Thryv Holdings Inc (THRY) 2015 Q1 法說會逐字稿

Good morning, and welcome to Dex Media's First Quarter 2015 Conference Call. With me today are Joe Walsh, President and Chief Executive Officer; and Paul Rouse, EVP, 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 factors that could cause actual results to differ materially from those in the forward-looking statements. These factors are listed at the beginning of this presentation, as well as in the report filed by Dex Media with the Securities and Exchange Commission. The Company has no obligation to update any forward-looking statements.

A replay of this teleconference will be available at 800-585-8367. International callers can access the replay by calling 404-537-3406. The replay passcode is 32259145. The replay will be available through May 28, 2015. In addition, a webcast will be available on Dex Media's website in the Investor Relations section at www.irdexmedia.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. Please go ahead.

Thank you, Chris; and good morning, everyone. I'll start by sharing an overview of our strategy for 2015 and then, I'll provide some insight into our progress during the first quarter. Paul will then get into more detailed quarterly results and I'll wrap up with some closing remarks.

When I became CEO of Dex in October of last year, I mentioned my mandate from the Board to accelerate the Company's transformation from a print directory publisher into a full-service digital media company. That work began in the fourth quarter and we're continuing to work urgently across every functional department to reshape and redefine the business.

Earlier this week, we announced the departure of EVP and Chief Revenue Officer, Del Humenik, who resigned to pursue other opportunities. As a result, our sales leadership will report directly to me, giving me the opportunity to work closely with our sales leaders and to continue to transform and reinvigorate our business.

Our mission is simple; to help local businesses thrive. The marketplace is crowded with competitors in a commoditized industry. We see an opportunity to differentiate Dex from all others in the space by improving our legacy products, simplifying our digital products suite and offering innovative new products delivered with outstanding client service where clients trust us to guide them and manage their entire online presence.

We will increasingly focus on high-margin, low-churn, recurring revenue products. These products may have lower price points than digital products we've sold in the past. But we believe they will have larger addressable markets and attractive economics, thanks to lower churn rates.

As part of that stradegy, we will aggressively pursue new customer acquisition via all available channels, including digital downloads of our products, some available through freemium offers. We want to create a new business where we will sit side-by-side with our clients and help them not only attract and retain customers, but also stay in touch with those customers and reward their loyalty. Sales reps in this environment will nurture their book of business and they will see a long-term future with us because of our relationship with clients who will be recurring and stable rather than transactional and intermittent. Pilot testing of these new products began in April and I'll provide more details later in this morning's presentation.

Although the revenue we have projected for new products will not be material to 2015 results, we believe they will become an important part of our revenue mix for 2016 and beyond. In 2015, we are laying the foundation for a sustainable future with the following key themes in mind, simplifying and automating across the business, offering products we're proud of, winning and retaining clients, creating a culture of energy and purpose.

We realize we have room for improvements in our core systems, which represent processes and products from another time in our Company's history. Our project to update those systems kicked off in the first quarter with delivery targeted for the end of the year. The result of this massive effort will be a single set of systems leading to simplification and improvement across sales, marketing, fulfillment, client service client service and billing.

Our client service teams are preparing for this month's launch of our consolidated client care platform based on Salesforce.com. The new platform offers a 360-degree view of our clients across all markets within a single system. Later this year, we will launch a mobile app for Apple and Android devices that gives clients 24/7 access to review program results, update content, view and pay bills, adjust budgets and contact our client service reps. To facilitate the many system changes, we successfully consolidated our program management teams into a single enterprise change management organization.

Over the last 90 days, we began the work of transforming our client services functions from a product-centric approach to one centered on the client. The new model consolidates most digital operations functions in one location, minimizes the number of client touch points and streamlines our processes for on-boarding and outreach services. Organized into three service tiers defined by clients spend, our new platinum, gold and silver campaign management teams are important step toward improving the overall client experience.

Our new approach is more consultative, streamlines content collection, minimizes handoffs and will enable us to build meaningful relationships with our clients. Serving our highest spending clients, our platinum campaign managers are dedicated client support representatives who care for the clients' needs across all digital product solutions.

The campaign manager provides indispensable service and consultation to the client, maximizing their marketing investment with Dex. Similarly, our gold campaign managers are dedicated to our mid-tier clients and the semi-dedicated silver campaign management team serves our clients with lower-value digital bundles. Training on the new service models was completed in April and our pilot platinum team launched earlier this week. We are excited about this new approach to service and will continue to update you on our progress.

While we work to reshape our organization and streamline operations, we also began implementing revenue-enhancement activities during the first quarter. Some of our newly redesigned print directories began distribution in March, featuring attractive new covers with images of local landmarks, bigger, more readable type and standardized trim sizes. To prepare for these changes to our legacy products, we retrained all 1,500 marketing consultants on the value of print advertising, understanding its core user base and the role it plays in a multi-platform marketing program.

Using a combination of in-person and video-based modules, our MCs gained a new, fresh appreciation for the viability of print advertising in an increasingly digital world.

We simplified our rate card by reducing the number of print advertising choices to seven standard sizes with tiered pricing by market. Changes to our distribution continued into the first quarter as we consolidated titles as appropriate to the market. Although consumers increasingly search for local businesses online, we know a portion of the population relies on print and we believe these improvements to make our directories the best available in the market.

All sales regions now carry the new rate card along with prototypes of our new directories and our reps are using new sales lyrics based on print industry research. While it's too soon to gauge the impact on our sales results, we are encouraged by the pickup we're seeing in early market launches.

