Thryv Holdings Inc (THRY) 2007 Q3 法說會逐字稿

Good morning and welcome to Idearc's third-quarter 2007 earnings conference call. (OPERATOR INSTRUCTIONS).

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 not to 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 would 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 CEO, and Andy Coticchio, Executive Vice President and Chief Financial Officer. We will refer to some non-GAAP measures that exclude one-time costs related to the spinoff and other special items that are intended to present our quarterly financial results as if we had been a stand-alone entity at the beginning of the periods presented. Given that our spinoff from Verizon occurred in November 2006, management believes these non-GAAP measures provide investors with a more meaningful view of our performance and a better benchmark to compare future performance. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures on our website at Idearc.com under the Investor Relations tab. Please note that an archived version of this call will be available on our website at Idearc.com under the Investor Relations section.

Additionally a replay of this conference call will be available through November 15 by dialing 877-519-4471. International callers should dial 973-341-3080. The replay access code is 934-3136.

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

Thank you, Dee. Good morning, everyone, and thank you for joining us today. As we discuss our third-quarter earnings results, I would like you to take away three important points from this call.

First, healthy cash flow will fund another dividend to our stockholders. Second, we're reiterating full-year guidance, noting close to flat multiproduct revenues and only slight OIBITDA margin contraction from 2006 on an adjusted pro forma basis. Third, we are forging ahead with our multiplatform strategy and beginning to capture new and nontraditional advertisers across all channels. Our local salesforce, which is a key asset, is trained and embracing the multiproduct sale.

Now we have completed an extremely busy third quarter. We are getting close to the end of the year, and in fact, we will celebrate Idearc's first year as a publicly traded company in just two weeks. Throughout the year we have talked about our strategy and our challenges, and we have stayed consistent in what we told you we would deliver.

We are forging ahead with our multiplatform strategy and meeting industry challenges head on. We are ahead of other directory publishers when it comes to transforming the print business to a multiproduct business. The steps we're taking, along with our strong Internet growth, effectively positions us for the future.

Now throughout the year, we have discussed with you the three distinct components to Internet LocalSearch that are required to succeed -- content, technology and traffic. We have consistently advanced on each of these areas with a laser focus on traffic. We are capitalizing on opportunities to increase traffic on Superpages.com, preferably organic traffic, to monetize our growing demand for pay for performance products.

Now if you hear a reoccurring theme on today's call regarding our Internet business, it is traffic, traffic and more traffic.

We took several significant steps in this area, starting with the acquisition of Switchboard.com and other online directory assets from InfoSpace, which closed yesterday, October 31, 2007. It is worth noting again that this acquisition is consistent with our multiplatform strategy. It fits well with our stated capital allocation program and will generate profitable revenue.

Switchboard.com is a traffic play that will enhance our competitive position in the marketplace. The acquisition significantly increases our Internet traffic as we distribute Superpages.com advertisers to more and more end-users.

Now also this past quarter we acquired the LocalSearch.com URL and made a strategic investment in AmericanTowns.com. Again, this is a traffic play that allows us to monetize LocalSearch even better than we have been. This investment also provides us with access to neighborhood-based information that can easily integrate with many of our LocalSearch offerings.

As Superpages.com rapidly transforms from an Internet Yellow Pages model to a local business model, we believe the LocalSearch.com URL will be a critical asset moving forward.

Now I want to reinforce one other area where we continue to expand our traffic base and that is our distribution agreements with other Internet sites. Distribution partnerships are an important part of our strategy because when you add them altogether, they result in tremendous visibility for our advertisers.

In the third quarter, we assigned additional distribution agreements. We also extended our relationship with WhitePages.com, which allows us to drive Superpages.com advertisers across their search platform. We distribute our advertisers content across more than 250 Internet sites, and many of these distribution agreements place end-users directly into the Superpages.com environment where they can make buying decisions with rich content applications such as consumer reviews and the Compare Merchant Feature.

