Thryv Holdings Inc (THRY) 2014 Q4 法說會逐字稿

Good morning and welcome to Dex Media's fourth quarter and full year 2014 conference call. With me today are Joe Walsh, President and Chief Executive Officer, and Paul Rouse, Executive Vice President, Chief Financial Officer, and Treasurer. 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 reports filed by Dex Media and its predecessor companies with the Securities and Exchange Commission. The Company has no obligation to update any forward-looking statements.

A replay of the teleconference will be available at 800-585-8367. International callers can access the replay by calling 404-537-3406. The replay pass code is 92843916. The replay will be available through April 2nd, 2015. In addition, our webcast will be available on Dex Media's website in the Investor Relations section at IR.dexmedia. com. At the end of the Company's prepared remarks, there will be a question-and-answer session. And now I'd like to turn the call over to President and CEO Joe Walsh. Joe?

Thank you, Paula, and good morning, everyone. On today's call I'll start by sharing an overview of 2014 and Paul will get into detailed results for the fourth quarter and full year. Then I will wrap up with a look at some of the 2015 initiatives and share a few closing remarks. 2014 was the first full year of operations for our combined Company, and it was one marked by determination, challenge, and change. The merger of Dex One and SuperMedia created a new company with a near national presence, a large professional sales force, and a comprehensive set of products designed to help local businesses grow.

During the year we made progress on many fronts, integrating our corporate functions, reorganizing our sales force, improving sales recruiting and training, creating new products, and redefining the brand. We united around the goal of becoming a more digital-centric organization by shifting our focus to products our clients are asking for and those consumers are using to search for businesses within their local area. We know that clients who invest in multiple marketing solutions receive more calls, clicks, and sales, so we created and rolled out new bundled solutions that combine our legacy print products and digital solutions.

Results were encouraging, with our Start Smart and Flexible Bundles, which truly seemed to resonate with clients looking for an array of marketing solutions at a clear value. In 2014 we directed more of our business into our telephone centers, where we can efficiently sell our basic solutions to lower spend clients. Our telephone sales strategy complements our traditional premise marketing approach, which focuses on selling to mid tier and larger spend clients who often require more in-depth consulting expertise. This combination of approaches gives us flexibility to reach a variety of client types, and we continue to explore the most efficient blend of sales channels.

In the fourth quarter I joined the team full-time as CEO and announced a new executive leadership team. In December we announced a number of transformative initiatives designed to reorganize, refocus the Company on achieving significant cost reductions. Those initiatives included the move to a virtual sales environment, automation of the sales process, integration of our core systems, and variabilization of our print cost structure.

Additionally, we announced initiatives that will reduce our workforce by about 25% by consolidating key operational functions and eliminating a layer of management from our sales organization. Those actions will result in targeted cost savings of $110 million in 2015. In addition to reductions in cost, our December announcement included a number of revenue enhancement measures, many of which are now underway. While we are not yet ready to report out specific elements at this time, we will provide more color on our current activities at the conclusion of the call.

Dex Media closed out fiscal year 2014 with a presence in 43 states, more than 490,000 clients across the U.S., and we retained 83% of our clients from 2014 to 2015, with about 38% of our clients buying our digital solutions. We signed approximately 22,000 new clients in 2014. Digital ad sales grew 9.2%, and print ad sales declined by 22%. Our digital clients spent an average of $2900 per order.

We generated $1.8 billion in revenue with 29% of our revenue from our digital solutions. We achieved $715 million in adjusted pro forma EBITDA with a 38.8% in adjusted pro forma EBITDA margin. We also generated free cash flow of $370 million. That diligence enabled us to retire a total of $381 million in bank debt last year, bringing our current debt balance to $2.6 billion. And now I will turn the call over to Paul so he can provide more detail on our results for the fourth quarter and full year.

Thank you, Joe, and good morning, everyone. Before I begin with the fourth quarter and full year financial results, I will be referring to non-GAAP financial numbers. We have provided a reconciliation of GAAP to non-GAAP measures in the appendix of this presentation as well as the financial schedules of the Company's Investor Relations website under quarterly results.

Now, for the fourth quarter and full year results. Total ad sales declined 16.7% in the fourth quarter, as compared to a decline of 13.8% for the same period last year. For the year ended 2014, total ad sales declined 13.8%, as compared to 15.1% in 2013. Fourth quarter results reflect print declines of 24.5%, a 560 basis point difference compared to an 18.9% decline last year. This decline was attributed to client loss and more print clients shifting to digital offerings as evident in our 38% digital penetration for the fourth quarter of this year compared to 34% for last year.