Looking across our digital portfolio, we took action to consolidate our vendor relationships, ensuring consistently high-quality across our footprint and the opportunity to deliver services not found elsewhere in the market. In late March, we announced an expanded partnership with Yext involving directory submissions and listings claiming. Our clients clearly benefit from the custom solutions Yext provides.

Reputation monitoring, which was developed for Dex in 2010, allows clients to easily track reviews from their listings in one place. Another product custom-built for Dex and launched in 2015, Competitor Watch, enables clients to see reviews, ranks and average star ratings for up to five of their competitors.

As we look at what's happening in the industry and listen to feedback from our clients, we know we have an opportunity to improve our digital offerings. During the quarter, we began the work to simplify, reload, and rebuild our digital product portfolio. We are examining every product with the intention of enhancing functionality and adding innovative new features that produce measurable results for our clients.

One visible enhancement is the recent design refresh of our Internet Yellow Pages IYP portal, DexKnows.com and SuperPages.com. This facelift marks the first phase in a series of enhancements, including a more comprehensive makeover currently underway. There is more work to do to improve the sites, but plan changes will deliver more relevant search results and deeper business content, including user-generated photos, reviews and videos.

Other product enhancement efforts help our clients capitalize on consumers' increasing use of mobile devices to search for local businesses and services. For example, we're developing a more aggressive digital display product that helps clients use location targeting to send alerts or offers to new or existing customers in close proximity to their business. We're revamping our website product to offer more adaptive capabilities that optimize viewing across multiple devices as well as social media.

Our new search engine marketing or SEM Plus product represents the best features of our two legacy products combined into one offering. Built on our own proprietary platform, SEM Plus is optimized to create the most efficient program that will deliver a clear return on the clients' investment. A new agreement with our search engine optimization provider will improve processes, pricing and results, as well as provide additive services such as widgets our clients can use to create custom coupons and special offers. We also plan to provide our clients with better and broader video distribution capability, thus giving them more ways to reach their customers.

Beyond our existing suite of digital products, we continue to monitor local marketing trends and make note of the tools on our clients' wish list. For example, many clients are increasingly looking for more effective ways to reach their customers online, build relationships and reward loyalty.

We've begun a pilot that meets those needs called DexLnk. It offers clients a platform for managing all customer data and communications in one place. The primary functions of the product are scheduling, appointment management and customer messaging along with customer database management. We look forward to updating you on our pilot tests on future calls.

Helping our clients better manage their online presence across all formats, desktop, mobile, tablet and social media, such as Facebook, is the main idea behind another new product we're developing, DexHub. It's an online presence builder featuring adaptive design where clients' businesses will become highly visible across the web and additional features such as CRM or e-commerce can be integrated easily and intuitively.

It's a place where clients will be able to view, monitor and manage their marketing across all platforms, backed by a client service agent who ensures clients stay current. As consumers increasingly use smartphones and tablets to search for and contact local businesses, we know our clients need trusted advice and guidance on mobile solutions.

In response to the recent announcement by Google about changes to the Company's search algorithm, rewarding mobile-friendly sites and punishing non-mobile-friendly ones called Mobile geddon by some industry pundits, we proactively contacted our clients to offer free analysis of their websites to determine their mobile friendliness and offered immediate solutions in the event these site needed upgrades for mobile platforms.

Small businesses prefer to work with one company that can offer a wide range of marketing solutions, and we want to be their preferred provider across all our product enhancement efforts, client needs will always be top of mind.

And now, I'll turn the call over to Paul, so he can provide more detail on our results for the first quarter.

Thank you, Joe; and good morning, everyone. Before I begin with the first quarter financial results, I will reference the 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 on the Company's Investor Relations websites under Quarterly Results.

As I mentioned on the last earnings call, the Company would be reviewing the financial and operational measures to make sure we're providing the type of metrics to investors that reflect the Company's performance. As a result, we have decided to provide Company quarterly guidance. We will continue to review and monitor various performance metrics and make updates as necessary.

For the second quarter 2015, the Company expects reported revenue to be in the range of $390 million to $410 million; adjusted EBITDA is expected to be in the range of $140 million to $150 million with a margin of 35.9% to 36.6%.

In addition, guidance for free cash flow is expected to be in the range of $70 million to $80 million. Now, the first quarter ad sales results.

Total ad sales declined 27.1% for the first quarter as compared to a decline of 12.7% for the same period last year. Print ad sales declined 26% as compared to a decline of 19.6% for the same period last year. There were several drivers that led to this decline. Over the course of 2014, it was a sales initiative to increase the level of digital sales mix from the existing print client base, coupled with the continuation of client losses that exacerbated the print decline. In addition, there was less focus on providing a print product conductive to print usage. For example, the font size was too small and the product was not user-friendly for people who wanted to use the print product.

As Joe mentioned earlier, we have been working on adding enhancements to the print product and are seeing some pick up in our early market launches.

Digital ad sales declined 29.6% as compared to an increase of 9.6% for the same period last year. We believe several factors contributed to these slower ad sales results, including a delayering of the sales management teams, resulting in a temporary dislocation as sales managers adjust to their new geographies and teams. In addition, right-sizing of the sales force resulted in a reassignment of accounts and impact of the timing of servicing of our clients. This 29.6% decline was driven by the following factors. Approximately 20 percentage points due to the timing of servicing, approximately 5 percentage points was driven by lower renewal rates on search products, approximately 3 percentage points was driven by the continued declined in national accounts and another 2 percentage points was driven by the change in product mix. Management believes the impact of these factors will lessen over time.

