Thryv Holdings Inc (THRY) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the R.H. Donnelley Second Quarter 2008 Results Investor Conference Call. (OPERATOR INSTRUCTIONS)

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 Steve Blondy, Executive Vice President and Chief Financial Officer.

Certain statements made today may be forward-looking within the meaning of the Private Securities Litigation Reform Act. We call your attention to our press release for the quarter ended June 30th, 2008 and the Company's Form 8-K furnished to the SEC this morning, both of which discuss second quarter results.

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

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

During today's call, we will make references to certain adjusted figures such as EBITDA, free cash flow and net debt. Certain of these figures exclude costs such as restructuring charges, FAS 123 expense, restricted stock unit expense related to the Business.com acquisition, and goodwill impairment charges. Some of the items we will be discussing 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 8-K furnished to the SEC this morning.

The press release is 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.

Now I would like to turn the call over to Dave.

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

Let me start with the headlines for the quarter. First, where there's a will, there's a way. And despite a challenging environment in the quarter, we were able to deliver strong adjusted EBITDA of $366 million, in line with Q2 last year; and once again led our peer group in revenue growth and profitability.

Second, while revenue was in line with the previous year, ad sales, which as you know are a leading indicator for future reported revenue, declined 8.6%. This result, combined with our outlook for the remainder of the year, is causing us to revise our guidance for full-year 2008 ad sales to down 7 to 8% from the previous guidance of down mid-single digits.

Third, our teams across the Company are really doing a great of job controlling costs, finding synergies, new areas of efficiency; and getting us to a place where the technology investments and initiatives we've been making the last few years are finally beginning to save us money and make us more efficient.

We know that as a result of weak ad sales this year, we will have a challenging revenue line next year. We're taking action now to prepare for that and have employed cross-functional employee-led teams, working in combination with process-reengineering consultants to improve productivity in quality in every function of the Company including sales.

This is a very large 40- to 60-week initiative involving as many as 80 dedicated employees and consultants. We expect to generate significant savings from the initiative, which will result in a restructuring charge of approximately $40 million this year.

Fourth, in June we completed a series of refinancings that significantly reduced mandatory debt repayments through 2009 and extended our debt maturities schedule. And finally, as a result of all of the above, we were able to reduce net debt by $230 million in the quarter.

Before I hand it over to Steve, let me give you some color on what's going on in the field. As I know most of you follow other local media, I doubt that this will be new news.

As I mentioned, published ad sales, which is a better reflection of the current environment than reported revenue, were down 8.6% in the second quarter, were down 6.7% for the first half of the year; which represents about 55% of our full year. And while no one is happy with this result, it reflects one of the most difficult selling environments I have witnessed in my 30 years in the business.

The economy, consumer confidence and sentiment among small business owners have worsened in recent months. What started for us this time last year as a regional softness in Florida and Nevada has grown to include a very broad base of markets and business categories. Nearly every business metric and economic indicator that we track was weaker in the second quarter than it was in the first. And the results were quite similar across Telco brand, local and national.

So, what's driving these trends? I thought it was very well captured in a recent quote by economist Peter Morici at the University of Maryland. And he said that small business owners are caught in the scissors between high fuel prices and slow to no growth.

And this is exactly what we're hearing. Small businesses are facing pressure on their top line as consumers cut back on their spending, and on the bottom line as the price of energy, food and many other inputs rise.

According to the most recent survey from the National Federation of Independent Businesses, expectations for sales growth is at its lowest point since they began tracking monthly data in 1986. Overall economic weakness has also limited the ability of these small businesses to pass along rising costs to their customers.

Let me share one other fact -- in HESA's small business survey conducted in the second quarter, 45% of the companies cited staying in business as a critical or major concern, up nearly 10 points from a year ago.

We're hearing this story played out on sales calls across our footprint. While the vast majority of advertisers are maintaining or increasing their investment with us, they're unable to increase at levels we've historically seen.

We've seen a slight rise in cancellations, two thirds of which is driven by out-of-business and advertisers' inability to keep up on their monthly bill. New business sales are also off.

Our revised guidance for ad sales reflects a view that Q3 and Q4 are going to look a lot like Q2. All of our leading indicators and metrics are supporting that view.

But while it's a pretty challenging environment right now, we've talked to our customers, our sales people; and look beyond the macro numbers. There's plenty to be encouraged about and many signs that our issues are much more cyclical than secular.

