. These are one-time costs related to our spin-off and a one-time stock-based compensation award. Adjusting for these items, Idearc's adjusted pro forma net income was 120 million, or $0.82 per diluted share.

Moving to net income, I want to call out three items. Our interest charges in the first quarter were 170 million, including amortization of 2.7 million in non-cash debt issuance cost. Depreciation and amortization were 22 million, and taxes were 60 million [sic - see Press Release.] Our [free] cash flow for the first quarter 2007 was 191 million, and that includes the cash impact of 12 million associated with the one-time transition costs.

Our healthy cash flow again will fund a dividend to stockholders. The Idearc Board of Directors yesterday, May 2nd, declared a quarterly dividend of $0.3525 [sic see Press Release]per outstanding share. The dividend is payable on or about June 7, 2007, for stockholders of record at the close of business on May 16, 2007.

Now, looking at one of our indicative measures, multi-product advertising sales were close to flat in the first quarter, reflecting a decline of about 3%, as compared to the same period in 2006. This is an improvement of more than 400 basis points from our first quarter 2006 multi-product advertising sales performance, which reflected a decline of 4.6%, as compared to the first quarter of 2005.

These results show a combination of continued improvement in published print revenue and the strong performance of SuperPages.com revenue. Published print revenue performance continued to show improvement in 2007, as a result of the Company's investment in the sales force, companion directories and other new products, such as the SOLUTIONS verticals that we discussed earlier.

Looking ahead through the remainder of 2007, we believe first quarter results position us to deliver on what we have projected for the full year 2007. And we are reiterating guidance, noting close to flat multi-product revenues expected for the year, and only slight adjusted pro forma OIBITDA, [inaudible] margin contractions from 2006 adjusted pro forma results, because of the continued changes in our revenue base. With that, I'd like to ask the operator to open the call up for questions.

Thank you. [OPERATOR INSTRUCTIONS.] Your first question is coming from Peter Salkowski of Goldman Sachs. Please go ahead.

Thank you very much. Good morning everybody. Kathy, just a couple of quick questions on the companion directories, if you could talk about those a little bit? I know you said that there's over 170 of them out there at this point, and I'm just kind of wondering a couple things. First of all, is there a target number you'd like to get it to? I know you said you were sort of in the third year now, so maybe the expansion is done, but, just wondering if you plan to add additional companion directories in new markets? And then, secondly, on the penetration on the companion directories, just wondering-- the percent of incoming advertisers you are currently entering into the companion directories, and where you think that might be able to go on a going-forward basis?

And then, lastly on the companions, if there are any markets where you've actually entered the market with a companion directory, but haven't really charged for it, you've kind of come in free and just kind of copied the ad that was done in the incumbent book, so that you have a full-market coverage? And then I have a follow-up on a couple of quick numbers.

Well thank you, Peter. You know, as we went out and started the companion, our strategy there was to make sure that we were actually bringing more a return of references to our advertisers. And as we looked into the marketplace, and I mentioned we have 170, we will always look to see if that product serves our advertisers. If it does, we will continue to add that. The 170 that we have out in the marketplace, we are moving forward with penetration, and I can tell you that the advertisers out there actually love it. And we will continue to build that out, if you will. They are-- as you know, the strategy there, for the companion directory, is to retain the customer and capture incremental revenues.

So therefore your question about are we giving anything free, no. We don't give anything away free, because we sell on value and we believe that we continue to bring value to our customers. And, this really helps customer references and, as I mentioned, sales people love to sell it, and the advertisers are embracing it.

So what are you seeing in terms of penetration rate then, in terms of how many of the advertisers in your incumbent markets are buying into the companion directory?

Well, what I can tell you is that we're very pleased where we are. And it is-- as the penetration is as great as anything which we have seen with core products.

Okay. And then, just a comment maybe on the [Yellow] release earlier last week I believe it was, with regards to their slowdown in their revenue growth. Does that have any sort of impact on you, or what are your thoughts on that?

Well, actually, I think one of the questions that came out was were we cutting prices, and no, we're not cutting prices as the incumbent. We invested in adding sales force additions out in the marketplace. We see that playing off in the incumbent side. And then I will tell you, the companion directory strategy has worked beautifully for us, because it has helped us to retain the customer and capture those incremental dollars. So, we're very pleased at the-- at what we're gaining in the market as far as in the incumbent side.

Okay, thank you. A couple of quick questions for Andy and then I'll get off. First of all, Andy, the percentage of revenue that [you said you've] already booked for 2007, do you have a sense of that? And then lastly, the tax rate was a little bit lower than I was expecting. Is 36 and a half a number-- sort of what we should model for the rest of the year, or should it be closer to-- I think I had 39% earlier.

Peter, yes-- I'll take the second question first. The tax rate was a little lower in the first quarter than we expected. We had some adjustments and close-outs of some tax issue on the state level. I think modeling for a full year is still comfortable in the 39% range for a tax rate.