As we have defined this metric in the past, ad sales was intended as a leading indicator of reported revenue on a combined basis for print and digital. However, it is important to note that the linkage from ad sales to revenue is not direct as one might expect. Print ad sales represents what has been delivered and started to build within the reported quarter, which is more directly linked to reported revenue. Digital ad sales consist 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 billed in subsequent months, which are not as directly linked to reported revenue. 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 clients' business, billing cycle and marketing program. As we change our products, we will continue to evaluate how sales performance is reflected in the ad sales metric.

Joe talked earlier about digital enhancements that we are just started or starting to trial in certain markets. These innovative new products such as DexLnk and DexHub are some of the ways we are addressing the sales performance and they will offer something new and exciting to our existing clients and attract new clients. We believe that by offering products that go beyond selling just leads, we can build a foundation for positive results in the future.

Now, turning to our reported financials. The Company reported revenue of $406 million, a 16.5% decline compared to our pro forma results last year. Adjusted expenses were $263 million, a 9% decline compared to the same quarter last year. As a result, the first quarter adjusted EBITDA was $143 million, with a margin of 35.2%. Sales and cost of sales expense contributed to the total expense decline, primarily driven by headcount reductions coupled with lower variable cost associated with lower revenue. This expense decline would have been even greater, had it not been for $15 million of one-time credit items in the first quarter of 2014. Excluding these credits, adjusted EBITDA margin would have been 37.4%.

In addition, I want to point out for the fourth quarter adjusted EBITDA margin of 40% had one-time credits of approximately $60 million. Excluding these credits, adjusted EBITDA margins would have been 36.3%.

As part of the Company's organizational restructuring plan announced in December 2014, the Company will incur one-time costs to achieve identified as business transitions cost. As of March 31, 2015, inception to date, we have recorded a total of $52 million; $43 million of severance was the recorded in the fourth quarter of 2014; $3 million for system consolidations, $5 million associated with leases and $1 million of other expenses recorded in the first quarter of 2015. In addition to the Company's business transformation cost, the Company announced cost savings related to the organizational restructuring of $110 million for 2015.

As of March 31, 2015, we've realized approximately $20 million of the $110 million of cost savings, primarily related to headcount reductions. We have updated the run rate of annual savings target to the high end to be at $160 million from $150 million, primarily driven by increased reductions of print and distribution and other operational efficiencies.

Now, turning to the balance sheet and cash flow activities. As of March 31, 2015, our total bank debt balance at par was $2.57 billion. Retirements of principal made through the end of the first quarter was $38 million. When you net this with $10 million of PIK associated with the bonds, it results in overall debt reduction of $29 million. We have provided debt balances at par and cash by silo in the appendix of this presentation. For the first year 2015, the Company generated free cash flow of $43 million, representing cash from operations of $46 million, less capital expenditures of $3 million. This included payments of business transformation cost of $28 million. Cash on hand as of March 31, 2015, was $171 million.

I also want to comment on our approaching debt maturity in 2016. We realize that our net debt leverage is higher than some of our industry peers, in light of which the Company continues to evaluate its capital structure, considers various alternatives, while also considering its strategic options.

This concludes the prepared remarks for the financial results. I will like to turn the call back over to Joe.

Thanks, Paul. As we work to reshape the business in terms of operational efficiency, core systems, key processes, client service and product offerings, we haven't lost sight of the people who will make our vision a reality. We're working to create shared cultural understanding of what needs to be done to improve our business and why. We know that above all, culture will drive crucial changes in our business and differentiate Dex within the marketplace. To facilitate our vision of enhanced client services, we're investing in the development of our employees with new programs designed to raise the digital IQ of our workforce.

We also recently added dynamic new talent to revitalize our sales training. Our newly implemented pay for performance program ties achievement to long-term incentives with emphasis on creating value for shareholders. This week, the top 90 leaders of the Company gathered in Dallas for sessions that outlined our vision for the future and created alignment with our 2015 goals. Over the next couple of months, these leaders will take that vision forward to share with their own teams in a series of corporate meetings and sales rallies designed to energize employees and activate our strategy. The idea is to ensure every Dex employee can articulate our goals no matter where they work or what role they play in the Company.

We hope today's call provided some sense of the progress we are making across every functional department to transform the Company. Our first quarter activities lay the foundation for strategic changes that will differentiate Dex in the marketplace and expand our product portfolio, while significantly enhancing the client experience.

While our change efforts are ongoing, our ad sales performance in the first quarter was unsatisfactory. Sales performance is driven by many factors including legacy product offerings and outdated client service model, overly complicated sales processes. We are diligently working to change these issues and believe our changes will lead to more new client acquisitions, higher margin sales and reduced client turnover.

In closing, we know there are no easy fixes for transforming a 100-year-old business but with the talent, knowledge and dedication of employees throughout the organization, we remain confident we can create a thriving business with a solid client base, steady stream of revenue.

Thank you for your continued interest in our Company. We are now ready to take your questions.

(Operator Instructions). Your first question comes from Chris Mathewson with Ares Management.

Thanks. Can you give us some color on how your ad sales are pacing in the second quarter, both print and digital?

[You will take that, I probably will need to]. Yes, okay. As we mentioned in the prepared remarks, in December of last year, we announced a very big reorganization, really of the whole Company; and it affected about a quarter of the workforce across the entire business; closing offices, de-layering, doing all kinds of things; and we clearly disrupted things because lots of people got different assignments and had different geographies that they were recovering, different reporting relationships, but we're picking back up from that now and things are improving. I don't have any numerical guidance I can give you, but we're seeing momentum pick up. In fact, as I mentioned, there is a big group of leaders here this week we are all together with and people are really excited about the vision of where we're going with the business and excited to get back and talk to their people about it.