When we analyze sales by verticals or business categories, we see a reflection of the current economy. Businesses that are prospering in this economy -- categories like pawnbrokers, bankruptcy attorneys and services, dumpster rental, junk dealers, cleaning services -- these kind of categories are all spending more money with us. Many of these categories had sales gains of 30 to 60% in the second quarter.

On the flipside of the coin, you have categories that have faced the brunt of this housing-led downturn, like residential real estate, mortgage loan providers, building contractors and the like. Many have gone out of business. For those remaining, spending is down, because business is down.

To put a finer point on that for you -- we group 19 business categories that are all closely tied to housing, and we track those results. These categories represented about 1% of our ad base for the quarter. In the second quarter, that group of categories was down 46% compared to Q2 '07.

What's different today than we've seen in the past is that there are just more challenged categories than growth categories. As the economy improves, we expect this cycle to reverse. And when it does, we are well positioned to resume the improvements in growth we were seeing before the downturn. Our Triple Play strategy was developed to ensure our advertisers get found by ready-to-buy consumers, regardless of whether they are searching in print Yellow Pages, Internet Yellow Pages, major online search engines or the rest of the Internet. And we continued to refine that offering.

Now if you're a small or medium-sized business, it's important for you to reach out to active shoppers across all of those platforms. Ignoring the print Yellow Pages is as big a mistake as ignoring the Internet. And we are the only ones that can deliver the whole pie in our markets.

Our digital products continued to deliver solid growth, and we have a lot of exciting improvements in the development pipeline we'll be talking about later this year. We know that there will always be demand for solutions that do the best job of helping SMEs grow and deliver the best value. And this is where we are already well positioned today and are making investments to be even better tomorrow.

Our strategy is to increasingly respond to what SMEs want in their advertising -- targeted, measurable, easy-to-buy and affordable -- and also what they want from the companies they buy advertising from -- trusted, easy-to-do-business-with and service-oriented.

So, seeing beyond the challenges of the current environment, I remain confident and excited about the value that our solutions deliver to advertisers and where that's going in coming years, and also the ability of our sales force to communicate that value proposition to the businesses in our markets.

With that, I'll turn it over to Steve.

Thanks, Dave, and good morning, everyone.

During the second quarter, we made substantial progress on the financial front. Q2 net revenue of $664 million was essentially in line with last year, as higher digital revenue and lower advertiser [themes] offset the challenging ad sales number. Q2 costs were down $5 million from Q2 last year and $19 million sequentially, with the efficiencies in selling, publishing, manufacturing and distribution activities overcoming significant increases in bad debt during the quarter.

In addition, Q2 '08 benefited from $5 million of capitalized IT expense associated with the final stages of our systems integration and the timing of some expenses that will occur in the second half. Importantly, we still invested generously in key areas such as DexKnows.com and advertising.

Q2 bad debt expense of $34 million represented 5.2% of revenue, up $5 million sequentially and $15 million from Q2 last year. Nearly half our increase in write-offs from last year related to advertiser bankruptcies or disconnects, reflecting the pressures that small businesses currently face. It also demonstrates that those advertisers with staying power continue to value our solutions. Resulting Q2 EBITDA of $366 million equaled last year's and represented a strong 55% margin.

Turning to interest -- paid $164 million of cash interest in Q2, including $16 million on exchanged RHD Corp. notes that would otherwise have been paid in July. GAAP interest expense was $236 million, including $39 million of noncash expense from mark-to-market swaps that became ineffective hedges for our new credit facilities.

At June 30th, our average interest rate was 8.4%, up from 7.4% at the end of Q1 due to our refinancings. While this increase is substantial, the silver lining is that spreads on our RHD Inc. bank debt now reflect current market rates. So the future impact of that refinancing won't be so significant. Strong Q2 free cash flow of $159 million reflects $20 million of CapEx and $23 million of working capital and other cash uses.

Higher (inaudible) in Q2 reflects capitalized IT costs from the final stages of our publishing systems integration that went live this month. This major accomplishment allows us to now operate the entire Company on a unified state-of-the-art technology platform, effectively completing our Dex integration and synergies program. Q2 working capital investment primarily reflects the impact of higher AR balances, due to slower-paying customers and our completed transition from Qwest to in-house billing in that 14-state region.