As we look at the percentage of revenues that we've worked so far, by the end of the third quarter we're pretty much finished with books we'll publish in 2007. So as we're moving along, we've got great visibility into 2007 right now, which makes us comfortable with our statements on revenues.

I would want to make one slight correction. I believe I misspoke in my prepared remarks when I said the dividend was $0.3525 cents per share. It is $0.3425, so I hope I didn't disappoint anyone by lowering it just now. But I wanted to get that clarification out there.

There goes a penny. Thank you very much guys.

Thank you, and your next question is coming from Anthony DiClemente of Lehman Brothers. Please go ahead.

Hi, thanks for taking my question. Two quick ones-- first of all, thanks for giving us the breakdown of multi-product advertising sales with your print down two and a half, and your Internet up 31. Can you remind us what those two numbers were for the fourth quarter, just so we can get an idea directionally? I know you gave that year-over-year comparison in terms of reported operating revenue, but what was the breakdown at the ad sales level?

And then the second question is, in terms of just the Internet approach, can you give us a little more color on the difference in the economics from search engine marketing to your IYP approach with the SuperPages.com URL itself? So, if you have a client and you're deciding whether to direct them to another search engine, like a Yahoo!, or whether or not they're content resides on the SuperPages, how does that split, that economic split in terms of margins and revenues, differentiate itself for your business? Thanks.

Anthony, this is Dee. I'll take the first one there, on the fourth quarter 2006 results from the revenue perspective. Amortized revenue for the fourth quarter versus the prior fourth quarter was a negative 2.4. On print ad sales in the fourth quarter versus the prior year it was a negative .9. And, multi-product on a total basis, including the 26% growth we had in the Internet side in the fourth quarter was .5.

Anthony DiClemente So, just on the print side it seems like--is it an acceleration of a decline sequentially, going from .9% to down 2.5%? Is that correct?

I think, Anthony, you've got to look at the full year when you look at declines and period-over-period comparisons.

Okay.

Fourth quarter is a very strong quarter for us as far as market. You work different markets at different times during the year, so you're going to have some lumpiness over the quarter-over-quarter comparison. As we look at a full year, we're very [un]comfortable that the print trend is improving in the core.

And Anthony, to the question on the Internet approach and the search engine versus the IYP, and how much in our margins and revenues-- whether or not we take it on extended distribution through Yahoo!, Google, or MSN versus our own platform, where we're actually headed is, and we've mentioned before, is that the two of these are coming together. Everything is blending into the local search. And we really looked at where we should place our advertisers' content, and making sure we get the best return on investment for them. So whether or not that's going across a search engine, or whether or not that's going directly across SuperPages.com, our intent is really to make sure that our advertisers get the best return on investment. So we will continue to build out extended distribution. We think that's the right thing strategy-wise to do. And we're very pleased, and our advertisers are very pleased, with the return we're getting back on the Internet side.

Got it. Thank you.

Thank you. Your next question is coming from Paul Ginocchio of Deutsche Bank. Please go ahead.

Hi, good morning. This is Matt Chesler. Just another question on the print-- on the pub sales trends. I appreciate that you're switching from disclosing just the print pub sales to the total ad sales. At least for this quarter, can you tell us what the print pub sales number was this time around, so that we can compare to our forecast? And then we'll make the corresponding changes accordingly. It would also be helpful if we could get the 2Q '06, 3Q '06, and 4Q '06 ad sales trend from last year, so that we could also do our modeling.

Matt, the breakdown of print and Internet, the advertising sales, that is one of the schedules that we include in the press release, and that will be on the web site, if you refer to it. And it's--for the first quarter the print was a negative 2.5, and the Internet was a positive 30.8. For the blended, negative .3. As far as the previous quarters, we have filed an 8-K that has that quarterly info, that you can access through our website.

The--I [heard] you say the minus 2.5, and the 30.8 was revenue, but what was pub sales for print?

That is the advertising sales, the pub sales, those stats I quoted to you.

Not revenue?

No, that is the advertising or the pub sales [yields]. That's correct.

Okay. And Andy, one other question on SuperPages.com. If you stripped out the impact of Inceptor, could you either give us the dollar contribution of Inceptor to the quarter, or the organic growth for SuperPages for--?

Well, I mean, it's hard for me to try to strip out Inceptor. I mean we have integrated that into our SuperPages.com platform, so the Inceptor product suite is impacting the overall customer base. But I really can't break that out. I can tell you there's strong organic growth in those numbers. There is a strong contribution of Inceptor as we work it across the entire customer base, so going forward I really can't break those out. It was a great acquisition for us in 2006, and it's started paying dividends immediately as far as dot-com performance.

Kathy, a question for you regarding the progress you're making on integrating the new sales force. Were there any positive things about sales force churn? If there's any message you can give us on the improvements to sales force churn and productivity, that would also be very helpful. Thanks.