Fourth quarter digital ad sales grew at 4.8%, compared to 5.1% for the same period last year. The lower growth rate was driven by the national sales channel and local sales channels. It's important to distinguish the difference between these two sales channels to better understand the metric results. The national sales channel represents approximately 8% of the total digital ad sales in 2014. In comparison to 2013, national represented 10% of total digital ad sales.

National sales have been on a constant downward trend as certified marketing representatives, who are third-party agents choosing to substitute or sell competing advertising programs directly to these national clients. As a result the Company's focus will be to manage expenses and allocate resources to areas of the business with higher revenue opportunity. In the fourth quarter national digital sales contributed 210 basis points to our overall digital ad sales decline.

Excluding national sales, the local digital ad sales grew 6.9%. The full year impact of national sales lowered total digital ad sales by 270 basis points. Excluding national sales, local digital ad sales grew at 11.9%. The local sales channel represents approximately 92% of the total digital ad sales in 2014. In the fourth quarter the local channel experienced some headwinds in digital ad sales from two primary drivers. The second sales cycle of digital bundles in the fourth quarter and a higher digital base.

The fourth quarter of 2014 was the second sales cycle introducing digital bundling in certain markets, making it tougher to increase the client's marketing spend at renewal time. Secondly, as we continue to grow our sales base, hitting prior year growth rates becomes more challenging. We believe increasing focus on new client acquisitions will mitigate these headwinds. As Joe mentioned earlier, we are working on enhancements to our sales process to make it easier to sell and fulfill an order. These efforts are just starting to take place and will take a few quarters to see the impact.

For the year ended 2014, digital ad sales grew at 9.2%, a 330 basis point difference compared to 5.9% in 2013. Full year digital ad sales growth was driven by our bundled solutions sold as an attractive and simple entry point into our digital offerings for small spend clients. Finally, a couple of key points to keep in mind about ad sales metric. As we have defined this metric in the past, ad sales is intended as a leading indicator of reported revenue on a combined basis for print and digital. Print ad sales represents what has been delivered and started to build within the reported quarter.

Digital ad sales consists of local and national accounts. The national account portion of this calculation is more closely aligned with the print ad sales calculation. Local digital ad sales represents what has been sold within the quarter to be fulfilled and build in subsequent months. This difference in digital ad sales impacts the timing of reported revenue due in part to when and how we deliver the digital solutions. The differences range from a month to several months, depending on the client's business, billing cycle, or marketing program. We are reviewing all of these processes as we continue to align our sales goals to the revenue opportunity.

Turning to revenue and EBITDA results for the fourth quarter and for the year ended 2014. For the fourth quarter, the Company reported revenue of $433 million, a 15.6% decline compared to the pro forma results last year. Adjusted expenses were $260 million and adjusted pro forma EBITDA was $173 million with margins of 40%. On a year-to-date basis, pro forma revenue was $1.845 billion, a 15.5% decline compared to the same period last year.

Adjusted pro forma expenses were $1.13 billion, and adjusted pro forma EBITDA was $715 million, with a margin of 38.8%. Now I would like to provide more details on a few key items related to normalized expenses. There were $8 million of merger integration costs in the fourth quarter, and $41 million for the year ended 2014. In addition, the Company incurred $3 million in expenses in the fourth quarter and $10 million for the year ended 2014 associated with long-term incentives, including the cost of the value creation program.

Prior quarters in 2014 and 2013 have been restated for these items to adjust pro forma EBITDA in the reconciliation of non-GAAP measures financial schedules. In December the Company announced an organizational restructuring plan, a run rate cost savings estimated in the range of $130 million to $150 million, with $900 million to $110 million realized in 2015. As a result of detailed planning efforts, we have targeted annual savings of $150 million at the higher range, and expect to realize $110 million of savings at the higher range in 2015.

In addition, the Company announced the related one time cost to achieve in the range of $70 million to $100 million. $43 million was expensed as severance in the fourth quarter of 2014, as part of the business transformation. We also expect the one time cost to be closer to $100 million as a result of the higher savings target.

