Thryv Holdings Inc (THRY) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, welcome to R.H. Donnelley's fourth-quarter and full-year 2007 results investor teleconference. At this time, all participants at this time 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 is being recorded as well as webcast live over the company's web site at www.rhd.com. I would now like to turn the call over to Mr. Jim Gruskin. Mr. Gruskin, you may begin.

Thank you, and good morning, everyone. I am Jim Gruskin, Vice President of Finance at R.H. Donnelley. Hosting the call today are Dave Swanson, Chairman and Chief Executive Officer of R.H. Donnelley and Steven 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 and Litigation Reform Act, and we call your attention to our press release for the quarter and year-ended December 31, 2007 and the Company's form 8-K furnished to the SEC this morning, both of which discuss fourth quarter and full-year results. We also encourage you to review the company's other periodic findings with the SEC -- filings with the SEC which may 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 web site at www.rhd.com, or visiting the SEC web site at sec.gov. This transmission is the property of R.H. Donnelley Corporation and any retransmission or broadcast without the expressed consent of the company is strictly prohibited. In today's call, we will focus on 2007 GAAP results though will be discussing some figures that exclude the impact of purchase accounting and related expenses. Also, today's references to EBITDA are before FAS 123 expense and both EBITDA and free cash flow exclude the impact of certain compensation expense associated with the Business.com acquisition. Some the aforementioned items are non-GAAP financial measures and additional information about non-GAAP financial measures as well as a reconciliation between these items and the most comparable GAAP measures can be found in the press release and related 8K furnished to the SEC this morning. The press release available on our web site and can be accessed by going to rhd.com and clicking on Press Releases. Please review the risk factors described in the Safe Harbor language as well. Now I would like to turn the call over to Dave.

Thank you, Jim. Good morning, everyone. Thanks for joining us today.

There are three headlines that I want to touch on today. First is the strong fourth-quarter and solid full-year 2007 results. Second is the outlook for 2008. And third is that we decided not to initiate a dividend.

As you read this morning, we generated strong fourth-quarter results, completing a solid 2007, during which we delivered full-year financial results in line with or above our guidance. Ad sales grew nearly 0.5% including Business.com. With Q4 ad sales growing 0.7%. EBITDA of $1.44 billion slightly exceeded expectation and free cash flow of $617 million beat guidance by $17 million. We were particularly pleased with the strong contribution from our Internet products in Q4 due to the expansion in the number of markets that we offered, DexKnows.com and Dex Search Marketing. Steve will discuss our 2007 accomplishments in more detail, but I want to focus on two important milestone events in our strategic transformation.

First, 2007 will be remembered as the year that we pulled together our portfolio of leading directional media brands acquired over the last five years under our new unified market brand, Dex. What were once a collection of disparate brands no apparent connection, Embarq Yellow Pages, BestRedYP.com, AT&T Yellow Pages, ChicagoYP.com, QwestDex Yellow Pages, Dexonline.com, LocalLaunch, were all pulled together under the Dex umbrella and are now recognized in our markets as Dex Yellow Pages, Dex White Pages, DexKnows.com, our Internet yellow page site, and Dex Search Marketing, our solution for helping local businesses obtain cost-effective leads from the rest of the Internet. Having a strong unified identity to both consumers and advertisers is a crucial part of our efforts to extract the full value from our acquisitions.

The Dex market brand will transcend individual products and will immediately signal that any local commercial search solution bearing its name harnesses the power of our rich accurate data and benefits from our significant consumer usage. Future examples of this brand extension might include 1-800-CALLDEX, a voice portal search platform that we are trialing and DexNet, a pay-per-click ad network, that will extend the reach of our current Internet offerings. The second important milestone was the quantum leap that we made in diversifying our business to the Internet. We made huge strides in terms of our internal skill sets and competencies with the acquisition of Business.com and the Business.com team. Along with the acquisition of LocalLaunch late in 2006, we have now built a team and a competency that will allow us to build and offer the kind of advanced Internet products and services that will keep us the market leader in local commercial search in our markets for many years to come. We also began the process of training our 1,900-plus marketing consultants to expertly represent our Triple Play offering. This offering helps our advertisers get found by active, buying consumers whether they are searching in the print Yellow Pages, Internet Yellow Pages, Yahoo! , Google, or the rest of the Internet.