Now also just two weeks ago we launched nationally one of the most compelling Internet advertising products, Superpages Video. And unlike some other providers who also offer video products, we incorporate video clips into a pay for performance environment. Now when our Internet sales channel tested the video sales in Seattle, San Francisco and Los Angeles in the third quarter, we received immediate positive reception for the product. In the third quarter, we began training our entire salesforce on the product. Video clips are now being sold across the country by our local salesforce and our dedicated Internet sales channel. We are selling video clips at a very, very opportune time as more than 50% of US households have broadband access. We believe video clips will bridge the distance between consumers and the content they are looking for when performing a LocalSearch. Advertisers are adopting video clips because the product brings their businesses to life. Small to medium-size businesses that have not been able to afford broadcast advertising can now very affordably use online video advertising to showcase their products, brands, services and specialties. I want to encourage you to view our Superpages Video offer at www.video.Superpages.com. That is www.video.Superpages.com.

Now on the technology side, we launched Superpages Mobile for BlackBerry. Now we can deliver content from our performance-based and advertisers directly to business travelers and mobile users. This is another important application for us because it is difficult to predict where consumers are going to be when they search for local information. We can, however, deliver content to multiple platforms, including mobile devices, so our advertisers appear wherever the end user is searching. You can view our mobile application at www.mobile.Superpages.com.

Now I would like to spend a little time on an initiative and market expansion that was developed to capture new advertisers and retain current ones. We have long said that we select new markets to enter based on the ability to generate more advertising sales, enhanced Superpages.com content and strengthen the appeal to large national advertisers.

Now up until now, we have entered the new markets with a Yellow Pages print focus first. Print competition, however, is stabilizing, and we are seeing an opportunity to capitalize on our high-growth Internet business. So, in the third quarter, our local salesforce entered select markets such as Salt Lake City with Internet ad sales as the lead offer.

As market opportunity dictates, we follow with a Yellow Pages print offer. This allows us to penetrate the market more quickly and, as I mentioned, capitalize on the growth part of our business. We are evaluating potential new markets for 2008 and will announce them at the appropriate time. In the meantime we are seeing early success with this initiative.

Now with respect to our local salesforce, we continue to be pleased with our progress. Despite the cyclical headwinds we're facing, our performance at the local level continues to show improvement on a year-to-date basis.

Now one area we face a challenge is in the national channel. We are experiencing some softness in our third-party national channel with some certified marketing reps. But, as I mentioned earlier, we are meeting industry challenges head on. Given that we see tremendous demand for performance-based products in the marketplace, we have initiated a pay for performance model for select nontraditional Yellow Pages national advertisers in the Verizon Yellow Pages. We are moving aggressively on this initiative and have begun offering this product to national advertisers through our salesforce. With this model, our in-house national salesforce works directly with national advertisers. A unique telephone number is placed in the Yellow Pages ad, and advertisers pay us when they receive a lead by phone call. Simply put, we provide the lead and the national advertiser pays for it.

With the current situation in this sales channel, we believed the timing was appropriate to supplement this channel's efforts with new programs. With this program we have already seen new and return advertisers from industry such as consumer electronics, restaurant, travel and entertainment.

Now, in addition, we continue to explore new channels and new ways of capturing national advertising dollars. For example, through our in-house national salesforce, we have also entered into an agreement to presell future advertising inventory through a bulk sales to a third party. With this program we received prepayment for advertising inventory that will be placed over the life of the agreement. Proceeds from this program are not yet reflected in our multiproduct ad sales as we will recognize published revenues when these ad sales are placed.

While we continue to see softness in the near-term, these types of programs provide new opportunities in the national channel to improve performance as we move through 2008 and beyond.

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. 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 third quarter 2007 for comparison to 2006 adjusted pro forma results. Here are the financial headlines.

One, we experienced strong OIBITDA and net income results. Two, we once again delivered double-digit Internet revenue growth both on a quarterly and year-to-date basis. Three, we were prudent in managing our expenses, which resulted in efficient cost control and contributed to our OIBITDA and net income performance. Four, our work continued strong cash flow enabled us to declare a dividend to be paid in the fourth quarter.

Let's start with detail on multiproduct revenues. On an adjusted pro forma basis, third-quarter multiproduct revenues were $791 million or a 1.7% decrease compared to the same period in 2006. We reported Internet revenue of $69 million or an increase of 15% compared to the same period in 2006.

On an adjusted pro forma basis, year-to-date multiproduct revenues were $2.4 billion or a 0.5% decrease compared to the same period in 2006. Year-to-date Internet revenue was $210 million, a 25.7% increase compared to the same periods in 2006.