Before I move on to comments about debt and cash flow reporting, I want to mention the Company's amendment was approved by the Dex West lenders. The Company proactively sought this amendment to provide flexibility for one time costs related to the organizational restructuring. Now on to the balance sheet and cash flow activities. As of December 31, 2014, our total bank debt balance at par was $2.599 billion.

Retirements of principle made through the end of the fourth quarter were $381 million. When you net this with the $16 million PIK associated with the bonds, it results in an overall debt reduction of $364 million. We have provided debt balances at par, and cash by silo in the appendix of this presentation. For the full year, the Company generated free cash flow of $370 million, representing cash from operations of $388 million, less capital expenditures of $18 million. This includes merger integration cash costs of $40 million. Cash on hand as of December 31, 2014, was $171 million.

I would like to close with a few thoughts on the Company's financial and operational metrics going forward. In light of the Company's transformational initiatives and plans to reshape the business, we are looking at all performance metrics that align with the Company's strategy. In this effort we may determine certain metrics today will not serve as an appropriate measure of the Company's performance in the future. We look forward to sharing more on this topic in the future. That concludes the prepared remarks for the financial results. I would like to turn the call back to Joe.

Thank you, Paul. Over the past 90 days the Dex executive leadership team began implementing the cost savings, corporate restructuring, and revenue enhancement initiatives we announced in December. New organization structures are in place. Office closures are in progress, as is the consolidation of our operational functions. Our new leaders are truly impressed by the talent, knowledge and dedication of employees throughout the organization. We are very excited about the potential market opportunity for Dex.

Our current activities include completing the last few activities related to the merger, integrating our core systems, products, and processes to a single set of platforms. This initiative is complex and multi layered. But when completed at the end of the year, will have significant benefits to every function across the business. Additionally, we are working to simplify our product set to enable a more intuitive sales call and enhance client experience. By streamlining our products in terms of features, pricing, naming, we will make them easier to sell and easier for our clients to understand.

We also intend to improve the sales process with new tools that automate client presentations and shorten the time it takes to on-board new clients once they sign an agreement with us. Some of our newly redesigned print directories began distribution in key markets this month, featuring attractive new covers and images of local landmarks, more readable print, and standardized trim sizes. Additionally, we continue to hone our distribution methods for print directories and pursue opportunities to consolidate titles whenever appropriate.

Although consumers increasingly search for local businesses online, we know a portion of the population relies on print, and we believe these improvements make our directories the best available. In addition to upgrading the look and feel of our print directories, we are also simplifying our offering to clients. We have reduced the number of print advertising choices from several hundred to seven standard sizes, with tiered pricing by market. This new simplified rate card will make the sales call more efficient and we believe it will also easier for our clients to understand exactly what they're buying.

Planned upgrades to our Internet Yellow Pages portals, DexKnows.com and SuperPages.com will happen in multiple phases, with design refresh later this month, and a more comprehensive make over beginning in the second quarter. These changes will deliver more intelligent search results and deeper business content, including photos, reviews, and videos. Beyond our core business of print and online directories and digital products, we continue to monitor the moves in the local marketing and advertising space. As we consider new opportunities for Dex, we believe we are well suited to compete in those areas.

In keeping with our desire to focus on strategic areas of the business, we are in the process of selling EveryCarListed and expect to make an announcement within the next few days. Aside from integration and product development activities, we plan to enhance the service level and overall experience of our clients receive when they do business with Dex. Local businesses have many choices for marketing solutions and we want to differentiate our Company from other providers.

Our operations teams are working to transform our current practices by simplifying key processes and upgrading employee training so we can better serve and consult with and retain our clients. In summary, there are a number of activities in progress for 2015 and beyond. The leadership team remains confident about the market opportunity for Dex. We're excited to see the many planned changes and enhancements come to life. With the fiscal year 2014 behind us, we're now fully focused on reshaping the business and creating a sustainable future. Thank you for your continued interest in Dex Media. We are now ready to take questions.

Thank you. (Operator Instructions) Your first question comes from Jimmy Wen of Ares Management.

Hi, this is actually Chris Mathewson. Thanks for taking the question. Just one thing on the outlook for 2015, recognizing you're probably not going to give guidance, but, you know, with ad sales down 13.8%, recognizing that there's, you know, shifting now how you calculate that for digital and print, that's probably a pretty good metric for revenue declines. How should we think about the flow through margin of that to EBITDA? And then obviously you have the $110 million of savings that are going to be realized this year. So just trying to back into kind of an EBITDA number.