And finally, with our acquisition of Business.com and the Business.com ad network, we now have the largest business-to-business online search engine and pay-per-click ad network in the U.S. and an extremely fast-growing Internet business to complement our other offerings. With Business.com came an extremely advanced engineering team that are leveraging their know-how on new and exciting offerings including a more advanced version of our DexKnows.com consumer site, which we hope to roll out late this year. All of this has allowed us to make significant progress, diversifying our product offerings and revenue base from print to Internet, and we now have over 200,000 small and medium-sized local businesses buying Dex-branded Internet products.

So while we are generally satisfied with our 2007 progress and results, particularly -- particularly considering the economic environment that we experienced in Florida and Nevada this year, it appears we are facing a much stronger headwind in 2008 than we originally anticipated. Florida and Nevada markets have actually gotten worse rather than better as the housing-related issues have spread to a broader range of businesses in those markets. We are also now also seeing similar issues in Arizona. To a lesser extent, we have seen a general slowdown in the small business economy across the entire footprint.

Now while our composite markets continue to exceed national averages for growth in population, retail sales and employment and our business remains highly diversified across geographies and underlying industries, we still rely on the health of local businesses within our footprint. With consumer sentiment at its lowest level in several years, small and medium-sized businesses are feeling the effects of the slowdown and are being extremely cautious about discretionary investments in advertising. This is impacting us in the following ways: First, we are seeing an increasingly number of advertisers unable to stay caught up on their bill and are removed from our publications as a result. This modestly impacting our advertiser renewal rates as well as bad debt. Second, is that advertisers are reluctant to increase their ad spend because of lower cash flow or fear of what's lying ahead for them. This is by far the biggest issue that we are seeing in the marketplace right now. And third, we are also seeing new business sales down slightly as we see a decrease this business formations and a decrease in the average value sale we are getting from new businesses.

I think it is also important to note that we are seeing the same kinds of behavior across the product line, print, IYP and search. As a result, we are lowering our outlook for 2008 ad sales to decline mid single digits. Likewise, we are lowering guidance for EBITDA and free cash flow as you saw in our release. Now, while we expect tougher cyclical challenges in 2008, four factors give me confidence that we remain poised to grow once the economy returns to health.

First is, our products continue to provide a measurable and superior return on investment relative to other forms of local advertising. And in a soft economy, directional media, including directory advertising, had consistently outperformed other forms of advertising for small businesses. We are also very encouraged by the results of the 2007 usage research that was recently released by KNSRI, showing print and IYP reference growth in 2007 with print remaining relatively flat. It confirms what we have been seeing with the thousands of metered test lines that we operate, and that is the cost to advertisers are actually flat to up in most cases. Add to that our new online products, and you see that our value proposition remains very, very solid. Second, is that our sales reps remain the trusted marketing advertisers to the SME segment with a track record of generating the highest volume of ready-to-buy leads at reasonable prices. We see this becoming an even more important service in the future as fragmentation continues. Third, our products continue to offer consumers the most relevant, comprehensive and accurate content about who sells products and services in their markets. Which will continue to drive strong usage of our products into the future. And fourth, our markets are the envy of the industry in terms of employment growth, population growth, and retail sales, our HDs markets have grown faster than the national average over the last ten years and are forecast to outperform the national average over the next five years. Now this is translated to above-average ad sales performance in the past, and we believe that that will continue into the future.

Now, my third headline this morning is that our Board of Directors had decided not to initiate a dividend. We believe that given the near-term economic outlook and our current level of debt, it is more prudent to direct excess cash flow to debt repayment until we see a more positive selling environment. Finally, before I turn it over to Steve, we announced this morning that Jake Winebaum, founder of Business.com, will be stepping down from his day-to-day role as President of RHD interactive to spend more time with his family. Jake has spent the last several months working tirelessly integrating Business.com with RHD, setting up the new organizational structure and working with the entire RHD interactive team to develop the road map for our digital future. Jake will continue to serve as the strategic advisor to me and the company on our Internet matters, and he will also sit on the RHD interactive advisory board. Brian Barnum, Chief Operating Officer and Financial Officer of Business.com and R.H. Interactive will be assuming the day-to-day responsibilities as we evaluate all of our candidates. With that, I will turn the call over to

Thanks, Dave. Good morning, everyone.