Let me say we are very pleased with our multiplatform strategy and with our ability to manage through the transformation of our business. As we assess our revenue results, we should note a couple of items.

First, quarter-over-quarter Internet results were affected by our acquisition of Inceptor assets in the third quarter of 2006. As we have noted before, third-quarter 2007 is the first quarter in which revenue associated with our Inceptor assets was included in prior period results. Second, our third-quarter Internet revenue was disproportionately affected by an adjustment of approximately $4 million related to operational issues associated with one of our reseller channels. Without these items, organic growth for the quarter, both Internet and multiproduct, is more in line with our year-to-date growth rates. A more proper view of our performance is reflected in our year-to-date growth rates.

Superpages.com remains a phenomenal story. Kathy summarized the outstanding quarter initiatives from our Internet team, such as the Switchboard.com acquisition, and we expect to continue driving strong performance in this area.

Moving onto OIBITDA, in the third quarter 2007, we had OIBITDA of $380 million. On an adjusted pro forma basis, excluding non-recurring costs, OIBITDA for the third quarter was $398 million or a 1.7% decrease compared to the same period in 2006. On a year-to-date basis, we had OIBITDA of $1.1 billion. On an adjusted pro forma basis, year-to-date OIBITDA was $1.17 billion or 1.4% decrease compared to the same period in 2006.

You will recall that we adopted a change in accounting methodology in the second quarter 2007, which is consistent with other directory publishing and is aligned with our revenue recognition policy. Because of the impact of this change on 2006 results, I believe it is important to note that excluding the effect of this accounting change, which is a non-cash event, our third-quarter OIBITDA on an adjusted pro forma basis would have been $408 million or a decrease of $1 million over the same period in 2006. This reflects our focus on cost structure and our ability to manage expenses.

Equally important, year-to-date adjusted pro forma OIBITDA would have been $1.17 billion or flat compared to the same period in 2006. These are strong results in line with what we expected for the third quarter. Now let's look at some other components of our financial results.

We reported net income of $117 million or $0.80 per diluted share for the third quarter of 2007. Adjusting for non-recurring costs as described in detail in the accompanying financial schedules, the Company's adjusted pro forma net income for the third quarter was $128 million or $0.88 per diluted share. Year-to-date reported net income was $329 million or $2.25 per diluted share. On an adjusted pro forma basis, year-to-date net income was $374 million or $2.56 per diluted share, a decrease of $1 million or $0.01 per diluted share over the same period in 2006.

Free cash flow for the nine months ended September 30, 2007 was $303 million based on cash from operating activities of $334 million, less capital expenditures of $31 million. Our strong cash flow again allowed us to declare a quarterly dividend.

Yesterday the Idearc Board of Directors declared a quarterly dividend of $0.3425 per outstanding share to be paid on or about December 13, 2007 to our stockholders of record at the close of business on November 21, 2007.

Lastly, multiproduct ad sales of the third quarter were down 2.7% compared to the same period of 2006. On a year-to-date basis, multiproduct advertising sales were down 1.1% as compared to the same period in 2006.

As I mentioned earlier, our quarterly multiproduct ad sales were affected by the reseller issue and the effect of the 2006 base revenues from the Inceptor acquisition and Internet results. Organically without these elements, our quarterly results are much more in line with the year-to-date results. These results are consistent with our third-quarter 2006 multiproduct ad sales. On a year-to-date basis, we continue seeing multiproduct ad sales improvement.

As Kathy mentioned, our local salesforce is embracing the multiproduct sales. In fact, we continue to see improvements on a year-to-date basis. However, we saw disappointing results from some certified marketing reps in our national channel. We believed it was necessary to aggressively initiate programs to win back national advertisers, as well as retain and attract new ones.

The performance-based model is one initiative that already has earned us national clients who have never advertised in the Yellow Pages before. Our first national advertisers under the pay for performance model are now appearing in the Verizon Yellow Pages. We are looking at other programs to supplement the CMR channel and ensure that national advertising remains a solid part of our customers set.

So we are working to mitigate the national advertising weakness in our multiproduct ad sales with new opportunities, and we remain intrenched in the multiplatform strategy. Kathy outlined a host of initiatives from which we will start seeing benefits as we move forward.