Turning to capital structure -- net debt at June 30th of $9.7 billion was $230 million lower than last quarter, reflecting strong cash flow and the impact of our debt refinancings. Leverage at June 30th was 6.8 times.

Our Q2 refinancings accomplished three important goals, as highlighted in the debt maturity slide filed with our earnings release today. First, it reduced our mandatory payments over the next six quarters by $740 million, to just $140 million. Second, it extended the maturity of $1.2 billion in Dex West bank debt until 2014. And third, it eliminated $170 million of debt via the bond exchange.

We're very pleased with these results, especially given the challenging credit market environment. Our next debt maturities are now two years away, with RHD Inc. bank and Dex West bonds coming due in 2010. Both at the OPCO level, these borrowers benefit from lower leverage and structural seniority. We expect to be opportunistic as market windows open and now have an extended runway to work with.

Our continuing strong cash-flow generation and extended debt maturities ensure ample liquidity for the foreseeable future. Our entire $365 million of revolver capacities remains undrawn as well.

Switching to 2008 outlook -- Dave already mentioned the factors causing us to revise ad sales guidance. As a result, we now expect net revenue to be at least $2.6 billion, at the low end of our previous range. Nevertheless, we're holding our EBITDA guidance of $1.35 billion to $1.4 billion. This excludes the impacts of FAS 123R and Business.com restricted stock expense, as before. It also excludes anticipated restructuring charges, which could total $40 million this year.

Expected annual savings in 2009 and beyond should be substantially larger than the one-time costs. As we refine our estimates and begin to achieve these benefits, we'll provide further updates.

Excluding restructuring costs, we now expect free cash flow in the range of $475 million to $525 million, primarily due to higher cash interest payments following the refinancings. For the full year, we now expect approximately $745 million of cash interest payments, $65 million of CapEx and $65 million of working capital uses. Year-end net debt should come in at the low end of our previous range, or approximately $9.5 billion. And diluted shares should remain around $70 million.

To wrap up -- we remain focused on three key financial priorities for the rest of the year -- one, controlling our cost structure; two, investing in critical growth initiatives; and three, de-levering our balance sheet.

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

(OPERATOR INSTRUCTIONS) Peter Salkowski, Goldman Sachs.

Yes, good morning, everybody.

Was wondering if we could start, Dave, and talk a little bit about the online platform -- how things are progressing there. I know you had expected to sort of have a pay-per-performance sort of platform up by the end of this year rolling into '09. Just kind of wondering the status of that.

Yes, Pete, good morning.

It's going along well. If you'll remember -- when we made the acquisition of Business.com, one of the things that we talked about, as we were looking at where we were trying to get to -- that we could accelerate these platform initiatives from about a three-year runway to a year and a half. And it's tracking really, really well. They are on track. Everything that we've been looking to develop is either on time or slightly ahead of schedule. And couldn't be happier with the work that those folks are doing.

Now is DexKnows.com pretty much rolled across all your different markets?

Yes. We have -- DexKnows.com is the search site that we're using across all markets now.

Okay.

Could you give us a sense of how Vegas either did or is doing -- I guess July's almost over, so the book should be out -- how Vegas trended? I know things are extremely weak in that market again.

Yes. Pete, we don't give results on specific products or markets. But as I told you all last quarter, things are bad in Vegas, and they continue to be bad. And we're not seeing -- they're not getting worse; that's the good news. But they remain pretty tough there, and we haven't seen any kind of turn there yet.

Excellent, thank you.

And then, Steve, just a couple of quick questions. First of all, on the repurchase of debt -- are you guys -- is it able to you, if you want, to go out and buy debt on the open market?

Yes.

So there are no restrictions there?

No special restrictions. We've got to comply with all of our restricted payments structures, but no special restrictions.

Okay.

And then on the restructuring -- the $40 million charge you expect to take -- it looks like you took a little bit in this quarter. And then the -- are there expectations that should the market continue to deteriorate with regards to just the economy being very, very weak -- how much run room you guys have, if needed to do more?

Well, we think that the initiatives that we've got are balanced in their approach. And we're going to get after the efficiencies that are necessary to protect our EBITDA.

And I'll just kind of highlight for you that the acquisitions that we've done -- I think we've done a good job historically of the integration process, and sort of extracting synergies. I think that what we're discovering is there's quite a bit left that we can get to in that regard.