So I mean I hate to press on this, but I mean ad sales on the digital front were down 30% in the first quarter. So can you directionally say it's 20% the right way to think about that, 10%, like got to be something you can give us, given the performance in the first quarter?

Yes, I mean I think that's part of why we gave the guidance in the second quarter to kind of give you something more concrete to work with. The challenge with the ad sales metric is it's kind of a sales velocity. It's not as much directly linked to what your actual outcome is going to be. We haven't seen any tremendous change in how we believe revenue is going to track going forward. We just had a little bit of change in velocity, some timing differences in when we service some of the accounts.

So, then, why not provide kind of an annual guidance range to kind of provide people with, hey, here is where we think things can go, give some comfort around, the first quarter was horrible, but the rest of the year is what we think we can do?

Yes, I mean, we made a lot of progress in the first quarter, it was maybe one of the best quarters the Company has had in the long time, if you measure it across all factors. Looking narrowly at the speed with which they closed accounts, it was a little bit slower. We'll take your suggestion about considering giving guidance further out into the future. Today, we're giving it for this quarter, we thought that will be helpful. We're trying to look for ways to give you more visibility into the future. What we're really focused on is recognized GAAP reported revenue, I mean that's our main thing that we're really focused on. But we appreciate that you're looking for some kind of peek at what the forward trends are because recognized revenue is kind of backward looking.

Okay. Kind of looking at how much disruption there was in the first quarter, how would you rate the decision to get rid of so many layers as you said and salespeople in such a fast manner? Why not kind of have taken a little more gradual approach?

I would rate it a 10 on a scale of 1 to 10, it was long overdue. What had happened over the prior numbers of years as the -- remember, if you go back and you look at what this kind of combined company was, it was sort of double the size that it is now and it's been declining. And in the process of trying to adjust for that over time, the sales force was reduced in size, but the management hierarchy, the management's kind of superstructure that was in place was really the same or very similar structure that they had had for many, many years, when the Company was much larger with a much bigger customer base and many more salespeople.

So, what we have now is we have a flatter, nimbler organization where we can get at it and move and drive the business forward. It was long overdue, much needed, saved us tens of millions of dollars and we're now a focused, directed organization that we can really manage and work with. I appreciate the disappointment in that speed of sales metric that you're focused on. We are fixing this business, we're getting the costs out of it, we're getting it cleaned up, we're getting the service model repaired, so that our clients actually have a good experience. They will stay and pay and retain.

We have something to build on and we're focused on changing the mix of the products that we sell to recurring revenue streams that are sticky and stay with us and where we can make a decent margin on. So there's a lot going on to fix this business and while we certainly care about the speed of servicing, we're not concerned at all about servicing all the accounts that we need to service in this year or what the overall outcome will be for the year.

I guess, the last question given just changes that have been made in management structure and the weakness or I guess pressure that put on performance and a whole bunch of debt coming due next year, what's the plan? Like I know strategic alternatives and we're going to talk to people all this like -- there's got to be something more concrete because the numbers here were pretty soft.

Yes. Well, look, we work regularly with our Board thinking about our options and where we're going and what we're going to do in terms of addressing this. We've got a year-and-a-half and we just got here. And as you've accurately underlined, if some of the things that we're doing to make the business really move forward, you have to take a half-a-step back to really be able to benefit from in the future.

The Company had been selling Yellow Pages ads and search engine marketing and a couple of other digital products and really was not experiencing any growth, was continuing to go backwards. And we've come in and really tried to give the Company a path to new revenue streams, to new growth and to a more sustainable longer-term future. So that's going to take a little bit of time to materialize. And I think you're asking us, are we plunging into some process right away? I think from our standpoint, in the not too distant future, we think we'll be able to show some green shoots and some early evidence of the progress that we're making. And we're making a lot of progress. There's a lot being done kind of under the hood here and it's going to be a very good story in the fullness of time. So right this minute, it's our shining moment, obviously, but we're looking forward to some better days ahead with the changes that we're making.

Thanks for answering questions.

Chad Quinn, Bennett Management.

Good morning. Just to follow on Ares' question, asked a slightly different way, what are the ad sales assumptions that are driving the second quarter guidance? Do you have ad sales assumptions?

We aren't planning to give any ad sales guidance going forward. I mean that's again kind of a velocity run rate issue and I will tell you that given the fact that we were servicing a little slower in Q1, we obviously are speeding up, we're speeding up right now. But we aren't prepared to give a numerical guidance for the pace at which we're going to sell in the second quarter.

Okay. And just understand the timing, the 20 percentage points of timing in the digital ad sales number, due to some of the other sort of declines, does that give you pause that maybe some of the change you're making are not being well received by your customer base?

No, not at all. First of all, the new products, the new services that we're launching, are only heading into pilot right now; they're not reflected in any way of what happened in Q1. And in fact, the very early returns of those pilots are actually pretty positive and we'll be back to tell you more in future calls about how that's developing. So I don't think that's a vote on where we're going. I think it's a little bit of a vote on what we did do last year, quite frankly; there was a pretty big push last year to try to sell more digital and that resulted in a lot of those digital sales being search engine marketing and those search engine marketing campaigns were variable campaigns where the customers could pause them or raise or lower them as they went; and it didn't have anywhere near the stickiness or the predictability that our previous, obviously print products had or even our bundles that featured primarily fixed-type programs. These variable programs were much less reliable and so the revenue retention was less; and in many cases, the campaigns didn't even run for a year.

