Dex Media, Inc. (DXM)

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Dex Media (DXM)

Q3 2013 Earnings Call

November 05, 2013 10:00 am ET


Peter J. McDonald - Chief Executive Officer, President and Director

Samuel D. Jones - Chief Financial Officer, Executive Vice President and Treasurer


Gary Moorman

Chad Quinn

Colin Wilson-Murphy

Samuel Sekine

Tim Daggett



Good morning, and welcome to Dex Media's Third Quarter 2013 Conference Call. With me today are Peter McDonald, Chief Executive Officer; and Dee Jones, Chief Financial Officer.

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 statement.

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 passcode is 80391370. The replay will be available through November 19, 2013. In addition, a webcast and presentation slide will be available on Dex Media's website in the Investor Relations section at

[Operator Instructions] And now; I'd like to turn the call over to Peter McDonald. Peter?

Peter J. McDonald

Thank you, Lori, and good morning, everyone. Welcome to the Dex Media third quarter earnings call. In addition to reporting on current results, today, I will give a brief update on our merger integration and evolution as a business. I will provide more context around our position in the marketplace, how we do business and what sets us apart from the competition. I will also share highlights of some of the opportunity ahead of us, the comprehensive marketing solutions we offer, the difference we're making for small and medium-sized businesses across the country and the reason we believe in our positive future. After my remarks, Dee Jones will follow with more detail on third quarter financial results.

First, a few financials. Year-to-date, our pro forma operating revenue is $1.7 billion. Throughout the business, we continue to control costs, generating an adjusted EBITDA -- pro forma EBITDA of $674 million, which translates to a margin of 40%. We also generated adjusted pro forma free cash flow of $312 million through the third quarter.

Our current debt balance at par value is $3.1 billion. Since 2010, our combined companies have paid down more than $3 billion in debt, $356 million in 2013, of which $35 million was paid in October.

Many of our investors have asked for more visibility into our digital capabilities. So I'd like to provide a quick snapshot of our business. Dex Media helps small and medium-sized businesses grow by offering an array of multi-platform solutions for local advertisers, including online, mobile and social platforms, as well as print solutions.

Our 2,000 highly trained, Google-certified marketing consultants serve about 600,000 clients in 43 states. As consumers expand their use of smartphones and tablets through search for local services, an increasing number of our clients recognize the importance of digital marketing to the success of their businesses.

Currently, more than 200,000 of our clients use our digital solution. And about 1/4 our revenue is sourced from digital solutions. Our annual average value per order, or AVO, for digital clients is 2,400 to 2,500. The potential for continued improvements in results in this area remains strong.

The third quarter was the first full quarter we operated as a new unified company combining the former Dex One and the former SuperMedia. During the months of July, August, September, integration efforts were a key focus as we continued to -- continued the complex work of combining products, pricing, processes, systems and staffing across the enterprise.

I am proud of the significant progress we have made with these initiatives, particularly in the area of marketing, human resources and operations. To date, we have completed hundreds of integration actions, including the identification and placement of our management teams and the reorganization of our sales force.

Our sales, training and product rollouts are on schedule. We've made advances across all functional areas, taking the best practices from each organization and deploying them across the new company. This foundational work not only moves us closer to our integration synergy targets, but it also helps us define and build the path for the future. We're continually impressed by the strengths of this company and look forward to completing further integration activity efforts in 2014.

As we continue our integration and look ahead to 2014, here are some of the reasons we believe Dex Media is well positioned for future growth. Borrell Associates forecast local online advertising spending and will reach $24.5 billion in 2013. As the trends in digital advertising remain strong, we believe this bodes well for the future of Dex Media.

A recent survey conducted by Thrive Analytics provides valuable insight into the marketing needs of local businesses. More than 1,000 business owners responding to the survey admitted they do not have the knowledge, time or resources to manage their own digital marketing program, and they prefer to receive marketing help from one company or a trusted individual instead of multiple providers.

Local business owners also indicated 12 areas of marketing and promotion where they need the most help: functions like search engine optimization, social media and reputation management, all of which we offer at Dex Media. The opportunity is clear. We have the expertise and the products local businesses need. Despite misconceptions of who we are in the marketplace, our comprehensive suite of multi-platform marketing solutions make us that one-stop shop for our clients. We are an outsourced marketing department for local business owners, helping them navigate the complicated and confusing world of promoting their business across digital media.

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