Okay. So this is primarily systems and such, not necessarily headcount? Or do you expect to [have these] in headcount as well?

I think it's -- everything's on the table.

Okay. All righty. I will jump back in the queue and come back if need be.

Thanks, Peter.

Matt Chesler, Deutsche Bank.

Good morning.

I think earlier you had indicated that you were looking to take out $30 million in costs. It looks like you've expanded your expectations for what you can accomplish in terms of cost-savings during this period of downturn. Can you just give us an update on what your -- how much savings your '08 plan includes?

Yes, hey, Matt.

Good morning.

it's really -- the update is we're on track on the $30 million of savings. That was really kind of our quick-hits list that we identified earlier this year. We are kind of going broader than that, which is really why we're anticipating this restructuring charge that we mentioned in our press release and our call.

Okay.

In terms of the headcount reductions -- to what extent would those reductions extend into the sales force? And if they do go into the sales force, are you evaluating sort of fewer feet on the street, or you think that it's more of a mid-level management issue to more efficiently manage the sales forces is probably the places that you would target?

And just in general, is there any revenue attached to some of the initiatives you're looking at? I know that you guys have closed down the Lincoln, Nebraska directory. Maybe that was a special case because it was an independent book. But are you evaluating exiting from other markets, or are you really restricted at that from a regulatory standpoint?

Yes, good morning, Matt, it's Dave.

Couple of things -- I'll start with -- the Lincoln, Nebraska -- I think there is another -- University of Nebraska -- these college directories that Dex had done that we exited -- they make no money. And it was a growth initiative of the past that didn't pan out. But we don't really have any other things like that out there. So that's the extent of that.

Regarding headcount reductions, and might they apply to sales -- that is something that we are looking at. And it is likely that we will be operating with fewer salespeople for several reasons. But we have -- the way that we're approaching this is we have employee-led teams. This isn't a top-down management, Dave putting an edict on the table. It's we have employee-led groups that are trying to find ways for us to be as efficient as possible.

And we've done a lot on the technology side that takes a lot of what used to be administratia. We're working to get that out of the salesperson's daily routine, which is opening up a lot of free time for us.

We're also having to -- we're trying to find ways to be just simply more efficient in how we route salespeople, premise salespeople, out in the field for two reasons -- one, it makes us more efficient; we need less people to cover the same territory. But it also has benefits to our salespeople. They don't have to -- with fuel prices the way that they are, we don't have to spend -- they don't have to spend as much money on fuel driving from one end of the city to the other.

So we're looking at everything. We'll size the sales force based on what the workload is. But we see no -- we aren't anticipating any kind of ad sales negative impact as a result of those initiatives.

Okay.

One follow-up question for Steve -- I think, Steve, in your prepared remarks, you indicated that in the second quarter that there were some expenses that were not incurred that will be incurred in 3Q that weren't incurred in 2Q. Is there a way to size that for us? Maybe [state] what those related to?

Yes. Well, the $19 million sequentially included a $5 million benefit from capitalized software that actually showed up in CapEx instead of expenses. And it relates to the final stages of the testing associated with our operating systems that went live in July.

Apart from that, there's $1 million here, $1 million there; they're not big numbers, but they add up to probably $4 million or $5 million, or something like that.

That's it for me, thank you.

Thanks, Matt.

Jaime Neuman, Wachovia.

Hi, good morning.

I was just wondering if you could comment on how Business.com is tracking versus your expectations on their operations. And then, has the economy had an impact on the online side of your business? And how would that compare to the impact it's had on print?

Hey, Jaime, good morning.

BDC is on track. I'd say there is some impact from the economy that they're feeling, but we're still overcoming that with respect to our efficiencies there. So the take of it is BDC is on track.

As far as the economy's impact --

Yes, Jaime. Just online in general, still growing strong, but also slightly muted. Again, what we've seen is as a result of less money to spend. That means that advertisers are buying less of everything, not just one thing or the other.

Right. Can you quantify the growth rate of Business.com in the quarter?

We're not breaking that out, Jaime. You can try to reverse-engineer it if you go through the schedules to the press release. Because we adjust the revenue for last year, the ad sales for last year, to show you what they did last year. So you can kind of interpolate. But we're not breaking that out separately.