You guys that follow the space know that the churn rate for search engine marketing is pretty high. It ranges around the industry, 3%, 4%, 5% per month churning out; and as this Company put more emphasis on search engine marketing, it got more into that churn and that's figured prominently into what we saw. And as I didn't mince any words at all, we are not here to be a search engine marketing shop. I mean, we've got a much bigger idea, much better plan, and there'll be some SEM mix in what we sell, but we're moving the business more toward what we believe will be much higher retention, recurring revenue stream, kind of monthly subscription type products that will be indispensable service that will provide to our local customers and we're rapidly building those out and rolling those out. So, no, I don't think the first quarter reflected anything about where we're going with that.

Okay. And one last one from me, just with the cost associated with the savings, are those all cash costs in the period?

Yes.

Okay, thank you.

Jen Ganzi, Newmark Capital.

Hi, thanks so much for taking the questions. So just as I guess a quick follow-up on some of the other questions regarding the sales decline this year -- this quarter rather, your print ad sales being down 26% versus I guess they were more like the lower 20s. In previous quarters, is that also due to the sort of sales force restructuring as well?

No, look, [Shortly], when you look at the print sales, it related more to some of the -- the way the packaging and the programs were built last year. There was a discount or a bundle, a system of selling that discounted print or essentially moved some of the print revenue to digital, sort of migrated that over and that's kind of what we're seeing reflected in that Q1 number. And I think there is a mix also on top of there that the print product that we were publishing had very tiny type in it and was formatted in a way that really would seem to be as useful or attractive to our target audience. And so the work that we've done to reformat our products put really attractive, iconic, local photographs on them to reformat the books that are there a little bit bigger with less columns and much bigger typefaces and kind of open format. We really eliminated all the small ads; ads are medium sized, big and really big. So our target audience, which tends to be kind of 45 and older homeowners.

When they pick up that book, don't necessarily have to go find their reading glasses, they'll be able to pick this book out and use it; and we believe that the positive effects of those changes, you'll see flowing into the business later this year. So just to put a windup on it, no, I don't really think that the minus 26 in print ad sales was related to those changes.

Okay. So I guess, just in terms of the acceleration in print ad sales decline this quarter, that was -- I mean I'm just curious like why it accelerated this quarter versus prior quarters, in terms of the -- because it was pretty steady in like the low 20s in the past, whatever eight quarters or whatever you want to call it?

Yes. I don't have really any more of an answer. I think that those changes that we talked about were just a steady kind of building trend and we're doing things to turn that trend around now; and while we don't have any numerical guidance to give you today, we're seeing some pretty good reaction. People are carrying around prototypes of these new format and directories, customers are engaging, they're interested, they're excited, they're saying, it's about time. The piece of market that uses your book need the book that they can read, I'm pretty enthused about what you're doing. You know what, I'm going to keep my ad this year or I'm going to buy an ad that I hadn't had one before. So we're pretty optimistic about being able to ameliorate the decline rate in print as we move out. Not suggesting it's going to grow, just it doesn't have to decline by minus 26, it can decline at a slower rate than that, we believe.

Do you have any view on what that rate would be?

I'm not prepared to give you guidance on that. I just think that it can be better. There are just a sort of site and this is a lot different, but just a sort of site, something to give you a sense for it. There are independent publishers in the US, people that aren't affiliated with phone companies, that aren't a former incumbent publisher, that are just out there trying to publish directories and compete. In many cases, they don't have a lot in the way of digital choices or alternatives to package or bundle with, they're just out there selling their print products. And many of those publishers are writing gains or coming in flat. They're not really experiencing minus 26s and minus 22s and all that. There is not necessarily a reason we need to decline at the rate that we have and if we publish the best available directories, market them fairly, if we sell them the needs of the customer and don't steer the sales call too much one way or the other, but really work with our customers and try to give them the best possible product to deliver the leads that they need, we think that the print declines can be less than what you've seen in the past.

Okay, that's fair enough. And then, just in terms of -- I mean, I know -- I guess management had mentioned, client retention rate has been in sort of the mid 80s area. Is that what you're seeing or have you seen like sort of an acceleration from there? Just sort of looking at these numbers here, I'm just wondering, kind of how you guys are looking at thinking about retention rate.

Yes, the metrics that we use that we've got this great, big process to look at what retention is and it backs out this and it puts in that. We're examining that right now to see if that's really a good measure, but the measure as it's been presented in the past is exactly the same. It really hasn't removed. But, we believe that going forward, we won't have people running as fast away from print. By the way, that doesn't mean that we're [Luddites] and we're here to build the print business. I'm just saying that, that's a really valuable asset that we have and it needs to be cared for and its glide path needs to be as gentle as possible. And so, we're going to manage it as skillfully as we know how and some of you guys have followed us before in other businesses, and we are pretty good at wringing the absolute most out of that print product to fund the growth that we've got in this digital space and to help us go build a new business.

Okay. And then, just in terms of the renewal rate on search products being down, is that due to the sales force realignment, just the minus 5% that you have on page 12 of the presentation?