Looking ahead through the remainder of 2007, we are positioned to deliver on what we have projected for the full-year 2007, and we are reiterating guidance noting close to flat multiproduct revenues expected for the year and only slight OIBITDA margin contraction from 2006 on an adjusted pro forma basis because of continued changes in our revenue mix.

Now let's take your questions. Operator, will you please open up the call?

(OPERATOR INSTRUCTIONS). Peter Salkowski, Goldman Sachs.

Kathy, I was wondering if you could just talk about the sales on the print site in terms of what you're seeing there? I know the print numbers were down I guess on a comparable basis 4.5%.

Two things. One, are you seeing weakness by market or by heading within all of that, and then two, if you can give us a sense of how rolling forward the books and changing the third-quarter number from last year from 545 to 580 how that impacts on a going forward basis if at all? And then I have a follow-up.

Yes, Peter, let me just start and tell you, as I mentioned earlier, we are continuing to seek improvement in the local sales on a multiproduct basis. The print sales are down some, mainly in the national channel.

As I mentioned earlier, we are seeing some weakness or softness in the national channel. We have put in some initiatives. We have started some in-house national sales channels versus relying on the CMRs, and we are starting to see some -- put some programs in place that the pay for performance that we think is going to help improve that softness in the national site.

As always, I know on the weakness that you're asking about on the local side from the market or heading perspective, you know because we're so diverse, we're not seeing any one heading or market. We see some softness periodically across a canvas, but nothing that we don't go and care for.

So our softness has been in the national side. And we're taking actions to make -- to clear that up in effect.

Can you quantify what percentage of revenue is national and what kind of declines you are seeing and whether or not it is increased discounting by your CRMs or whether it is not it is a number of advertisers, a decline in the number of advertisers?

Yes, our national is about 15% of our revenues. And what was the second question, please?

Are you seeing a decline in the number of advertisers, or is it just the number of advertisers going away, or is it just increased discounting by your third-party sales channel to try to drive their numbers I guess?

Well, it is -- actually what we're seeing, as you know, in the CMR channels, there is some turmoil in those channels at the moment, and that is out of our control. That is one reason for bringing the in-house, bringing some in-house sales national reps to sell to our advertisers. And we're going back after advertisers in the entertainment, in the restaurant, in the travel industry, and we're seeing new advertisers come back -- I mean old advertisers come back -- and we're seeing new advertisers we have never seen before, some of the dot-com.

I would encourage you to go to one of the Verizon Yellow Pages books and look at some of the adds there from a national perspective. But there is nothing happened on the pricing. You mentioned some discounting. And that -- our programs have been the same along those lines with the CMRs. There has been no change.

I don't know -- Andy, would you like to talk about going forward the third quarter, the 545 and the 580 he was talking about? Or, Peter, do you want to restate that?

Yes, I guess the real question I guess is when you talk about your multiproduct ad sales guidance of flat '07 versus '08, I assume the '06 number -- sorry, '07 versus '06 -- the '06 number is actually going to increase, and I assume there is a fourth-quarter impact there. So could you give us a sense for what's the basis for '0 6 that we're looking at with regards to multiproduct ad sales?

First, Peter, this is the first -- the guidance we have provided is around amortized revenues, not ad sales. As you know, we don't provide explicit guidance around ad sales. I think what you are referring to as far as the quarterly, the base, the 580 versus 545 and that sort of thing with respect to the print side is book changes and book moves amongst that. We always have that as we address markets. You will see some of that again in the fourth quarter. Some of that was activity that moved out of third into second. Some of it was moving from third into fourth as far as individual books are concerned.

As we look forward into the fourth quarter, we don't provide explicit guidance around ad sales. But what I will say is that we have reiterated guidance with respect to amortized revenues on a multiproduct basis. As Kathy mentioned, several programs with respect to addressing some of the softness we're seeing in the marketplace, it will take some measure of time for those to work through and flow through. So fourth quarter on an ad sales basis you are not going to see that significant of an impact or change relative to where we are at in the third quarter because of those programs. They are a little bit longer term in nature. So with that, I mean I think you can -- (multiple speakers)

With that being said, I think you will see, Peter, some improvement on the Internet side because we will have that reseller issue behind us. That cleared out in the third quarter. So we're expecting stronger growth quarter-over-quarter in the Internet in the fourth quarter.