First, let's review RHD's 2007 business performance in greater detail. Then, we will take a deeper dive on our '07 financial results and revised '08 outlook. In 2007, we achieved our stated objective of growing ad sales, while continuing to invest in key strategic areas to sustain our business long term. Total ad sales, including Business.com were $2.74 billion, up 0.4% from last year. Total ad sales, excluding Business.com, were $2.67 billion, down 0.6% from prior year, improving from the 1.7% decline in '06, but still short of our growth objectives. We also continued to invest generously in strategic programs to support our value proposition to advertisers and consumers, including digital initiatives, companion directories, systems modernization, and extensive sales training.

In our Qwest markets, '07 ad sales were essentially flat after declining 2% in '06. Small and mid-sized markets performed well, while the larger metros continued to challenge us. Based on our early success in Illinois, we are confident that the major metro advertisers will embrace Triple Play as we deploy in Qwest markets which should allow us to grow there once the economy recovers. Advertiser claims also continued to improve in our Qwest markets contributing to synergies. And remember, Qwest markets have historically led the industry in growth. We intend to keep it that way.

In our Embarq markets, ad sales declined around 1.5% in '07 after four consecutive years of solid growth there. Much has been reported about the Florida and Nevada economies, and our presence there impacted '07 results as expected. However, make no mistake, the underlying strength of our Embarq markets make them some of the best places to do business in the country, despite modest incremental volatility. People continue to visit and move to Florida and Vegas.

Now one detail worth noting is that, notwithstanding recurring revenue over 90%, we still closely monitor why advertisers reduce or cancel their programs with us when that occasionally happens. Our '07 data indicates that most churn came from credit lockout, while relatively few advertisers left for other media. We interpret this as a predominantly cyclical challenge. In addition our Embarq team managed through a systems conversion in '07 that significantly impacted their productivity. As the first of our operations to go live on the new Amdox publishing platform, they had the responsibility to fine tune the hundreds of small issues associated with an initiative of this magnitude. As a result of the Embarq team's efforts, our Illinois operation had a seamless experience when they converted later in the year.

In our Illinois AT&T markets, we modestly grew '07 ad sales after several years of decline, driven largely by the success of our Triple Play offering and performance of our Plus directories in these metro markets. Our digital penetration rate exceeded 60% of advertisers in Illinois, up from 49% in '06. While average spend among retained digital customers increased 9%. We are encouraged by advertiser adoption of Triple Play and Illinois, and we see this as a strong indication of what we can accomplish in these other metro markets. We also modestly grew '07 National ad sales in each of our three Telco market brands.

Our national sales continue to be almost exclusively comprised of print products, as we have not yet refined our systems to readily accommodate national customers buying Internet. While this remains critical work in progress, it also highlights that national advertisers are most sophisticated and ROI-focused customers, still consider our print products a staple in their advertising budgets, reflecting their robust value that print continues to deliver. In 2007, we also made significant progress on our key operational initiatives in addition to ad sales growth. We advanced our systems integration and modernization. We consolidated our IYP sites around the Dex brand. We enhanced our online search capabilities via the BDC acquisition. We signed attractive new vendor contracts with R.R. Donnelley and Amdox. And we maintained our disciplined cash flow generation. We are very proud of these accomplishments and our industry-leading financial results in 2007. We made substantial progress on a number of financial initiatives last year. We delivered $1.44 billion of EBITDA and $617 million of free cash flow. Achieving expectations and demonstrating disciplined cost management. We successfully refinanced $2.7 billion of debt, thereby extending maturities, reducing interest rates and simplifying our capital structure. And we captured $24 million of additional synergies from the Dex acquisition as promised. These highlights evidence our commitment for delivering sustainable financial results.

Turning to the specifics. In 2007, we generated net revenue of $2.68 billion and $681 million in the full-year and fourth-quarter respectively. '07 net revenue was down $8 million due to the impact of lower '06 ad sales recognized as revenue in '07. Partially offset by new Business.com revenue and lower Qwest claims and allowances.