Okay.

And then on bad debt expense -- do you expect to see the same sort of level for the back half of the year, where you're --

Yes --

-- what you saw in the second quarter?

We do. Yes.

Look, it's not atypical in an economic environment like we have for bad debt to go from -- typically, we were running around 3%; now we're running around 5%. And I think that's the kind of -- the range that we would expect. And it does look like it's going to continue in that 5% range for the rest of the year.

Okay.

And is there any update on what you expect for cash interest expense for the year?

Well, we've confirmed -- we looked at our guidance for $745 million. And I think if you back out the first half, the implication for the second half is $367 million, I think it is -- $378 million in the first half and $367 million in the second half.

Okay.

Remember, the $378 million in the first half includes $16 million of cash interest payments that we made in June on the RHD Corp. notes that were exchanged for the new Inc. notes. And so those were payments that would have been made in July. So H1 interest payments were slightly higher than they would have otherwise been. And in the back half of the year, we'll be absent those payments, as well as benefit from the lower average debt outstanding.

Okay.

Okay, thank you very much.

Thank you.

Michael Meltz, J.P. Morgan.

Great, thank you.

Steve, on that point -- the question on the interest expense -- is the $367 million in the second half -- what other factors should we be considering as we look to '09? I know there's the Dex -- whatever the piece that adds $65 million. What else is there that will roll into interest expense?

Well, we're really not providing '09 guidance at this point. But now that you mention it, let me just, for everyone else's benefit, clarify.

So Dex Media Inc. had issued -- before the acquisition had issued two tranches of effectively zero coupon notes, at 9%. They're 9%, but they were pick. And then those stop picking in November 2008, and they go to cash pay. The first cash interest payment on that won't be until May of 2009, and that will be -- I think it's $67 million -- 9% on $750 million.

So that's really the only impact, though, Michael, that I can think of.

Okay.

The working capital drag this year -- you said $65 million, which I understand is a big number, and more than we'd hope in a normal year. Going forward -- how are you thinking about working capital going forward, though? Should we expect that number to continue to rise? Or will it decline with revenue declines? What's the run rate?

Great question, Michael.

Normally, when you see a declining sales environment, that allows you to release accounts receivable, right? But what's happening here is that the economy is having an impact on our advertisers. And as a result, we're seeing -- DSOs went up, I think, from 28 days a year ago to 35 days in the most recent quarter. And so we're seeing that as part of the reason is the economy.

The other thing that's happening in the recent several quarters is, as I mentioned, we've just migrated a large part of the advertisers in the Qwest markets off the phone bill to billing them directly. And while that's going to reduce our operating costs, the phone company was paying us within a week after we sent out the bills, and advertisers -- as I say, they tend not to pay within a week. The average is 35 days right now. So that's just kind of adding to the appearance of a greater working capital investment. That's a one-time impact.

Okay.

And Dave, a quick question -- you had mentioned some of the impact from cancellations. And is there anything you can tell us about metrics through the half year in terms of renewal rates -- rough ranges as to where you are versus historically, just so we can get a better sense of that?

Yes, Michael, I don't actually have it broken out half-year, but I can give you generally where it is. I'd say renewal rates are down 3 to 4% from what we would historically see.

Which --

-- what we would have been seeing last year, even in a flattish growth environment.

Which were [what]?

Michael, I don't have that right in front of me; I'll have to get back to you on that.

I just mean ballpark. So you're talking going from 90% to something -- 300 to 400 basis points lower? Or is there a different math I should be thinking about?

Well, in recurring revenue, which I can kind of give you a little closer ballpark figure off the top of my head -- which includes advertiser renewals and increases from existing advertisers -- we would have been in the 91, 92 range; we're now in more the 87 range.

Okay.

Okay. Thank you, Dave.

Yes.

Todd Morgan, Oppenheimer.

Good morning, thank you.

I had two questions. First of all, the cost number came in below last year. And I know you've been working on it. I don't know if you can talk any further about perhaps the components production [selling] support areas where you are able to realize those savings.

And I guess secondly is you also, I think, mentioned that you completed rolling out the Amdocs publishing system. Can you talk about the real opportunity that that may present? Does that give you greater flexibility to, for example, rescope books, or otherwise kind of try and optimize the revenues you're getting from that?

Thank you.