Yes, that is actually my next question is really on the Internet side it seems like things have drastically slowed down there from what you saw in the first couple of quarters, and I realize there is a year-over-year impact from Inceptor. Maybe you can share a little bit about how much of an impact that was so we can get a sense for maybe the growth rate in the fourth quarter and going forward on the Superpages side of the business.

As I mentioned in my remarks, the reseller issue was $4 million, and it is a few million on the Inceptor. So you back that out as well and look at organic growth, it is more in line with the mid-20s we are seeing year-to-date. And we believe that is where it will be in the fourth quarter in that kind of range. (multiple speakers) -- for the fourth quarter and for the full year.

Got you. And then on costs and (inaudible), how much control do you have costs going forward with regards to being able to keep those under tight reins, especially in a situation where maybe revenue on the print side side is in decline? How much -- if you have a 2% drop in print revenues, can you offset that in cutting your costs?

I think, Peter, we have real good cost controls in place. The entire team is very focused on managing cost in line with revenue trends. Clearly, as the Internet scales, we're ready to put money into that to keep that growth moving. As we work through some of our print issues, we will cut back in some areas. We will invest in other areas where we're seeing opportunities whether it be market opportunities or new product type opportunities. But I think the cost equation is one we have got our arms around, and I'm focused on it. I spend a lot of time talking to the team about it, and I think I have got their commitment as well.

So we think we can continue to manage that while we also work the issue of providing multiproduct revenue growth as we move forward. And we're comfortable we can do that as well as the Internet keeps growing and we manage through the print issues.

Anthony DiClemente, Lehman Brothers.

Just to take a bit of a step back more broadly, I think the concern from investors is that you are seeing a transformation of the business to electronic from print faster than expected. And that given your positioning in electronic, I think that is not necessarily a bad thing heading into '08. But I think if margins on a blended basis are definitely going to see further compression in '08, it brings to bear the question of whether EBITDA dollars can grow in '08. And I think that is probably the key concern from an investor standpoint.

I guess our view here at Lehman has always been that Idearc could potentially grow those EBITDA dollars in '08 despite the margin compression. But my question is, and I apologize for being long-winded, my question is, does the transformation to electronic happening faster than expected, does that preclude you from actually growing EBITDA dollars in '08? How do you suggest that us as analysts and investors think about that going into next year? Thank you.

Let me just first start to say -- talk a little bit about the transformation of the business. I would tell you that it is not faster than we expected. We feel very comfortable with where we are in our platforms and our multiproduct where we have trained our salespeople, and we're working through the balance of that and being able to roll out all of our multiproducts whether or not it be the video products, whether or not it be the mobile that we're able to manage through this transformation, and we feel very comfortable where we are in that stage.

I will let Andy talk about the margins in the 2008 question that you asked.

We will be giving more on 2008 guidance before the end of the year. I do not want to talk too much on that. But clearly as you move print to Internet, you deal with some margin differential. As we look at where we seek our print trends growing, where we see our Internet growth, we think the contraction you are going to see is going to be in the margin percent. We think we can manage through the margin dollars pretty effectively and grow the business. We are not troubled by the rate of transformation. We think we have got a great product set on the Internet side to lead that charge, and we think given where we see 2008 shaping up, we will be able to manage through that in an effective manner. In a month or so, we will have a little more information for you on where we see 2008 coming out.

Jim Boyle, C.L. King.

Would you characterize Q3 as a trough period in terms of print revenue and print sales, or is Q4 and then Q1 pretty much more of the same?

Okay. Jim, I think Dee mentioned some of the softness we're seeing on the print side in the national that is going to continue. You are going to see some of that in the fourth quarter. The programs we talked about today that we are rolling out, they are going to take a little time to take hold and start reversing the trend. On a multiproduct basis, we think year-over-year growth on the Internet side is going to improve because of that onetime type item we saw in the reseller channel.

So I would not say the fourth quarter is in the trough with the third quarter. I think we are still confident that as we move forward into '08, we can improve the product trends. I don't want to be too firm as to when that turn is going to occur, but clearly there are some things in the third quarter that make the numbers appear on the surface than we really believe they are when you look at the underlying business fundamentals. So we see improvement in the future.