Our fourth-quarter net revenue increased $14 million, also attributable to Business.com and improved Qwest claims. Operating costs were $1.24 billion and $329 million for the full-year and fourth quarter, excluding FAS 123 and purchase accounting and related items. We invested over $70 million in growth initiatives during 2007, including digital operations, branding, consolidating IT systems, companion directories, sales force automation, and sales training. Operating costs were up $40 million as synergies and other cost efficiencies helped to fund these investments. These same investments drove a $15 million increase in Q4 expenses. EBITDA of $1.44 billion and $352 million for the full year and fourth quarter respectively, reflect responsible cost management in the face of a slowing economy while still investing aggressively to nourish our business. During the year, we paid $721 million of cash interest. Total interest expense of $831 million includes $3 million of net beneficial impact from the refinancing and purchase accounting, $68 million of capitalized interest and $40 million of differed financing cost amortization. In Q4 we paid $134 million of cash interest. Total interest expense in the quarter of $229 million includes a $20 million net negative impact from the refinancing and purchase accounting, $18 million of capitalized interest. And $23 million of deferred financial cost amortization. During the quarter our weighted average cost to debt was 7.7%, down 50 basis points compared to Q3, due primarily to the refinancing.

Turning to taxes. We paid $10 million of cash taxes during '07, related to our 2004 IRS audit settlement. We reduced our FIN 48 liability by $167 million as a result. Now, we continue to expect annual cash taxes to remain at modest levels through at least 2012 as we continue to benefit from annual tax deductible amortization of $650 million for the next ten years from our acquisitions, in addition to $634 million of NOLs at year end. 2007 free cash flow of $617 million represents 43% of EBITDA after $77 million of Cap Ex, but excluding $2 million of cash payments BDC restricted stock. Q4 free cash flow was $208 million, after $16 million of CapEx. On a per share basis, free cash flow was $8.57 and $2.93 for the full year and fourth quarter respectively.

Switching to capital structure, in the fourth quarter, we successfully completed $2.7 billion of refinancing. The sources were $1.5 billion of new 8 7/8 notes and a new $1.2 billion credit facility at Dex East at LIBOR plus175 and 200 basis points. We used proceeds to redeem $1.4 billion of high rate bonds and retire $1 billion of bank debt with restrictive covenants. As a result, we extended our average debt maturities by five years, we simplified our capital structure, and lowered annual interest payments by over $20 million. In addition, during Q4, we repurchased 2.5 million shares of our common stock for $96 million. Accretive to free cash flow per share but consuming cash that would otherwise have reduced debt. We ended the year with 6.9 times leverage and $10 billion of net debt. Turning to the details of revised guidance, our lower ad sales outlook of down mid single digits translates to lower revenue, EBITDA and free cash flow. We now expect '08 revenue between $2.6 billion and $2.7 million billion, EBITDA between $1.35 billion and $1.4 billion. Free cash flow between $525 million and $575 million. Year end net debt, between $9.5 billion and $9.6 billion and weighted average shares of $70 million. In conclusion, while we are disappointed that the weaker economy precludes us from confirming original '08 guidance, we remain well positioned to capitalize on our significant investments in brand, products and training. We also expect to prove more resilient than most other traditional media due to our measurable ROI and our position as trusted marketing advisor to local advertisers. That concludes our prepared remarks. Operator, we are now ready tor questions.

Thank you sir. [Operator Instructions] The first question for today comes from Mr. Michael Meltz with Bear Stearns. Sir, you may ask your question.

Great, I think I have three questions. Can you talk a little bit about -- you gave guidance in early December. Here we are, the latter end of February, and the downward adjustment is pretty substantial. Can you just talk about -- the economy was pretty weak in December and the outlook was such. What has changed really, in your thinking. Dave, I know you gave details, but perhaps, what has changed in your forecasting as well. Maybe you can give us a little more detail there. Secondly, in -- implicit in that, how bad are you expecting Q1 to be, given Vegas and other markets there that perhaps might have -- we all knew would be weak to start the year. Lastly with Jake leaving, is there an adjustment, perhaps, to the Business.com purchase price? I was under the assumption he had a longer-term employment contract and I just want to get more detail on his departure.

Okay, Michael. I will try -- if I forget part of the end of those just remind me. Let me try to kind of walk you through those. Let's start with the -- why the guidance changed so dramatically in a short period of time. I guess the best way I can describe this is just -- the buying attitude got worst very fast in our -- from our perspective. It is like from SMAs. When I looked back to Q4, we were still getting good increases from advertisers in Q4.