No, that's just the mix. That's moving from selling these fixed bundles that they had in the past, that had some more presence-oriented digital products that were linked to a print ad and really leaving that stuff behind and going to full-on search engine marketing on a variable budget basis, which proved to be not very productive for the Company or in many cases for its clients. So we saw a renewal rate tick down. And be very clear, while we can't instantly change the fact that they had sold that way, so there's some of that's still flowing through. In terms of our strategy, what we're doing going forward, we are really de-emphasizing, just selling variable-price SEM. We're really,really focused on monthly recurring revenue streams with products that we can retain and renew over time, and have decent margins.

Okay. So I guess that makes sense and so in terms of the sales forces go to market, I mean is it sort of like read with digital and see if the client is still interested in print or just sort of give them like the whole big [page] print in digital, what do you want, type of thing?

I'm not sure I'm ready to say exactly how we sell with a lot of our competitors that listen to these calls, but we really feel that we've got I think a pretty smart way to package these things together and explain them to customers. And fact of the matter is all advertising works to some degree. It's a question of a particular business, the type of business or in the category they are in, where they are at geographically as to what the best set of solutions for them are. And our media consultants are pretty skilled at using the data that we provide them to find the best way to present these customers and present them across what we call a multi-platform approach. And we're now adding campaign managers behind them, particularly for the bigger accounts, that will look after those customers and really explain to them how to optimally use the services that they're getting and make sure that they're up to date and fresh, that they're not just a dead website or dead pages. But we're updating and changing and working closely with them and providing them a much needed advice layer that's really not out there right now.

Okay. And then, just in terms of your margins, I mean it looks like they're -- you guys are implementing all these cost cuts, which is great, but I guess you're not really seeing it in the margins like when can we kind of start -- when do you think we'll start seeing some margin improvement?

Thank you for the compliment on the cost cuts. We worked very hard to try to streamline and rebuild this business and you've got a pretty rapid fall in revenues. So working to keep margins where they are is not that easy and our margins are good when you look at other industry comparisons. So as we improve the revenue curve, obviously that will be helpful for margins as we move forward in the future. If we can, I think we are going to move on to the next question.

[Steve Hoffman, PineBridge Investments].

Hi. This is Steve Hoffman from PineBridge Investments. I wanted to ask you what's your current capacity to buy back a term loan below par. It seems like you have a decent amount of cash on hand and if you could also indicate how much cash do you need to operate.

Paul, I'm going to give that one to you.

Okay. We're constantly evaluating opportunities in the marketplace and where there's opportunity to help the Company by below par payment and within our debt covenants, we will. And the cash needs fluctuate based on quarter and the needs of the Company. So there is money available for our below-par payments now and we will opportunistically a buyback.

Thanks for the question.

Okay. And just another follow-up question is if you look at the market right now, do you think that there are opportunities for consolidation of the directory space among companies?

Yes.

Okay, thank you.

Colin Wilson-Murphy, Bowery.

Yes, thanks for taking my question. Joe, with G&A up 61% year-over-year, $14 million and a 500 basis point decline in EBITDA for Q1 of 2015 and if you take the midpoint of your 2Q guidance, the 36% EBITDA margin guidance for the second quarter, how should we think about a normalized EBITDA margin for the rest of 2015 as you transition to a more digital company?

Well, it's a lot of question there; we've clearly got a declining revenue numbers. So what we are working very hard to do is variabilize as many of the cost in the business as we can. So they flow up and down with the revenue and we've made a lot of progress in that in a very short period of time. I think we mentioned that we're on a $150 million run rate takeout. So there is more work to be done and the systems changes that I mentioned in the prepared remarks have got us very focused right now. We are essentially taking the old kind of Dex One Company and the old SuperMedia Company's back office operating systems and integrating all that into one new, more nimble system and there will be additional cost to flow out as we complete that. And importantly, more flexibility and more capability to help us better sell and better market these services going forward. So, we're going do everything we can to hold the margin as we move along, we think -- I don't have any specific margin guidance, I guess this is where I'm going to.

Okay. Well, I guess, said another way, is a 35% EBITDA margin, is it sustainable, is that realistic?

Well, I mean, look, you probably follow other companies in the space that have margins that are lower than that, that have invested in various other digital initiatives, there's no question there'll be pressure because the print margins -- the print product provide so much margin as that continues to decline. Some of that cost carrying capability goes away. The print product itself we think we can really variabilize the cost structure on, but as it provides less of revenue cover for the business that we're now building there'll be margin pressure. So I would say to you that there will be margin pressure over time, but we will run this business as efficiently as we possibly can. And we've got a team in here that really knows their way around the costs and we're turning every little screw and tapping on every little nail we can trying to get thing thing as tight as we can.

Understood, I appreciate that. And then, lastly, Joe, is the 20% timing impact at digital sales in Q1, does that mean that we're going to see that, but it's in the bag for Q2, meaning that's -- the timing impact will be reversed and we'll see a benefit in Q2?

Ad sales are not that precise it's kind of like throwing hand grains around, it really is not a super precise thing. But yes, I think broadly speaking if we sold a little slower in the first quarter. If we're going to in the full year take care of all the accounts and do everything that we need to do, there will be a pickup. I think that's a reasonable assumption for you to make and we're not seeing anything that would indicate that's not true.

Okay. And my last question is given the market price of the bank debt, are you going to be in the market to do debt repurchases?

Like I answered mentioned earlier, we're going to view the opportunities out there and where it makes sense, we will. Next question.

Sean Lobo, Vulcan Research.

So I know we have you, I mean this explanation. So what's going on, it's very helpful. We definitely encourage you guys continue doing this. I mean you should sort of explain why this market six months ago, so as and when it's coming out and just telegraphing to market what you're doing on a granular level I think will benefit almost everyone on this call.