Okay. And did you see any dramatic difference in the states such as Florida, California, Arizona, Ohio due to the housing correction versus your other states?

You know, we have -- one thing we are very pleased with is a geographic market diversity that is pretty strong. And while we will see some softness in pockets, we're not seeing housing necessarily being an issue in Florida or California that is driving all our results. There is some softness there in those markets in that particular area. But we have got such a diverse base of customers that that is not driving -- that is not the driving factor in our print results.

Can you kind of quantify those pockets of weakness, even if it does not materially impact the overall number?

Jim, we don't isolate on individual results from individual markets. I think as Andy said we have seen some measure of softness in individual markets at an individual level, none of which constitute more than 2% of our revenues at an individual market level. When you look at a heading specific and break those headings down, that proportion of influence on our total revenues is even smaller at the individual heading level.

So having said that, certainly there's individual headings that we need to address, but there always is. It just simply varies across which headings that is.

Okay. Kathy, would the anecdotal feedback from your vast salesforce and your thousands of advertising clients indicate that the broader economy is headed for a recession or just a near recession?

Well, probably just a near recession. You know, Jim, it is going to vary by market. So we will wait and see.

Okay. And in a tough economy, would your kind of conservative goal in year-over-year print revenue or sales, would it be kind of down 3, down 2? What would the goal be in a tough economy?

Jim, at this point I do not think we're going to forecast around the hypotheticals of that sort.

Paul Ginocchio, Deutsche Bank.

Just a question about large versus small markets. Anyway to -- I know there's a national and local divergence. Can you break out any divergence in large versus small markets, maybe your top five or 10 markets versus the rest? And then where do we stand on the remaining onetime separation costs and the onetime sort of stock comp costs? And that is it.

Let me take the onetime cost issue first. We're pretty much on track. We see that program getting all that transition activity, getting that done early in 2008. Some of it will probably spill over into the second quarter. But, as we look at the numbers we have disclosed, we're still very comfortable that transition costs will be in that range, that $125 million range that we laid out. We have got some big cutovers coming at the beginning of the year to get off the Verizon platform. That work is all on schedule and all in line with our budgeted projections. So there is nothing really new to describe there. The status is moving along and coming in where we expected it to be.

Your other question was about large markets versus small, Paul, if we're seeing any different or any different trends?

Correct.

I would tell you as I look daily at the canvasing and whether or not we're in a small market or a large market, we are not seeing any differences as far as at the end of today it boils down to how well you are executing out there. And you could have a bad small market based upon you had three or four reps quit you in the middle of the campus canvas. You could have the same issue in the large market. But from a true just demand basis, we are not seeing any differences there.

If I could just sneak in a follow-up just on the 500 new salespeople. Do you think they are operating now at sort of full capability or we have got another little -- a little bit more improvement to come from you? I think your original estimate was six to eight quarters. I'm just trying to get a handle on that.

No, I do not think they are quite at their potential yet, Paul. We have thrown a lot of new products at them this year, everything from the video to the direct mail products, all of the things that we have talked about.

So no, I do not think they are yet. I think that we are starting -- we are not seeing as much improvement as we saw this time last year because that curve line and any curve line you hope to get up there quicker and then it levels off a little bit, but you still see improvements.

But I would tell you I'm very pleased with everything that they are facing in the marketplace with the customer. Our training programs and our ability to train all of our reps, and like I said, they are all very excited and embracing the new products on video. And we think that is going to be a big seller for us as well.

Thank you.

And did you have -- did you want some numbers? Dee will give you some numbers on that.

Paul, I think it is important to note that we don't get lost in this. The national softness is masking some of the continued improvement we are seeing in the local side of the business. On a multiplatform basis, on a year-to-date basis, we are seeing 150 basis points or more of improvement in aggregate. When you break that down and you look at the local level, that improvement because of the softness in the national that is masking that, we are seeing even greater improvement at the local level on a multiplatform basis. Even within the quarter itself, despite the cyclical headwinds that we were dealing with, the local salesforce on a multiplatform basis did show improvement on a quarter-over-quarter basis at the local level.