And that has been the biggest change that we have seen, the willingness of advertisers to increase their programs. We also have a lot more visibility today into Q2 and we had very, very little back then. And, I think as you will recall, we were expecting Q2 to start to show some improvement here, and we are not seeing it. And the -- so the guidance really reflects what we are seeing in the first half of '08 today. Which is, slightly lower renewal rates, slightly lower new business rates, and significantly lower increases from our existing advertisers. As it pertains to -- to your Q1 question, I think the guidance -- the guidance that we gave reflects what we are seeing in Q1 and F2. The first half -- the first half of the year. That is kind of the best I can give you right now.

Dave, do you expect that type of performance through -- throughout the year. You are not expecting pickup later in the year?

We are just afraid to forecast pickup later in the year, Michael, because -- you know how our business works. And we start to run out of '08 ad sales,starts dropping off as we kind of turn the corner into July -- into June and July. So, we don't really have the benefit of a whole calendar year for economic improvement. So, while we really don't have a lot of visibility into Q3 and Q4 right now, we think -- we don't have any reason right now to believe that those -- those should be better than what we are seeing in the first half of the year.

As it pertains to Jake, there were certain things obviously in Jake's employment agreement that he -- that he walks away from. There was a -- we have a lot of hooks into Jake. But, one other thing that I want to remind you of, Jake remains a very large shareholder in R.H. Donnelley. One part of the agreement was that Jake had to buy significant amount of RHD share which have a three year lock up, and that's obviously still in place. Anything else, all of the other retention, hooks that we have had, Jake has foregone. But, just a couple more comments on that.

I have been discussing this whole thing with Jake for the last several weeks, and,the bottom line is, this guy has had a very, very intense life the last seven years with the building of Business.com. He's got children that are approaching college age that he just hasn't spent much time with the last seven years. And, we both agreed that if his heart isn't 100% into this job day to day, that he should step down. That is, he's not going to be able to -- it wouldn't be good for either one of us. So, listen, we think -- are we disappointed? Yes. Happy that Jake is still remaining as strategic contributor. I think that is important for us. And -- but the third thing I will say is we are very, very deep in RHD Interactive and Business.com. This was not a one-man show. So, I am not overly exercised about this.

Did Business.com hit your expectations for the quarter and the year? I think you have been guiding $57 million.

Yes.

And last question for me. On the reallocation of the dividend. Is the expectation to do some type of tender? Or what -- how are you expecting to actually repurchase debt?

Well, we didn't say that we were going to repurchase debt. We said we were going to apply all of our cash flow to reducing debt. So we -- we have some sort of flexibility in how we go about doing that. But that is still under consideration.

Okay. Thank you.

The next question comes from [Jamie Newman] with Wachovia. You may ask your question.

Yes, hi. He asked a lot of the questions. I just wanted to ask about -- as you are seeing revenue declines and ad sales declines, what kind of triggers do you have to cut costs in check with the revenue declines?

You want me to --

Go ahead, you start out.

I will kind of start and let Steve repeat or have any more comments because that's -- Jamie, that is obviously something we are look very intensely at right now, as we have seen this environment turn. We -- there are -- certainly, there's some variability in our direct sales costs and we are evaluating all of those things right now to see -- given this environment what those will yield, but we also are -- have a lot of opportunities to look at our print and paper cost as a result of these three big acquisitions that we have made. We don't have as good a standardization across the product line as we hope to get. And by doing more of that and standardizing our product line, we have savings to get at in those areas.

Let me try to kind of dimentionallize it for you, though. So the change in the ad sales outlook is going to end up impacting '08 revenue by about $100 million. And we have lowered our EBITDA guidance between $90 million and $40 million. Between 1350 and 1400. It was previously 1440. So, what we need to do is, we need to -- we need to manage our expenses into that range to be able to hit that guidance. And I can tell that you that we have already found a significant amount of it. So, I think we are feeling pretty confident but that is not -- that's not the end of the story because the negative ad sales performance for '08 is going to continue to have an impact into '09 as we amortize the revenue into '09. And so we have got our work cut out for us to manage expenses.

Okay. On the last conference call, I think you gave an idea of what the degree of the declines were in Florida and Vegas. Can you quantify what the difference is that you are seeing in your other markets versus those markets?

For -- '07, Jamie?