Why don't I start with cost stuff, Dave, and then -- as far as the expenses versus last year, what we're seeing is lower costs in their selling operations, as well as lower costs in our print paper and distribution activities -- kind of what we call manufacturing. And it's really just focusing on the activities that are adding value and eliminating those that don't. So it's really just -- I think it's really kind of a good blocking-and-tackling.

And Todd, some of the benefits in the Amdocs system -- first, it's just having your entire enterprise coming out of one enterprise system gives us a lot of efficiencies. And it counts advertisers the same way, and things like that. So from a management information standpoint, there's a lot of benefits.

The overall operating costs to operate the system in the new environment are lower than they were. So there's cost-savings. We have developed sales force automation technologies within the system that make the salesperson's job much easier and create a great deal of efficiency for us there.

In terms of ability to rescope books -- I don't know that that's a benefit. I don't think that really changed.

Okay. That's helpful, then, thank you.

Ken Silver, Royal Bank of Scotland.

Hi. Just to follow up on what you said earlier about the effect of Business.com on ad sales -- that supplemental schedule shows $14.2 million of ad sales in the June quarter from a year ago. Is that -- am I reading that right?

That's right --

Or is that six months?

No, that's right. So it was $14.2 million last year.

And is that revenue? On a GAAP basis, if I wanted to adjust the revenue impact --?

Yes, that's true. Both Business.com revenue and ad sales are the same.

Okay.

It's actually -- I'm glad you asked the question, Ken. Because one of the things that we're seeing is that the traditional definition of ad sales that we've used historically is not as reliable an indicator of what's going on as it used to be when it was only print. Because not all digital sales are deferred and amortized. So some distortion (inaudible) that we never used to see.

Okay.

And have you quantified what the EBITDA contribution was a year ago from Business.com?

We have that number, but we're not disclosing that.

Okay. All right.

And then, I know you also don't disclose online revenues separate from print. But can you maybe tell us whether online revenues were up in the second quarter?

Yes, Ken. They were up pretty significantly.

Can you say how much?

You know we don't. I just have a philosophical problem with that whole way of looking at the Business.

Okay, I just thought you didn't disclose the actual number, but you don't want to disclose even what the percentage was?

No.

Okay. Okay.

That's great, thank you.

Thanks, Ken.

Steve Flynn, Morgan Stanley.

Good morning, two questions.

Just number one, I just want to be clear -- as far as the cost benefits in the quarter, I think you said it was $9 million, including the $5 million for the capitalized software. Is that correct?

Well, $19 million lower costs Q2 '08 versus Q1 '08.

Okay. And that includes all the restructuring, stock comp, et cetera?

That is excluding stock comp, but it does include the restructuring costs that we did bear -- I think it was $4.6 million of expenses in Q2.

Okay.

And then second, can you talk a little bit about -- you talked a little bit about the savings in print paper and distribution costs. But can you talk a little bit about the rising costs for newsprint, and if that's affecting you guys? I think you have a couple of print contracts that fall off at the end of this year. Is that going to impact your printing costs for '09? Is that a big issue?

I'm sorry -- I didn't really understand the way you asked the question, Steve. Could you clarify?

Yes, could you just talk about trends in print costs, and paper and distribution costs -- what your contracts are now? Is there any -- when these contracts roll off with your suppliers, are they [constantly] mark-to-market, or will that change your costs going forward?

Yes. So our print contracts are long-term contracts that go through 2012, 2013, et cetera. So that's not going to really impact -- it's not going to be impacted by sort of year-to-year changes.

We do have more exposure, I guess, to paper prices on an annual basis. We have long-term paper contracts, but they're not quite that long. But remember, paper is still - I think it's only -- what is it, 5 or 6% of our costs. So it's really not that noticeable across the overall expense base.

Okay, great. Thank you.

All right.

Well, so to wrap up -- we remain focused here at RHD on three top priorities for the rest of 2008 -- first, debt reduction and the additional opportunities to reduce near-term mandatory debt repayments and enhance our operating flexibility; second, careful management of our cost structure and continued improvement in the efficiency and effectiveness of our organization; and third, investments in training, products and initiatives that will help us drive sustainable long-term growth.

I want to thank you all for your continued interest in R.H. Donnelley today. Have a good day.

This concludes today's Conference. Thank you for your participation. You may disconnect at this time.