Paul, do you want to start with that?

Sure. You know, like you say, we don't give guidance, but what we're doing, you know, you can tell by, you know, the presentation, is, we're really focused on costs. So -- and the slide on identified savings, we're really trying to take the fixed costs out of the business, to set up the business for the future. And as for margins on the products, it really depends on the mix of products we're selling into 2015 that will determine what those margins will be and we don't disclose that at this time.

Okay. Maybe I'll ask it a little differently. So if you had revenue decline of $250 million and you had no cost savings, how much of that would flow through to EBITDA?

I know what you're trying to get at but it's really the mix of the products in there that determine that margin. It determines how much print versus digital and what digital products are sold because they all have different margins so I really can't answer that question specifically because it really is dependent on the mix.

Paul, let me just add that, you know, one of the focuses that we've had here is to variableize the cost structure as much as possible. So to the extent we have volume declines, you know, we're going to kind of accordion the cost down with it. That doesn't mean we can absorb it all, but if you take a look at what's happened, even looking backwards, a pretty good job was done of contracting costs against that declining revenue.

Oh, I completely agree. That's -- I'm -- so you can't give me a ballpark's flow through margin, just make some -- use the same mix that we have today of print and digital, what would be the flow through margin? Is there -- you can't give me a round number? 70%, 60%? 80%?

We don't give that kind of guidance.

All right. Thanks.

Your next question comes from James Monaghan of Waves Asset Management.

Hey, guys, thank you for taking my question. I just got a couple quick ones. As I go through the numbers baking in the $110 million of cost savings, by my math you guys should be able to generate a similar or better level of free cash flow in 2015 versus 2014. Can you talk a little bit about what you guys are going to do with that cash? Will you continue to pay down debt? Are there opportunities to do accretive acquisitions that could potentially delever the Company? Could you give us a little sense of what you're thinking there? The second question is, how are you and your management team compensated? Can you talk about where your equity is priced and just give us a sense as to how you guys are motivated. Thank you.

Okay. Do you want to start and I'll pick it up?

Yes. Right now, we're not looking at any opportunities out there, so it's really focused on debt repayment. And we're also, you know, prepared to be opportunistic in the marketplace and at below par repurchases.

Let me take the second question. Our compensation arrangements are really designed to try to focus us on increasing the overall value of the business, and that really cuts right across the whole capital structure. And so we're -- you know, we have an opportunity to participate in the value increase, right across. And we took this gig because we really believe in the Company, really believe in its market prospects. We have a lot of really good ideas about what to do going forward. While we don't have anything to announce today about acquisitions or so on, that's certainly one of the arrows in the quiver as we move along here.

Okay, great. And can you talk about your equity compensation, just kind of where that's priced, just so we can kind of get a sense as to how you guys are motivated?

I mean, there's a pretty detailed public filing you can read that takes you right through it, soup to nuts.

Okay. Fine. That's fine. Thank you.

Your next question comes from Jen Ganzi of Newmark Capital.

Hey, guys, thanks for taking the question. Just a couple of quick ones. I was just wondering, and you may have sort of alluded to this earlier, I apologize, I'm just sort of jumping on and off, you know it seems like your digital growth run rate for this quarter was a bit below, you know, the prior three quarters, they were like in the 10%, 12% range. Just wondering if that's just like a seasonal, you know, issue because, you know, the holidays and stuff like that, you know, there's sort of less going on or is anything else going on and you know if you, you know -- do you feel like the full year is a better -- a full year 9% growth is a better, you know, view of sort of, you know, the digital, you know, kind of digital growth potential?

Just -- thanks for the question. Just if we restate the facts again, the fourth quarter growth was 4.8% and it was pretty comparable with last year, the same quarter, 5.1%. Overall the full year 9.2% compared to 5.9%.

Right.

You know, sequentially, as you look back on the quarters, it does (inaudible - background noise) benefit, but as I mentioned, we did -- we are coming around second cycle of digital bundled directories, so it becomes harder (inaudible - background noise) sales on that the second year. And what we're doing, as Joe outlined, you know, is we're returning the focus to customer acquisitions. We're also looking at new products. And really the simplification of our products. And also we're taking steps to virtualize our sales offices and also variabilize our business so we get the highest market possible on the sales. So it really depends on the mix of products into next year that will determine what the growth rate will be.