So I don't want us to lose sight of the fact that at the local level that investment is continuing to show improvement and continuing to pay off for us. As Kathy mentioned, the national softness and the national headwinds that we're dealing with are the primary driver of what you are seeing in those ad sales results.

[Meredith Allen], Bear Stearns.

I was wondering if we could drill down a little bit more on the national versus local specific to the print side. I know you just gave us a sense for what is going on on a multiproduct basis. But is there any way you could range for us perhaps what is happening just specific to print?

Well, as you know, we believe the way to look at this business, the proper way to look at this business, is at a multiplatform level. And there is transformation occurring at the business level. I will say at the local level, at the print and at the individual print line items, we are still seeing slight improvement in the print results at the local level. But the improvement has manifested itself even more so at the multiproduct level, which is what we expected out of the business as it transforms.

On the national front, the national front is still for the most part more print-driven than it is multiplatform. We get out our national clients on the Internet side more with a dedicated channel than we do with the CMRs. And so the issues in softness we're seeing on the national front, because of some of the consolidations with some of the national clients, some of the bankruptcy activity with some of the players in that space, that is where that softness is coming from and it is more so on the print side than it is a multiplatform activity.

Thank you. That is helpful. In terms of this quarter, your margin was a little bit better than what we had expected. I don't know if there was improved cost controls this quarter, and I'm wondering what the implications are for the fourth-quarter margins since your guidance is still intact and whether that perhaps might see more of a decline than what we had been anticipating.

Meredith, I think we're still comfortable with the overall guidance of slight margin contraction year-over-year. I think some of the stuff you are seeing in Q3 is timing-related activity. I don't get overly excited or concerned with an individual quarter. I'm looking at a full year and pretty much my costs are in line with my revenue trends and driving to the margin ranges that we had been talking about all year.

Terrific. Last question, just a housekeeping item. Could you let us know what cash taxes were in the quarter?

Hold on a second. Meredith, I do not have the explicit number. I will say we have seen a little bit of favorability in our effective tax rate. Mostly because of the first-quarter implication, but we also saw a little bit of favorability in the effective tax rate, and the cash rate would have been in the 38% type range very close in there. So our book taxes, cash taxes do not significantly swing. But a little bit favorable to what we originally expected.

In terms of the cash?

Yes.

[Jason McDooger], Perennial.

This is Chris Heintz for Jason. It looks like your reserve for bad debt as a percent of sales has come down this year. Is that correct?

Our reserve bad debt this year we're running in the mid 4 range. It is very similar to what we saw last year year-to-date. It is just a little over 4.5%.

Okay. I must have done some incorrect math. I also have a question about the accounting change. As I understand it, you're now recapitalizing sales commissions where as you used to expense them at the time of sale. Is that correct?

That is correct.

Can you explain then why capitalizing sales commissions would result in a lower EBITDA? I would have thought it would have been the opposite.

Well, I think what you see is you have got to look at the year-over-year -- the impact -- the switch had a larger impact on '06 versus '07 when you look at the year-over-year changes -- '05 revenues versus '06, '06 versus '07. I think we saw a larger benefit of the accounting change in '06 compared to what we are seeing in '07. Revenues are fairly flat '06 versus '07, so, therefore ,the accounting change does not have as much impact.

The other thing, within the individual quarters because of the publication schedule, in the third quarter they lack publication schedule for us. And so as a result of that, the deferral and amortization method does result in an adjustment that takes it that direction because of the publication cycles and the relative proportion of books that publish in the third quarter versus the other quarters in the year.

Because my question was specific to this quarter. Because under the new methodology, EBITDA was 398. Under the old methodology, it was 408. And I would have expected --

(multiple speakers) -- the third quarter is traditionally a light publication quarter. Your national commissions all get paid at point of publication. And so your third quarter on an as incurred basis would have been higher because you would have had lesser national commissions paid out than under the new accounting method.

Can you give us some sense for the amortization period that is being used?

Yes, they amortize over the life of the directory, which is typically 12 months.

Okay. Finally, is it possible on the acquisition front to give me a rough estimate of the dollars you have invested in Internet acquisitions in the last 12 months or the last nine months or whatever period you might have?

