Thryv Holdings Inc (THRY) 2008 Q4 法說會逐字稿

Good morning, and welcome to R.H. Donnelley's fourth quarter and full year 2008 results investor conference call. All participants are in a listen-only mode. Please note that today's call is being recorded as well as webcast live over the Company's website at www.rhd.com. I would now like to turn the call over to Mr. Jim Gruskin.

I'm Jim Gruskin, VP 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 and fiscal year ended December 31, 2008, and the Company's Form 8-K furnished to the SEC this morning, both of which discuss fourth quarter and full year 2008 results. We also encourage you to review the Company's other periodic filings with the SEC which set forth important factors that could cause our actual results to differ materially from those contained in or suggested by any forward-looking statements. Copies of R.H. Donnelley's SEC filings may be obtained by contacting R.H. Donnelley, searching its website at rhd. com, or visiting the SEC website at SEC.gov. This transmission is the property of R.H. Donnelley Corporation, and any retransmission or broadcast without the express consent of the Company is strictly prohibited.

During the call today 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 costs, FAS 123 expense, restricted stock unit costs related to the business. com acquisition, and impairment charges. Some of the items we'll be discussing are non-GAAP financial measures. Additional information about non-GAAP financial measures, as well as a reconciliation between these items and the 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 website and can be accessed by going to rhd. com and clicking on press releases.

R.H. Donnelley is in the process of finalizing its 2008 year-end income tax accounts, particularly as it relates to deferred income tax accounts and net operating loss carry forwards. KPMG, our auditors, remain involved in finalizing their audit with respect to those income tax accounts. Because this analysis is not yet complete, the financial results provided this morning do not include tax related items and items affected by tax. We may file a Form 12b-25 with the SEC for an extension of the filing deadline with respect to the Form 10-K that we expect to file by March 31, 2009. Please review the risk factors described in the Safe Harbor language.

Note that we will not be conducting a question-and-answer session following our prepared remarks. And now I would like to turn the call over to Dave.

Thank you, Jim, and good morning, everyone. Thank you for joining us. First, as you may have seen in the press release we issued this morning, we have engaged Lazard to help us evaluate alternatives regarding our balance sheet. Our goal is to better position R.H. Donnelley for the future by establishing a more sustainable capital structure. Steve will provide additional detail later in the call.

As for headlines, like every other company in the advertising industry, the top headline for 2008 was the economy, and the impact it has had on advertising sales. At R.H. Donnelley, ad sales were down 8% for the year and 12% for the quarter as trends weakened in the second half of the year. The well documented pull-back in consumer spending has had a dramatic effect on small and medium sized businesses across the country. The impact of these cyclical factors is apparent in all aspects of how we view our business. Local, national, large markets, small markets, large advertisers, small advertisers, print, and Internet are all performing worse than a year ago.

Perhaps the best way to illustrate the impact is to compare the three components that comprise our year-over-year change in full year ad sales. Renewal rates, which represent the amount of spending by existing advertisers up to the level from the previous year, were approximately three percentage points lower in 2008 compared to 2007. Renewal rate is the opposite of the impact of advertiser cancellations and decreases. So said another way, decrease in cancellations were up three percentage points. This was primarily driven by more businesses closing their doors, being unable to maintain payments, or needing to decrease the amount of their spend due to lower cash flow.

While worse than previous years, the good news is that the vast majority of our advertisers did renew their ad programs, even though conditions have been at historic lows. Validating once again the importance of our marketing solutions even in these unprecedented times. Increase, which represents spending by existing advertisers above the levels from the previous year, was also approximately three percentage points lower than 2007 levels. This was driven by fewer businesses inclined to invest in growth and expansion in this economy and lower price increases on our part.

We are continuing to implement our geo vertical value-based pricing initiative which for many categories of business result in them receiving more advertising for the same dollar amount. This has the effect of lowering our increase line which should result in higher advertiser renewals in future years.

And finally, sales to new advertisers were down approximately two points versus the prior year, primarily due to lower new business formations and a lower average spend. Nevertheless, our sales and sales support teams remain resilient and continue to work tirelessly to win new business. I think everyone recognizes that this is the worst economic climate in several generations. And companies both large and small face tremendous challenges. But I'm pleased with the dedicated R.H. Donnelley employees and what they were able to accomplish in an incredibly difficult environment.

So, with the economy headline covered, let me talk for a minute about our other 2008 accomplishments. First, we broadened and improved our portfolio of local search solutions by rebuilding from the ground up the next generation of our market leading local search site DexKnows.com. Launched in beta late last year and currently up and running, the new DexKnows. com provides consumers with the most targeted local business information available and allows them to search using virtually any method they prefer. Business name, category, specialty, task, location, and on and on. For advertisers, the new DexKnows. com incorporates an integrated self-service account management system that allows for quick and easy updates. It also enables advertisers to track real-time performance of their current marketing program, manage their on-line content, and make adjustments as warranted. The early feedback on DexKnows.com suggests that the experts recognize the great progress we've made.

According to the Kelsey Group, a leading research firm covering the local search industry, and I quote, "Overall, DexKnows. com is a smarter, more sophisticated and much closer to what consumers have come to expect in a local search site. The site offers a number of new features aimed at making it more intuitive and less like an on-line version of the yellow pages." Along with DexKnows. com, we also expanded our voice-enabled search platform, 1-800-call-dex, by making this free consumer service available throughout all of our Qwest markets.