Okay. Fair enough. And then you know, and then just sort of looking at, you know, it seems like the print declines accelerated a bit this quarter versus, you know, the last three for, you know, 2014. I was just wondering, you know, the down 24.5%, I'm just wondering is that because of the greater focus on digital or, again, like I mean, is there anything that would, you know, kind of make us think that print declines should, you know, potentially accelerate to closer to the mid 20% range versus sort of the low 20% range that they historically have been on a year-over-year basis?

There's nothing new or catastrophic that's incredibly changed here within the story. There's still a lot of print usage out across the country when you get outside of major metros and you start looking at 45 and older, you know, consumers and kind of ma and pop out across the country there. We really believe that we can do a better job of serving that market and really make our directories the directory of choice. And so when we look at kind of the trend line that's there, we actually think we can do better.

I'm not prepared to guide you with a specific number, but one of the thesis that we came into this with is that we think, by publishing a better directory and sort of simplifying the way we tell that story and fit it into the rest of the multi product bundle, that we can do better. So we're not concerned that this is some big leg down in the trend. And while I'm not prepared to guide you, and I'm sure if you've been following this business, you know that sort of -- because of the way revenue is recognized, you know, current sales activities are reflected two to three quarters later.

So there's kind of a long lag time, kind of turn the Queen Mary around here. But we really believe in our strategy with print and think that we can do better.

Okay, so I mean I guess just to ask it another way, I mean what would you attribute the slightly, you know, accelerated decline rates in this quarter versus, you know, in the prior call it whatever seven or eight quarters? And you know like the mid-20% range. I mean, was there anything that sort of stood out, you know, just this quarter?

No, I don't think so. I think you tried to help us in the beginning of your question by saying, was it your greater emphasis on digital, and that may have had something to do with it. We certainly have been bundling and working really hard to, you know, drive the digital part of the business. With good results. We've been growing digital and digital is a higher percentage of our overall revenue at this point.

And we have found that when we have multi product customers, when they buy across our different product offerings, they tend to stay and pay and retain at a higher level. And which feel more secure with those customers when that happens. So, you know, it's kind of a part of the process. But as I said, I do think that we can do better in the fullness of time with print results. We don't imagine that this is some big leg down.

So you're not going to completely deemphasize the print drop.

No, as lenders and investors to know this, one of the biggest things that goes the asset that you're looking at are the tremendous number of leads that our owned and operated properties deliver. Both our online directories and our print directories. And as you heard in our prepared remarks, we have really specific programs to upgrade and improve those directories and make them compete harder for consumers look-ups. So we have more of those consumer look-ups to monetize for a longer period of time. That's a key part of our strategy.

Okay great. And then just -- I know I ask this like about every quarter or every other quarter, whatever, but, you know, in terms of like the additional product, you know, any, you know, you know, kind of any thoughts on like, you know sort of programmatic ad buying or some of the other, you know, kind of (inaudible - background noise) call it new media ways of, you know, changing the ways that you might be, you know, kind of going to (inaudible - background noise) with the ad sell process or is it, you know, still kind of the same, you know, large, you know, large, you know, largely overall strategy is just the (inaudible - background noise) sort of bundled, you know, based on needs?

Thank you very much for that question. I'm going to make that the end of this question. The marketplace is changing with all the technology that's taking place, from real time bidding to, the migration from, online, , desktop type screens to mobile. The marketplace is moving very quickly. There's a lot of new, inputs and signals that you have to work with now. And we're looking at all of that. And we came into this with some, I think, really exciting ideas. And part of the reason that the Board brought us in was, they believed that we had a great strategy and a bunch of good ideas about how to better serve our clients and do a better job here.

And, you know, we're working very quickly and very hard to bring those to market and get going. We're not quite ready to talk about that. But you will see some innovation over the next year or two. We're not just going to kind of run the same business and cut the crap out of the cost side of the business. We're going to innovate and we believe there's a sustainable bright future for the business. And part of that is going at the market in some different ways. Next question.

Your next question comes from Brad (sic) Jelisavcic from Bowery.

Good morning, guys. Just a question, was the initiative to bundle digital ads your strategy or was it the strategy of the prior leadership team?

That strategy has been in place for a while, so it was in place, you know, long before we got here. And it's yielded some great results. As I mentioned earlier. When customers are in more than one of our products, they tend to retain at a higher level and they tend to get more clicks, more calls, more leads, more sales. And so it's been a pretty successful strategy.

