SuperMedia (SPMD)

Q3 2011 Earnings Call

November 02, 2011 10:00 am ET

Executives

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

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

Analysts

Unknown Analyst -

Shagun Singh - BMO Capital Markets

Presentation

Operator

Good morning, and welcome to SuperMedia's Third Quarter 2011 Earnings 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 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 reports filed by SuperMedia 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 passcode is 19969176. The replay will be available through November 18, 2011. In addition, a live webcast will be available on SuperMedia's website in the Investor Relations section at www.supermedia.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 Peter McDonald. Peter?

Peter J. McDonald

Thank you, Jackie, and welcome, everyone to our third quarter earnings call. I appreciate your time and your interest in SuperMedia. This morning, I will give you a brief overview of the third quarter, and then Dee will review the financials. We will then be happy to take your questions.

As I look at the third quarter, there are 3 key headlines. First, we have continued to address the expense side of the business, and our margins for the third quarter were 39.3% versus 35.2% on an adjusted basis Q3 year-over-year. Next, ad sales continue to be in the mid-teen decline year-over-year. And finally, we are excited about our new approach to the marketplace and are encouraged by some of the early results we are seeing in our trials.

Now looking at expenses. I'm encouraged that across the business, in all departments, we are seeing our teams find efficiencies. In real estate, we consolidated locations and negotiated better deals. In marketing, we've improved our distribution and exited markets that were not meeting our standards for profitability. Our digital group has found ways to improve the cost for acquiring traffic, and our sales departments have found smarter ways to service our customers by restructuring to a closer, more geocoded approach. The list goes on as we continue to find opportunities to improve our cost structure by challenging everything we do.

Regarding ad sales, the top line, we continue to see declines in the mid-teen range. Part of this is related to economic issues facing small and medium-sized businesses. Another part is related to the proliferation of options in the marketplace and the confusion small businesses face as they try to reach and influence their customers. On average, a small business may be contacted over 30x a month from someone who has a new deal or a product to sell. I believe we were in a period where business owners are trying many of these options. Our Yellow Pages advertisers, who still represent our largest segment of business, continue to see value from their advertising. As we monitor each month with our local call tracking lines. Last, our new approach was tested over the summer in numerous pilots and multiple markets. We work hard to understand our customers, and how we can help them grow. We have learned a lot and are continually refining our approach to these markets. Our end-to-end service approach is being well received, and we just started rolling this out in October.

So at the end of Q3, we're pleased with our progress relative to expense control. We are focused on improving the top line, and we are excited about our new approach. Now let me turn over to our CFO, Dee Jones.

Samuel D. Jones

Thank you, Peter, and good morning, everyone. To begin the call, I would like to mention that our 2011 third quarter and year-to-date reported results are provided in GAAP and non-GAAP format. Due to fresh start accounting in 2010, GAAP results for that period did not provide comparability with the 2011 GAAP results. As a result, I will be speaking primarily to non-GAAP numbers. Reconciliations of the GAAP and non-GAAP results are included in the presentation appendix.

Before we get into the results, I want to note that the third quarter GAAP presentation reflects a noncash write-down of goodwill in the amount of $1.003 billion, it was determined that impairment of goodwill was required under GAAP, due in part to the market declines and the company's equity securities and bank debt.

Now on to the quarterly results. Third quarter revenues were $399 million, a decline of 18.4% compared to 2010. EBITDA was $157 million compared to $172 million in 2010. Our third quarter 2011 EBITDA margins were 39.3% compared to 35.2% for the same period in 2010. As disclosed in the third quarter of 2010, we had a favorable noncash state operating tax impact of $24 million, which reduced our expenses contributing to the $172 million of EBITDA in that period. Year-to-date revenues were $1.258 billion, a decline of 18% compared to year-to-date 2010. EBITDA was $463 million compared to $500 million. Our EBITDA margins were 36.8% compared to 32.6%, which is an improvement of 420 basis points. Year-to-date, 2010 results were favorably impacted by $40 million of state operating tax claim resolutions.

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