Thank you. It's an interesting question that how much of the strategy we really want to review because as I mentioned, competitors listen to these calls and we really wanted to get the pilot sorted out going in the market get a little experience before we came out really start to talk about it.

May be suggestion I mean we can all appreciate that some of the caller, bank debt investors, some people may be equity, but people on the bank debt side I mean, look, we're in Seattle, we're happy to host you. I mean we can invite whoever else you want (inaudible), but just have the meeting where you invitein the larger bank debt guys in and walk us through what you're thinking? I mean we're still in that call up your competitors?

Yes. That's true.

Thank you for that suggestion. That's something that we've talked a little bit about we really -- we frankly we wanted to get some progress under our belt before we (inaudible) say what we're going to do, I mean some of you guys know who we are, we've done this before so, we know kind of what we are doing. We're doing open-heart surgery. We got a lot of stuff sort of torn apart and it's going really, really well. And I know that you look at the ad sales and say, my god, they've wrecked the Company but we haven't, it's going really well. We're building something here that's going to be very successful in the long term and we're excited about.

Seth Crystall, RW Pressprich.

Gentlemen, thanks for taking my call. I'll be just curious of a few things. First of all, for the first quarter, it was disappointing as it was to investors in the market, did it meet kind of your internal plans or was this a disappointment for you too?

Mixed. We were obviously disappointed to see the digital ad sales number that you cited, but by every other measure, we're on or ahead of plan and we managed to find some additional savings and efficiencies that we hadn't found when we made that initial announcement in December. So that was really great. We've unearthed some amazing people, amazing leaders, executives' people that are stepping up, that want to be a part of this. We weren't sure that we're here and they've raised their hand and put their cape on and flown up and said, we're ready to help you make this happen. So we're pleased about that. And we've been very successful in terms of the kind of vendor alliances that we wanted to put together or maybe even a little ahead of what we thought we were going to be able to do. We're right on track in terms of the major initiative to merge these back office processes and they're big and hard, and we're right on track to get that done. So we're really pleased about that.

We managed to rebuild the sales presentation and kind of put an iPad sales presentation that gives the sales force a real track to run on, to tell their story to a customer and that's been embraced. So people are excited about that, so that's a really long list of things that are going well that we're pleased about. So I would say we're right on track in terms of the turn and going forward, I think you'll start to see some of that improvement as well. Those of you guys that have been investing in the space for a while know that that's kind of half the year look back in this business. And we've been here about a half a year. So, going forward, I think we'll really be able to be more proud of the kind of numerical stuff we're showing you.

Okay. And not that I like to use sports analogies, but it would seem to me on the products side, you're early in the early innings of getting things done, maybe the first or second inning; in the cost side, maybe fourth inning. I don't know if that's fair in terms of reviewing what you're doing, but it seems like there's a long way to go and you talk about building this for the long term, but obviously not as people pointed out to you the bank, but at the end of 2016. No, how well do you think within let's say the next 12 months you'll be able to really be able to go into a bank group, just say, hey, look here, really what we've obtained, what would be the reason, the things we should look for that. No, I mean you've given us underlying but like three or four bullets that would make me feel like, hey, you know this is a Company that is going to be here for the long term.

Well, the first is that we're tapping into a new high-growth segment and where we're going, you know that if you look right now at the businesses that we're in, the directories businesses, both IYP and the print directories businesses are in a long-term decline. That's been the major focus of the Company and we're sort of shifting away from that, although we are going, I think slow the rate of decline there. If you look at the other digital products that we're selling, it's dominated on the dollars and cents basis by search engine marketing and that's a tough business. It's a pretty mature business, it's one that's very commoditized, there's not a lot of money we've made and it to be honest with you and it's not going to lead us to the promised land. So we really need to do something else and we are focused really in this marketing automation, CRM space, really getting into the business operations of our local customers and it's interesting situation in the United States today.

You've got giant companies, national companies, regional companies, have got all the data, all the tools, they've got marketing departments, they've got agencies and they're very skillfully competing with the local mom and pops, our local advertisers, and they're just skimming business away from them in a really effective way and our local businesses need somebody to show them how to do that too, how to market on a mobile phone, how to use the data that's available, how to develop a direct dialog with their clients, with their customers. And that's what DexLnk is going to do.

And then, you've got this blizzard of confusing places that a small business needs to try to put their message out between social, between all the different kinds of mobile sites and desktop sites that they need to try to tell their story. They really need a DexHub, a central place to manage that and they need someone to do it with them, to show them how to do it because the real-time nature of marketing today is killing the local business and we are there to help them. We're building a set of services that are going to do that. So I think we're going to be able to explain that to you and show you some early metrics that are going to demonstrate that we actually are doing this effectively and that there is a high-growth business here.

So I guess the biggest thing is just tapping into a high-growth segment and really leading the development of that new category is what we're doing with this set of assets. And I think that you'll be -- I think we'll be able to show you that we've got a great plan to do that and then we're making good progress to do that. And yes, I think we need a little more time and we've kind of just got here and we spent the first few months just to take costs out and get things going. So, again, I feel great about where we are. It's early days. I can't show you finished products, but we're making good progress.

Okay. Great. Thanks a lot. Good luck

Thanks.

[Michael Tsu, Scotsman Capital].

This is Mike. Hey, first of all, thanks for finally providing guidance, I think it is a step in the positive direction, and I would say -- I would echo [some of the comments for the] full-year look or more granularity into your assumptions that are driving some of those would be helpful to further take that. As far as the cost, I think you said there's going to be one system by year-end, where are the cost associated with that implementation of that?