Okay. Perhaps I misunderstood but I thought that, in your prepared remarks, you attributed some of the weakness in fourth quarter digital sales to some changes in the digital bundling strategy.

No, I -- I think -- that was probably my remarks. What we were referring to is that we came upon the second cycle, so last year we sold a bundled package to a customer and we were back to resell them, and we can't sell them. We're selling the same package so it becomes harder to get growth. It isn't like it's a new sale; it's a renewal. That's what I was referring to.

Understood.

(inaudible - microphone inaccessible)

Understood

Having said that, there's lots of new customers for us to still sell which we're out there doing.

Understood. And then you mentioned that you are planning on announcing some type of asset sale in the next few days. I wasn't sure what type of asset that was.

It's EveryCarListed, which is a very small niche vertical product that we owned, and it's non material.

Okay. Understood. And then, Joe, you mentioned that you're focused on paying down debt, but, you know, as you know, all of your bank debt matures at the end of next year. Can you share with us your thoughts about how to address those upcoming maturities?

So we're aware of that, and we don't have anything to announce right now about, you know, exactly what we're going to do. You know, we are working really hard to improve the operations of the business and make sure that, you know, this business has a bright, sustainable future and people will want to invest in it and lend to it and work with us. Beyond that, I don't have anything to announce right now.

Okay. Thank you.

Your next question comes from Bob Konefal of Phoenix Investment.

Thank you. I have a couple questions. One on the top line. Has any of the sort of deceleration of digital and acceleration of print declines related to the potential disruption caused by the work force reduction or was that a non factor?

Just based on the timing, I wouldn't think, you know, looking back to the fourth quarter, that it had that. I think you can look forward to that in the future because, you know, obviously you can't make that level of change without a little blip in the radar. And that really occurred more sort of in January. So look, we're working through it. And we're making really good progress and we've got, you know, a lot of momentum in the organization right now. But it was a hard set of changes, designed to really variabilize the cost structure of the business, and make some one time fixes that really needed to happen for us to have a simple, efficient operation.

Okay. And then I wanted to at least attempt to understand the tie between the $100 million or so that you're laying out in cash to execute the -- these cost saves and the actual sort of flow through of the -- of the savings, that chart 10 or at least the chart on page 10 shows $71 million of 2015 head count reductions. So you laid out $43 million to save $71 million? Is that the right way to think of at least the severance piece, and that cash is already out the door?

Well, the annualized savings will be closer to $87 million, but the savings that will be reflected in 2015 is $71 million, correct. And the $43 million does relate to that.

Okay. And then with respect to the cash outlay, the other approximately $57 million or so of cash outlay, how does that flow through in 2015? Is it sort of front loaded? Is it spread out over the quarters? And does the sort of flow through of the savings on slide 10 here, are those more geared toward the back half or the -- are those spread out throughout the four quarters as well?

To answer for the remaining costs, it's more or less throughout the year, and some of it related to the facility closings will actually stretch into 2016. So some of it goes a little further. But the headcount savings, 80% of the headcount has been -- is off the payroll as of February. So we're getting that savings now. And the office closings, you know, at the end of this month, we'll have closed 76 of those 107. And the print and distribution, we've already made those cuts, so we're going to get the cash benefit of that before we get the expense benefit because of how we amortize our cost to match it with revenue, so that's actually right now, the savings is occurring. And the digital vendor -- we've already negotiated that contract so we're getting the benefit of that right now, the digital vendors.

Okay. And last question is sort of tied to the print distribution comment you just made. Is $26 million copies being eliminated a substantially larger than usual number that will sort of flow through to an accelerated decline on the print side in future years? Is -- of a revenue decline of print?

We don't believe so. We believe there was an opportunity here and -- by the way, they've been sharpening the distribution count year in and year out. We sort of brought a philosophy that said, let's really look at the data, let's look at the call count data, let's look at who is using these directories and let's make sure that they get a book, a really good book, a high quality book that they can use and they'll prefer using. And really a lot of these distribution savings are coming from, you know, multi copy distribution into businesses, delivering into high-rise apartments that don't really use the book, anyway, and you have a hard time actually getting all the way into the apartment, a lot of the urban centers. We really are focused on home owners, quite frankly. That's the power user of the printed telephone directory.

