Q2 2010 Earnings Call
July 27, 2010; 10:00 pm ET
Scott W. Klein - Chief Executive Officer, Director
Samuel D. Jones - Chief Financial Officer, Executive Vice President, Treasurer
Ian Zaffino - Oppenheimer & Co.
Joe Staff - SIG
Jonathan Levine - Jefferies & Co.
Aaron Weitman - Appaloosa Management
Richard Jones - Goldman Sachs
Zachary Altschuler - Davidson and Kempner
Todd Morgan - Oppenheimer
Adam Spielman - PPM America
Simon Whittington - UBS
Andrew Finkelstein - Barclay’s Capital
Jake Newman - CreditSights
Good morning and welcome to SuperMedia’s second quarter 2010 earnings conference call. With me today are Scott Klein, Chief Executive Officer, and D. 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 the 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 the report filed by SuperMedia with the Securities and Exchange Commission.
The company has no obligation to update any forward-looking statements. The replay of the teleconference, we’ll be available at 800-642-1687. International callers can access the replay by calling 706-645-9291. The replay pass-code is 82225485. The replay will be available through August 10, 2010. In addition, a live webcast will be available on SuperMedia’s website in the Investor Relations section at
. At the end of the company’s prepared remarks, there will be a question-and-answer session.
Now I’d like to turn the call over to Scott Klein, SuperMedia’s CEO. Scott.
Thank you, Melissa. Good morning everyone and thank you for joining us. As Melissa mentioned, I’ll provide an overview of where we are to date, then D will follow with a more detailed financial review. When D. is done, I’ll have a few additional comments before we will take your questions.
Today, we are almost a full seven months removed from exiting Chapter 11 and emerging as SuperMedia. Since, fresh start accounting is confusing to many, I want to make two points clear so there is no doubt as to what we want to convey to you today.
Viewed in the context of the overall uncertain economic climate, we continue to be encouraged by what we are seeing in the business as reflected in second quarter results. This view is based on key indicators we are seeing resulting from the plans we have already implemented, which I will detail further on in this call that are designed to drive revenue, reduce expenses, improve margins and continue to foster a high-performance culture.
The second point is that despite what some may say we are convinced that the fundamentals of our business model remain sound. Small to medium sized businesses need advertising agency like services delivered via the internet, direct mail and of course, the print yellow pages to help them get consumers to click on their websites, make their phones ring and to get them to knock on their doors. We remain committed to improving our ability to deliver on our click-ring-knock promise to our clients.
We continue to be both laser focused on introducing new revenue generating opportunities and on meaningful expense reduction. That said because of the nature and timing of our sales cycle, in other words the way we sell, publish and amortize revenue, there is a lag time between the implementation of changes and the impact of those changes on our financial results.
When we first spoke at SuperMedia, we said that while the financial challenges of our industry were significant, our company focus on expense control enabled us to partially mitigate the effects of market declines, while at the same time allowing us to invest in and implement critical strategic initiatives that will afford us the opportunity to drive long-term success.
During our first quarter call, we said Q1 results were consistent with the view of the business discussed earlier in the year. We explained that while our Q1 reported ad sales reflect selling activity that was primarily from the third and fourth quarters of last year, we were encouraged by the early indicators we were seeing this year. We can now share with you these early indicators.
For the second quarter, multi-product ad sales results reflect a 370 basis point improvement from the first quarter’s decline of 20.6% to a decline of 16.9% period over period. The 370 basis point improvement is the first sizeable, sequential quarter improvement since our spin off from Verizon in 2006. We are pleased to report that we are also seeing less of a decline in our client base year-to-date compared to the latter half of 2009.
Again, this quarter, our view remains consistent with what we stated on our last call. We continue to be encouraged by the trends we are seeing in the business with respect to current sales activity, balanced by the knowledge that we still have much progress to make before we can fully claim success.
From a cash perspective, as we did in the first quarter, we made the mandatory cash sweep debt repayment along with the interest payment of $74 million. The debt repayments or the debt payment associated with the second quarter cash flow was $122 million. On a year-to-date basis, we have reduced debt by $177 million. Since the emergence level of $2,750,000,000 to the current amount of $2,573,000,000 that is nearly a 6.5% reduction in total debt in just six months.
Our continued focus on managing cost is reflected in cost reduction of $156 million year-to-date over the prior period. While there was still progress to be made, we also continue to see improvement in bad debt expense as evidenced in the bad debt provision. The bad debt rate for 2010 year-to-date was 7.3% in the second quarter. This is an improvement of 160 basis points compared to the 9.1%, 2009 year-to-date rate.