In the fourth quarter and '07, both. But in the fourth quarter, we really didn't have any significant revenue or sales in Florida or Nevada. Those are really kind of Q1 and Q3. Okay, then maybe if you talk about for the full year.

Well, to -- I can kind of help you out -- I guess you can kind of reverse engineer the math a little bit. Because if you look at -- at Florida and Nevada were -- were -- it looks like they were down around full-year 2.5%, something like that, and again another way to think about tha is, those two states have contributed -- if you go back to '06, '05 and well beyond that, have contributed about 5% -- little 5%-plus growth over all of those years. This year performed at a minus 2.4%. And they make up, oh, probably 12%, 14%, something out of the whole pie. So I don't have the math in front of me, but you can kind of probably back into it.

Okay. And then going forward, are you assuming that that gets materially worse, or -- where does or -- how far are we as far as endings are concerned in where it bottoms? Do you think we're there? Close to the bottom? Or you think that there going to be continued deterioration in those markets as well?

Again, what I said in my script, what we are seeing right now, in the first part of '08, is it's worse in the first part of '08 than it was even in the second part of '07 in those marketplaces.

Okay.

We have seen deterioration in Arizona as well, which a lot of others were kind of talking about in '07 that we weren't seeing it quite so much, but we have begun to see Arizona look a little more like Florida and Nevada in the first part of '08.

Okay.

In terms of calling the bottom, there's a lot of people out there trying to do that.. I wish I knew.

Okay, alright. Thank you very much.

The next question comes from Peter Salkowski with Goldman Sachs. You may ask your question.

Good morning, everybody. First question. You talked a little bit about sort of volume declines, I guess, from the sense that you were losing some advertisers who aren't able to continue to pay for their advertising in your books and new business creation being down. I was wondering if you can talk a little bit about rates. I don't know what you were thinking in back in December in terms of your rate increases, but if you can give us a sense what you are thinking going into '08 and then, what you are seeing in terms of realization of whatever rate increase you might have tried to implement.

Yes, let me kind of try to answer that. Because -- honestly, there isn't really much happening different. Price isn't a factor. And to give you a little bit of an idea of our approach, we have been increasingly moving to a more segmented price to value approach and how we go to market by category and geography. And, what's happening is, we have some categories that have no price increase at all, and we may, in fact, be giving them even additional product in addition to no price to kind of level out value. We have other categories that we're able to push through 5% rate increases, because the value delivered is so strong. So -- it is kind of a mixed cocktail given our approach right now. I think that this all -- it all nets out to around probably 2%, maybe a touch under 2%, but that doesn't seem to be an issue for us.

Okay. And then -- on the ad sales guidance for 2008 just to make sure I am clear. The '08 guidance for down mid single digits includes Business.com in both '07 and '08 and I assume the $50 million number that got mentioned earlier is the '07 expectations. Do you have a figure that you would be willing to provide in 2008 on Business.com?

Peter, it does include Business.com in '08, but we are not planning to break out Business.com separately in '08.

Okay. Then lastly -- and this is just more of a general question with regards to what you are seeing in your markets, and sort of how things have progressed. I know -- and you guys have been in the business for a long time. So I am trying to get a sense for what you -- how this downturn compares to maybe what you would have saw in -- in a -- in a short recessionary period back in 2001, 2002, and or -- or even going back into the '90s. Early '90s in terms of that, if you can think back that far if any of this sort of plays out in that way -- because we have seen quite a sharp and significant downturn in a very brief period of time here, and I am just wondering, how this might compare to prior downturns compares to maybe what you would have saw? In the short recessionary period back in 2001, 2002, or even going back into the 90's early 90's, in terms of that, if you can think back that far, if any of this sort of plays out in that way that -- because we've seen quite a sharp and significant downturn in a very brief period of time here, and just wondering how this might compare to prior downturns that you might have seen.

Peter, that is a great question, and one I have been trying to spend a lot of time thinking about. These down business cycles are just far enough apart that -- you get a tremendous amount of amnesia about them, so. We have been trying to do a little research into the past. What's -- this one clearly a little more severe than -- then we have seen in the past, and I think one of the reasons that we have been able to identify is, that we are getting hit a little harder, is that unlike previous recessions, this housing crisis is what really kind of led us into this downturn. And when we look at the housing -- led us into this downturn. And when we look at the housing and the housing-related businesses they are much more intensive yellow page advertising categories that I think that -- were being affected in the downturns in the past. So, we are also seeing -- we got led into this thing with the biggest declines coming in these -- what were high growth states of Florida, Nevada, Arizona, and those were kind of buffering the impact for us in the past where other parts of the country were maybe experiencing, more of the -- the feelings of the economic downturn, and these were kind of sheltering us a little bit and this time, they are actually the worst offenders. I think the last thing is -- and this is to a much smaller degree, because I think it goes to this -- to this renewal rate issue, which really is only off around 100 basis points or 1% for us.