So we did a lot of work to sharpen up who we deliver this directory to. And we believe that due to the improvements that we made in the directory itself, we dramatically increased the type size in the books so that the target audience, which are older Americans, can actually read the thing. We eliminated all the little tiny ads that frustrate you because you can't really see anything, there's no buying information in them and you can barely read them. We basically only have a couple kinds of ads, big ads, really big ads and giant ads, so it's going to be easy for consumers to read the directory, and it will be packed with the kind of buying information that they're looking for. We repackaged the directories and put them in much sharper looking covers that are kind of tuned for the community and have a nice hometown feel for them. Basically our intent is to compete for every single directory look-up that's out there, both in print and online, with way better directories. And we believe that those changes will energize and excite the advertiser base that's out there and we actually believe we can do better in terms of print decline going forward, not worse.

Okay. Very good. Thank you. That's it for me.

Your next question comes from Jonathan Sacks of Stonehill Capital.

Hi, I have two questions about your digital business overall. I guess the first is, can you help explain which products constitute the bulk of digital revenues? So you have DexKnows and SuperMedia.com. You do Facebook, you do Google ad words and things, but in terms of the digital revenues that you have today, which products comprise the bulk of that?

You just put your finger on a couple of big ones. We're not ready to break out in minute detail. But those two IYPs, Internet Yellow Pages products, are a big part of our base. And as I said, I think we can do a better job with those and get better results for our clients out of those directories by the facelift that we're bringing through and the consumer experience reshape that we're doing in the second quarter. So we're pretty optimistic about what can happen with those directories. And then there's obviously, you know, you touched on it, there's search engine marketing where we sell key word campaigns you know across Google, Yahoo!, Bing, and really using our merchant platform across really across the whole web. So that -- those are two giant areas. And then of course we build websites for customers, we do search engine optimization, on and on it goes. We claim listings and manage people's, you know, content marketing across the web. We do work in the social space. We do work on Facebook and others. So we have a complete product line. But the first couple you named are certainly very big and very important parts of the mix.

Okay. Is it fair to say that IYP and SEM comprise the bulk of digital revenues today?

Yes, I would say those are probably the biggest couple pieces, Although the others are very important, too.

Yes. Okay. Thank you. And then my second question is, can you help me understand the relationship between the digital relationship percentage that you quote and the digital revenue percentage which you quote, so I think for 2014 you said 38% of your relationships are digital or have a digital component, and 29% of overall revenues are digital? I guess if you made simplistic assumptions and just took those two numbers, that might imply that, of your 38% of customers that buy digital products, that their spend is something like three quarters digital and one-quarter print. But of course the first one is measuring a number of relationships and the second one is measuring dollars and there could be different dollar size spend per customer. So can you just in some way give us a better sense of what that digital print/mix looks like for those customers who are spending on a digital product?

That's a really great question. You put your finger on, really, a leading indicator there. What we're doing is, we're more deeply penetrating our customer base every year. We've got things like our StartSmart bundle and other simple entry level offers that we're bringing customers into digital, we're bringing them online into these multi product smaller bundles, which give us an opportunity to stair-step them up into higher spend product ranges. And so that's really -- that should give you some sense of the progress that we're making and the growth that we believe is in our future.

But is the four-year customers who are buying digital, for, let's say, the typical customer who has some digital component, is the bulk of that person's spend in digital? I would have guessed it was in print. But the numbers seem to suggest maybe the bulk -- the majority of their spend is actually on digital.

You know, I think that it's skewed a little bit because you've got some customers that have giant digital programs with us, and I think that's skewing the number a little bit. There are some customers we're managing very big campaigns for across the web, you know, with search engine optimization that we're doing on their websites and then we're doing big search engine marketing campaigns and some of those skew the figures a little bit.

Okay. And do you have a significant number of customers who are digital only or is that a small percentage?

It's a relatively small number. We think it's a little under 50,000.

Okay. Thank you very much.

We have time for one more question. Your final question comes from Seth Crystall of RW Pressprich.

Yes, thank you for taking my call. I have a few questions actually, if I can get them in. You talked about the sales -- the digital sales being down because of the second bundle, and it's harder to sell through. Does that mean that new products and the next bundle would be with new products or will it continue to be weak sales because selling through bundles will get tougher and tougher to customers inside.