I don't know, Paul, if you have a number to hand or not.

Yes, I think we gave a guidance last time originally came out between 70 and 100 in our December 15 and I think we guided towards the high end of that, that we went for the high end of the range in cost savings. So we're continuing to monitor that. We're going to try to come in under that, but we will stay with the high range for now.

So I mean that whole cost to achieve is not around these systems. He is trying to get underneath of the actual systems chains, what's that costing to make that change? I don't have that number and I don't know if you do either. I mean a fair amount of this IT money, we were spending anyway, we're just spending it on 27-37 initiatives, rather than this, just one gigantic one to get this system merge and we just kind of took all those resources and focus them like a magnifying glass right on that point, and we're holding it there until we get the systems conversion finished, which will open up really a whole new list of opportunities for us once we get on one platform and one system.

Okay. And then, you also mentioned the mobile apps and kind of the website launches. I think you said those are in pilot or they already been launched and they've been launched. What is the customer view of that? Again in the past, this is something that I think the Dex knows and the super pages whatever the websites themselves were not highly successful because it just wasn't people go to Google or wherever they go into your partnering up in the past. So you got any initial read into how some of those playing through?

Yes, we have some sense and let me try to see like there are two distinct areas here that I'm going to talk about based on the way you asked that question. The first it was taken me a minute is the IYP, the Internet Yellow Pages DexKnows and SuperPages. You're right those have been sort of left to float out there like space junk. We really have not innovated improved or invested in doing anything with those and yet money's been spent by a department that looks after it. We're just kind of redirecting that little bit. We've given both of those sites a facelift, the DexKnows site, we rewrote the code underneath of it.

It was taken 4, 4.5 second for to respond or clear, we're now down to the flow queries are (inaudible) second. So we got the underlying search running well and moving quickly. We gave both sites a facelift. We're optically we have whole new facelift and made them look more contemporary made them better.

And now we've got a series of when they're not big investments we're kind of working with the budget that was already there. We've got a series of new search capabilities that we're going to bring to them and we're going to unify with the product and simplify with the product offering that we're selling, if you will, on those IYPs now. For those of you that are shaking their head and looking at each others saying, he thinks he's going out Google, Google, I'm not saying that. But there is a market that uses these IYPs.

There is now in market and they are not very good this IYPs today. So we think we can give a much better search experience to those customers. And those owned and operated leads that come through those IYPs convert very highly. These are very close to the point of transaction, there' are people who are about to buy and when they go to on IYP, they're not just to shop and they're about to buy. So we want to publish good IYPs that we're proud of that give consumers a good experience and we're just not willing to put anything out there (inaudible) that were not proud of.

So it's not going to become the next high growth area for us, but it doesn't need to decline anywhere near as fast as it has and this is a very high-margin, important revenue stream to us. So it's worth a little bit of love and care. That's the IYPs.

Now, second question, you kind of sort of asked that I mentioned in my prepared remarks is that mobile app and I want to be very clear, what I was describing. I was describing a portal a way for us to do business with our customers. So not necessarily a consumer-facing app, but an app for small businesses.

Client facing.

Yes, client facing. Thank you. So we do have that in pilot in two markets right now, and we're putting some kind of finishing touches on it, and see it rolling out a little bit later this year. And we hear all over the place people say mobile first. Our business is mobile first, is a good thing to say, we're mobile first.

The mobile is everything now. I mean if we go to deal with small businesses, they're running their businesses on smartphones and tablets to such a degree, it's amazing when you're out in the field. So we just want to give them a simple app button, they can touch, and when it pops up, their name is there and welcome, Magnolia plumbing whoever you are, and there is a little photograph of their media consultant, along with the blue highlighted contact button by and a little photograph of their client services who takes care of their accountants dedicated to them. And on that app, they can pay their bill, check on their account, they can look at a dashboard that shows how the campaigns that they're running performing.

They can really do almost anything they would want to do, they can do right there on that app, and that's going to be an important. It's not just for them, that's actually the place that we're going to work with them on to, when we contact them to review how their campaigns are going, we're going to go there with them and walk them through. So, that's a big part of the vision of where we're going and it will also support the other products and services that we plan to lay on that platform. So that's big, that happens little bit later this year. We've made a lot of progress on that one.

Okay. And then, also in the ad sales decline, you did mention client loss. But there is no kind of number around that. Where where your retention rates running at right now?

The broad all customers retention rates are flattish, but what we've been doing is drilling down looking at retention rate by individual products and really digging in, and what we're seeing is that our retention rate on search engine marketing are not anywhere near what we'd like them to be, not that great. And since the mix has shifted so dramatically last year, the more search engine marketing., we're seeing more of a client churn lost, because of that in that first quarter number.

And again, we're not going to continue in that direction. We're going to move in a different direction going forward. But there will be a little flywheel effect as we go forward, because so much momentum was around selling search engine marketing.

Okay. And then, just finally I think that goes with the other comments on the maturities coming up, obviously, I think, one caller suggested meeting probably would be helpful, because I think, all so where the 2016 will come sooner than than now?

We're keenly aware, where the new guys here remember, we just showed out (inaudible) that as a backdrop, then I think the idea of putting communication session together where we can tell you our story, when we're just a little bit further along, and when we have more details to show you is a good idea.

Got it. Thank you, guys.

We have run out of a lot of time for our questions today. I will now hand the program back over to Joe Walsh for any closing comments or remarks

Now, I just thank you everybody. We appreciate the support and we're here working hard and trying to fix this business. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.