Dex One (DEXO)

Q1 2011 Earnings Call

May 02, 2011 8:30 am ET

Executives

Tyler Gronbach - Senior Vice President of Communications

Alfred Mockett - Chief Executive Officer, President and Director

Steven Blondy - Chief Financial Officer, Executive Vice President and Chairman of Disclosure Committee

Analysts

Todd Morgan -

Jason Alper - BTIG, LLC

Lance Vitanza - CRT Capital Group LLC

Shachar Minkove - JP Morgan Chase & Co

Jonathan Levine

Presentation

Operator

Good morning, and welcome to the Dex One Corporation's First Quarter 2011 Results Conference Call. [Operator Instructions] Please note that today's call is being recorded as well as webcast live over the company's website at www.dexone.com. I would now like to turn the call over to our host, Mr. Tyler Gronbach. Thank you. You may begin.

Tyler Gronbach

Good morning, and thank you for joining us today. We will begin this morning with comments from Dex One Chief Executive Officer, Alfred Mockett; and Chief Financial Officer, Steve Blondy. Following their comments, we will then have time for some of your questions. I would like to remind everyone, certain statements made today may be forward-looking as defined by the Private Securities Litigation Reform Act. We call your attention to our news release for the quarter ended March 31, 2011, and the company's Form 8-K furnished to the SEC this morning. These documents discuss first quarter 2011 results. And the 8-K also includes the results information package, which provides additional information pertaining to the quarter.

We encourage you to review these materials and the company's other periodic filings with the SEC, which set forth important risks and other factors that could cause actual results to differ materially from those contained in or suggested by any forward-looking statements. Electronic versions of Dex One's SEC filings can be obtained by contacting us, visiting dexone.com or visiting the SEC's website at SEC.gov.

Copies of the news release and results information package can also be found under the Investor Relations tab at our website. Commencing on February 1, 2010, the company adopted fresh start accounting as required under GAAP, which had a significant impact on the reported results of operations in that year. These reported results were not indicative of our underlying operating and financial performance and are not comparable to any prior or subsequent period presentation. In addition, GAAP figures for the first quarter of 2010 only include results from the 2 months ended March 31, 2010.

During the call today, we will refer to certain adjusted figures that are non-GAAP financial measures. In the current period, such items include: expenses, EBITDA, free cash flow and net debt. Some of these figures exclude stock-based compensation and long-term incentive program expenses, as well as fair value adjustment. Additional information about non-GAAP financial measures, as well as reconciliation between these items in the comparable GAAP measures can be found in the press release and related 8-K furnished to the SEC.

One final reminder, this call is the property of Dex One Corporation, and any retransmission or rebroadcast without the expressed consent of the company is strictly prohibited.

With that, now I'd like to turn the call over to Alfred.

Alfred Mockett

Thank you, Tyler. Good morning, everyone. On our Investor Day on February 24, we shared our new vision, strategy and business plan to unlock shareholder value. Throughout the meeting, we stressed that the foundation for transformation change lies in assembling the best management team in the industry. By tapping top internal talent and blending it with key outside appointments from the technology sector, we have assembled a team with a fresh perspective.

This month, we engaged a new head of sales and marketing, Rick Hanna. Rick has held senior leadership positions at several technology and telecommunications companies including AT&T, MCI, MFS-Intelenet and Teligent. As our sales leader, Rick will help drive our transition to a customer-centric organization and a team-based sales approach. And earlier this year, we had Atish Banerjea, our Chief Technology Officer, and David Sharman, our Chief Strategy Officer. They both bring extensive technology and change management experience to Dex One.

Today, I'll provide comments and context for our quarterly sales performance, as well as bridge the gap between the current top line results and our expectations for growth in the second half of 2012. Steve will review quarterly highlights and progress on our plan to achieve $140 million of cost reductions for the year. Following Steve's comments, we welcome your questions.

Market conditions remain challenging. Q1 bookings declined 16% versus 15% in Q1 of 2010. Ad sale declined less than 17% in the quarter compared to a 19% decline a year ago, a moderation of 2 points slightly better than expectations.

Current declines were driven by lower customer accounts as well as reductions in average spending levels, reflecting ongoing difficult local business conditions. The most recent study from the National Federation of Independent business cited declining small business optimism. We believe however, that improvements we have begun to see in the national economy will eventually lead to better local conditions.

Despite the challenging conditions, we are seeing some encouraging developments. For example, Tier 2, Tier 3 in rural markets, which collectively represent 60% of sales, continue to outperform major metro markets. Our largest local customers who spend $30,000 or more per year continue to realize the value we provide, and retention of this important segment is more than 90%.

19 print books grew this quarter, putting us on track to achieve our target of driving 100 print directories back to growth in 2011. During the quarter, we also made progress on our strategic initiatives, positioning us to return to growth in the second half of 2012.

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