We have lots of innovative ideas that we're introducing and we'll be bringing fresh products to market, fresh services, and, you know, we are pretty optimistic about what we think we can do in terms of, you know, growing that side of the business. But your question is pretty smart, where if we never change and we just kept selling the same tired rag every year, you'd be unable to gain the increase and really keep it moving. But, you know, part of the impetus that we bring as the new management team is, we've got lots of new ideas about new ways to serve clients and, you know, how to tap into high growth areas within this sort of digital market place. So we do not intend to just keep selling the same old tired bundle. We've got a lot of good ideas there.

Okay. Just to follow up on the question that John just had, in the digital relationships, the 38%, which I guess means 62% of your customers don't have any digital relationship, is the expectation, I guess you're going to -- the assumption is you'll transition and get more and more, but is there a certain percentage of those that you'll never get either because they're having a digital relationship with somebody else or they just don't need digital?

There probably is. We don't have any way to know exactly what that is. But, you know, we look at the whole pot. We look at the whole pie. There's a gigantic amount of money being spent on advertising by small businesses, and we have a tiny percentage of it. And while it's, you know, it's nearly half a million, and it's nationwide, and we've got a big sales force, and we're proud of that and everything, we're looking to gain share. We're looking to grow. We're looking at the opportunity to edge out into other high growth segments and really build this business. And part of the reason this management team came together was to do just that.

Okay. And then I just -- a couple quick questions from the slide on page 10, you talk about the identified savings, the facilities that you're closing. How many facilities do you currently operate or will you be operating at the end of, you know, 2015?

We're just chatting amongst ourselves here to give you the exact idea.

I'm just trying to get an idea of how significant closing 107 will be.

We've got approximately 70 that will be closed by the end of this quarter, by the end of this month so far.

76. So the vast majority of the offices are being closed. So, really, going to some key facilities, so the idea is to shrink the number of facilities as close to a few as we can over time.

(inaudible -- multiple speakers) No, sorry. Go ahead.

I was just going to say, just to make sure that you get a clear picture, the sales force had a local sales office in most major markets and a lot of minor markets all across the country. And we had a sort of, you know, I'll call it a 1980s system of driving into the office and meeting with a manager and then kind of going out in the field. And we really believe in a more virtual approach where, you know, the reps are based at their house, the field reps are based at their house and able to go right to call on their customers and there isn't really as much drive time, as much face time. And this has gone over really well with the sales force. There's been a great reaction to the idea that they're able to focus on what matters, which is serving their clients, and not as much with sort of the overhead of working in a company and going to an office. So not only do we have the overhead savings of taking the office out, we have the pickup of sales time and sales morale and we end up, I think, with a lot more of a contemporary 2015 sales culture.

And, you know, for years we've been arming our sales force with fabulous digital tools. They really have, you know, their entire office in their briefcase all the time. I mean, they're able to get access to the information, the clients, anything they want, have been able to for years. So there really isn't anything that they needed that office for. So we're pretty much -- this is all a part of variabilizing the cost structure and making a leaner operation. So we're going to have a number of important operating centers around the country that have operational functions in them but we really won't have those sales offices anymore. So that's been the primary change.

And I guess productivity is expected to go up because they won't, you know -- they won't have that overhead cost, also, but I guess they'd be working from home and have more time to sell.

Yes that's right. There's more time and there's the -- the job joy, you just have a better job if you're not having to commute to an office to check in, let's be honest.

Okay. Last question. Just also on the print and distribution, you're going to eliminate about 26.3 million copies. How many do you -- just to get a magnitude of 26.3, what that means, that do you currently print and distribute?

The starting point is around 100 million, so just to give you kind of an impact, order of magnitude. Again, I just want to underscore here, it's not like we're going to high usage consumers and ripping the directory out of their hands and therefore we're going to have less usage. We have been able to, by looking at the call count data, looking at the research we've got and based on our prior experience in this business, we've been able to sharpen up our distribution maps and really focus on those homeowners that are the high usage segment. And we're taking some of that savings that we derive from publishing less quantity of directories and pouring that back in to publishing much higher quality directories, with giant print, big ads, buying information, packaged in a great way, delivered really well, so that, you know, the consumers have got something they prefer to use and choose to use. And we believe that we can have better print directory results going forward because of these changes.

Okay. Great. Thanks. And good luck.

Thanks. I think that's our last question.

Yes, it is. This does conclude today's teleconference. You may now disconnect your lines at this time and have a wonderful day.