But, listen, there is just -- there is just -- clearly some more advertising options out there for an advertiser today. If I look back at the previous downturns while we had other independent competitor -- yellow page competitors in the market. There was clearly a lot less -- fewer markets that had an independent competitor. So for an advertiser, if he is in a situation where his business has really gotten hit hard, and he is late on his bill, and he owes us $40,000 and he just is having a hard time getting that within 60 days to get back in the book, it is easy for him to just say, I give up. It is like I am going to go, put something small in the competitor's book because they will let me in.

Okay. Thank you very much, you guys.

The next question comes from Mr. Paul Ginocchio with Deutsche Bank. Sir, you may ask your question.

Thanks. Just two questions. First, can we talk about some of the retention or hooks you have into the rest of the Business.com team. And second, Steve, I guess there is about almost $900 million of debt and amortizing next year in '09. Can you talk about some of the things you are doing there. If you paid back $500 million this year and $500 million next year does that -- will that take care of that $900 million amortization for next year, thanks.

Paul, on the retention issue at Business.com. Again, as part of the purchase price, we have a very, very large amount of money that is in place to incent both -- the accomplishment of goals and the retention of the Business.com team. I think that -- not everybody -- in fact nobody got -- got the kind of money that Jake did in this deal, so I think that it is -- Jake is in a very nice position where -- where the -- the most -- the other people, it's like, would not have the same luxury of not having to work.

Okay. Is anybody else -- any -- anybody else in Business. -- anybody else at Business.com left that the point?

No.

Okay.

As far as the debt amortization goes, really, there is two focal points for us over the next -- really over the next two years and that is, we are going to need to refinance the RHD, Inc. credit facility, and we are going to refinance the Dex West credit facility. And the Dex West credit facility starts -- stepped up amortizations in June of '09. So, one of the reasons why we decided to forego the dividend that the point is to protect our credit rating and make sure that we are in a position to be able to refinance those once the market opportunity presents itself.

Okay. Thank you.

The next question comes from Ian Whitaker with UBS. You may ask your question.

Thank you very much. I just want to pick up on something that was said earlier. You said some -- some of your advertisers who can't pay their bills may actually go to the independents. Are you seeing much switch out of your business into the independents because of the toughening economic conditions? And is that perhaps a significant part of why you are lowering your guidance today, or do you think those independents are hurting as much as you are within the respective markets?

I will start and let Peter maybe add some color on that. Bug again, let me dimensionallize that. That part of the decline is relatively small, it is kind of 1% of the contribution. So we -- we don't see a lot of switching going on, but it's -- when we look at what -- what's different today than in the past, it is something that we realize is -- is an opportunity. So --

Ian, Peter. I have been in the marketplace in some of our toughest markets in the last couple of months and interviewed over 100 reps and managers and the first and second issues are truly related to the economy, cash flow from the small, medium-sized businesses and actually the return on our investment and independents or others are less than an issue today than they have ever been.

Ian one last point on that again, as we look at this, is that our experience has been, when an advertiser has to cut -- has to reduce his ad spend in the face of this, it is generally the independent book that gets hit first. And the incumbent book that ends up going second.

I mean, how do you notice them in terms of competition? Have you noticed them actually -- particularly with yellow book, which seems to have been quite aggressive, have you noticed them sort of being particularly agressive over the past couple of months? Or not really.

Yellow book has been in our markets for years now. And it -- they are there, but they are clearly not the issues today. They are less the issue today than they were the past few years.

No change, Ian.

No change, perfect. Thank you very much.

At this time, I would like to turn the call back over to your host, Mr. Dave Swanson.

Well, thank you very much for your interest in R.H. Donnelley. We appreciate your time today. And should you have any further questions, please don't hesitate to call our Investor Relations group. That concludes our call. Have a great day.