You know, as we went out last year and we invested in the sales force--and part of it, as you all know, putting a lot of training back into the workplace in order to slow down the churn. And what I would tell you is we're very pleased with where the churn is. Any sales organization would be tickled to have our sales turn numbers right now. And from integrating, as bringing new sales people on, they are exactly where we thought they would be at this point in time. We've talked about the length of time that it takes to bring a sales force on board and get them really out there selling, not just stuff, but being able to help the current advertisers. So, we're right on target. We're pleased with it. They're doing some great things for us, so we'll continue to look for more great things.

Okay, thank you.

Thank you. [OPERATOR INSTRUCTIONS.] Your next question is coming from Jeffrey Shelton of Natexis Bleichroeder. Please go ahead.

Yes, thanks. I was hoping you could talk a little bit more about the vertical products, how big you think an opportunity is that for you? I guess both the SOLUTIONS magazines and the coupons?

Well, Jeff, I talked about, I guess, our three-year launch strategy and where we were with the different vertical products. When we go in and look at what kind of products we want, our number one, I guess, concern is to make sure that we are bringing references back to our advertisers. At the same time, we do want to bring great revenues back to the Company, so we really focus on the things that we know we're able to bring a good return back to our stockholder on. In saying that, if you think about where the industry is headed, and you think about the media, what we're able to do now is be the sales force out there that can not only give the advertisers the information they need on Yellow Pages, but we can do it on the online, electronic side, as well as direct mail, which is what our postcards are all about, and magazines. And so what we really give back to our customers is references, and how much they pay per lead. And so we will always go into things that will increase their leads and will bring some great revenues to the Company. And we see all of these things as being very vital going forward in the marketplace.

And another question on Yellow Book. They talked a lot about increased competition in the market. You touched upon your incumbent markets and the strength you've seen with the companions, but from your independent strategy--are you seeing some more dynamics there?

Actually we're not, and let me tell you why. We really bring a very unique proposition to the marketplace. You know, we've talked about our strong brand, with Verizon, that we have. We looked at our suite of products that we're able to bring, the electronic products. along with the verticals, along with the core products. We've always believed that there could be two books in the marketplace. Our thought on the independent has been that-- our goal has been to displace the number two publisher. And we sell on value, so actually, I'll tell you, our growth continues to be very strong in our independent.

And one last question on the print ad sales. It seemed like there is some seasonality quarter-to-quarter. Should we expect 2007 to be similar to 2006, where the second quarter and the fourth quarter were seasonally the strongest, in terms of ad sales?

Jeff, I think you do see seasonality. We expect similar seasonality in '07 versus '06, but overall-- we are expecting the overall year to show improvement year-over-year. But you will see what I described as the lumpiness between the quarters, that makes the sequential a little difficult to really work through.

All right. Thank you.

Okay, you're next question is coming from Tom Lamb of Weybosset Research. Please go ahead.

Good morning everyone. Just a question regarding competition you're seeing in your markets, but perhaps you could be a little more granular. Are you seeing it from local advertisers? Are you seeing competition from, say, newspapers dropping off? And are you seeing any sort of local Internet activities in some of your markets?

Well, Tom, thank you. This is Kathy. We're very fortunate that we have very diverse markets. We have a great portfolio with diverse markets and with our customers as well. So, when we go out in the marketplace, we're really working on being able to sell our advertisers that lead at a very effective cost for them. So, we're not--they'll always be competition. There's competition in our markets. We've dealt with it for years. We know how to deal with it, and we will continue to address it appropriately.

Is there any--what I'm trying to get at-- are there any small, sort of city-based web sites that you might be interested in acquiring? Is that something that-- is that a direction that you might go in?

Well, Tom, that's [not a legitimate] question.

Excuse me?

Actually, we mentioned before on our total return back to our stockholders, that we-- our plans are to be able to declare dividends. Also then, we look at acquisitions that we feel like will add to our traffic, when you talk about the Internet side of the house, if there's some type of technology that we might need. So that's another place that we would look to spend our cash. So we're always opportunistic about those things and we'll look at them as they come about.

Great. Thank you so much.

[OPERATOR INSTRUCTIONS.] There appear to be no further questions and now I'd like to turn the call back to Kathy Harless for closing comments. Please go ahead.

Well, thank you, and to close our call today I'd like to note that key to our continued progress is the ability to drive our results in our print business, and identify and capitalize on profitable growth opportunity. Our strategy for identifying and exploiting these opportunities is captured in our priorities for 2007, which includes that we will continue to drive Internet sales, continue to drive print sales, and maintaining healthy margins. I appreciate your continued interest in Idearc, and thank you for joining us today.

Thank you. This concludes today's Idearc's first quarter 2007 earnings conference call. You may now disconnect your lines at this time, and have a wonderful afternoon.