Next, we completed a company-wide systems upgrade, an integration project that began in 2006. The entire Company is now on a unified state of the art technology platform that provides better functionality, consistency of processes, and lower operating costs. This major accomplishment effectively completes our Qwest Dex integration and synergies program.

On the financial front, we worked hard all year to significantly improve efficiency and eliminate non-mission critical costs wherever possible, including a headcount reduction of approximately 20%. This allowed us to protect EBITDA, limiting the year-over-year decline to only 2% in the face of a significant increase in bad debt expense and significant investments in our Internet, voice, and mobile platforms, and sales effectiveness initiatives. These efforts contributed to our ability to reduce net debt by over $600 million in 2008, which we'll discuss in further detail during the financial portion of the call.

Now, while the benefit of the investments in our digital search products is probably obvious, and gets much of the attention, I want to highlight the investment we're making in sales effectiveness and the relationship selling system. Because process improvement is not only about cost reduction, it's about improving the customer experience. Preliminary survey results suggest that advertisers greatly appreciate our intensified focus on them in this process. We have seen an improvement in the overall rating advertisers give our marketing consultants, as well as their willingness to recommend Dex to others. We believe these relationships and distinguishing ourselves in the eyes of the small and medium-sized business is a critical success factor to our future growth.

Finally, let me briefly touch upon our priorities for 2009. One, continue to extend our advertisers' reach across the active buying market by broadening our digital solutions such as our Dex mobile application and our Dex net solution that provides leads for our advertisers through our developing network of Internet partners. Two, increase references and traffic to Dex branded solutions, both print and digital, as well as open up new distribution agreements with high quality partners. Three, continue to support and nurture the relationship selling process we initiated last year, making our marketing consultants just that, marketing consultants and not just sales people. Four, strengthen our balance sheet. And five, relentlessly hunt down and drive out costs that aren't mission critical to creating value for our advertisers, allowing us to continue to generate solid EBITDA.

With that, I will turn the call over to Steve.

Thanks, Dave, and good morning, everyone. In 2008, we delivered $1.42 billion of EBITDA, down $26 million or just 2% from '07, while gross revenue declined $73 million or 3%. We eliminated $100 million of nonessential expenses in the year, which was partially offset by $40 million of strategic investments in digital solutions and rising bad debt. EBITDA margin remained at 54%, in line with 2007. We attacked costs in manufacturing, IT, G&A, and sales claims, providing significant operating efficiencies, including headcount reduction of 950 full-time employees or 20% versus year-end '07. Our cost structure now also reflects Dex merger synergies exceeding our promised $75 million. Bad debt expense during the fourth quarter and full year was $5.7 million and 5.3% of net revenue respectively.

Days sales outstanding in the fourth quarter rose to 40 days from 39 days sequentially, due to lower revenue and relatively flat local AR. DSO in the fourth quarter 2007 was 32 days. Sales force productivity was up sharply in 2008 with industry leading sales per marking consultant approaching $1.6 million. We also managed down paper, print, and delivery costs by 13% during the year, reflecting our print optimization initiatives. And we cut G&A costs by 6% in 2008, signifying our disciplined focus on overhead management. We also terminated certain retiree health benefits, generating a one-time $40 million gain. In Q4, we booked a $744 million noncash impairment charge reflecting the decline in our debt and equity securities market value. That brings total noncash impairment charges to $3.9 billion for the year.

Turning to cash flow, we paid cash interest of $747 million in the year, annual interest expense of $835 million included $65 million of PIC and $29 million of deferred financing fees, as well as swapped marked to market expenses reflecting lower interest rates. These expenses were partially offset by $18 million of purchase accounting benefit. At December 31, our average interest rate was 8.2%. Healthy free cash flow of $510 million beat our most recent guidance and landed in the middle of our previously announced range. This reflected $70 million of CapEx and $50 million of networking capital uses. The primary use of working capital during the year was the increase in DSO.

Switching to capital structure, we reduced net debt by $621 million during the year, resulting in net debt at year end of $9.4 billion, or $100 million better than guidance. Through our debt for debt exchange and by retiring debt at a discount, we captured $280 million of value. As previously announced, last month in an abundance of caution, we drew our revolver even though we did not have an immediate cash need. These borrowings increased our liquidity and financial flexibility, given the continuing uncertainty in the global credit markets. As of February 28, we had more than $500 million of cash on hand.

During 2009, we continue to generate solid EBITDA with significant liquidity to meet all near-term financial obligations. However, operating performance is under significant pressure, and we do have some large debt maturities beginning in early 2010. We always intended to refinance these maturities when due, which may not be possible in the current capital markets. Given the state of the global economy, and capital markets, we've engaged Lazard to help us evaluate alternatives to strengthen our balance sheet. Our goal is to better position R.H. Donnelley for the future by establishing a more sustainable capital structure.

In this regard, we plan to initiate discussions with our banks and bond holders about amending, refinancing, or restructuring our debt obligations. Whichever path we choose to strengthen our balance sheet, R.H. Donnelley will continue to provide outstanding service and support to our customers, while also remaining committed to our employees and business partners. Our print and digital solutions continue to be the best way for local businesses to connect with ready to buy consumers, which should position R.H. D for healthy growth once the economy stabilizes.

As we review these alternatives we will not directly communicate with public market participants. However, we will address the financial community via press releases and SEC filings when appropriate. We appreciate your cooperation. Thanks for your interest and time today. That concludes today's call.

Thank you for joining today's conference. You may disconnect at this time.