Yes. As far as acquisition activity, the most significant one by far was the Switchboard acquisition, which, as you know, is a $225 million acquisition. We bought Inceptor about a year and a half ago, which was approximately a $20 million acquisition. And then the remaining activity around LocalSearch.com and that sort of stuff were in the single digits.

That is about $250 million when you add all of it up over the past 12, 14, 16 months.

Okay. And the $225 million, that deal just closed? Is that correct?

Yes, it closed yesterday.

Thomas Singlehurst, Citigroup.

I just had one question. I apologize if I missed it in the introductory remarks. It is about launch activity on the print side, both for yourself and just more generally what you observe in the market. Have you kept up the level of launch activity in particular on the companion directory side? And more generally from the independents, have you seen an increase or a lessening of launch activity?

On the launching of independents, we continue to launch some titles there. We are launched some in Stockton, California of late. But one thing that I did talk about was the fact that one of the things we are seeing in the marketplace is the demand for the Internet and the pay for performance. And so we are -- in the past in our market expansion model, we led with print. And we are in an evolution now of leading with the Internet and then following with print. And we're starting to see some really nice results there that we like.

So we will continue to move forward with our market expansion strategy, tweaking it a bit by just leading with electronic versus print. And we will as time -- in 2008 we will tell you more of other titles will be going there. On the companion side, we have about 170 companion titles. And with that product and other products, the way we look at that is we always test the product the first year. The second year we roll it out into the appropriate market. And then the third year, we really worked with penetration. And this year we have been in the penetration mode, if you will, for companion, and that is coming along very nicely for us.

Michael Meltz, Bear Stearns.

I have two questions. I do not know if you actually clarified this on the call, of that 4.5% decline in print products what was national actually down? Was it down over 10%? And then I have a follow-up question.

Michael, as you know, we do not break down the results to that degree of specificity. But I will say it was not the magnitude of 10% that you're talking about, but it was a big driver as far as those results.

Okay. And then can you clarify, you used the word turmoil in that channel. Typically those guys take their 20% and go on. What is the turmoil that you're seeing specifically regarding third-party marketing resellers?

Yes. In the third-party CMRs, the print versus the electronic seems to be having quite an impact with them. So they are trying to work through this transformation of being able to sell print and electronic, and there are just some difficulties there. That is about all I can say at this point that is happening in the marketplace.

Maybe another way of asking it, since they are dealing with national budgets that I would think have been made, had been in place for awhile, why would we have seen more of a decline in Q3 than prior quarters?

We have been talking about national softness actually for a couple of quarters now, and this is not the first quarter that we have seen national be a driver of our print results or having a significant impact on our print results. So this is really not the first quarter. It is not a new event.

There are couple of CMRs that have a larger influence on the industry that are I believe facing some internal turmoil more so than is being focused on the marketplace that we are having to work through as a group.

Jeff Shelton, Natixis Securities.

Most of my questions have been answered. I have a few follow-ups, though. The bad debt expense, it seemed to have shot up to about 6% of sales in the third quarter versus 4% in the first two. Is there anything specific to the quarter that would have resulted in the higher percentage?

Yes, Jeff, what we did is that was a onetime adjustment. As we looked at some of the activity around the branding switch, the coming off the telco building platform, working through all those issues and dealing with some level of customer confusion, I felt the need to make a onetime adjustment in the quarter to bring things in line for the full year. So that was not an indication of a falling off a cliff. It was more dealing with some stuff that I think is unique to this year because of the spend and some of the other activity around our systems.

And toward your independent book strategy, how did that trend year-over-year in terms of was it a positive effect or a negative effect on the print ad sales during the quarter?

It is positive, Jeff.

Yes, I will say within the quarter there was not a lot of new launches or much of a significant impact at all there, but it was continuing to grow in the independent space.

Okay. And the last question, are you also reiterating your guidance for positive revenue growth in 2008?

As Andy indicated, we will be talking about guidance for 2008 before the end of the year.

Thank you. Now I would like to turn the call back over to Kathy Harless for closing comments.

Well, I would like for all of you to know that I am still very, very bullish on our multiproduct strategy. We have hit a few blips in the road with some of this third-party sales channel, but we have made plans to overcome them, and we're going to stay very focused on our strategy. Our long-term view of the business really does not waver at all. And I appreciate your continued interest in Idearc, and I want to thank you for joining us today.

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