Dex One Posts Second Quarter Performance

Dex One Corporation (NYSE: DEXO) today announced second quarter 2012 results highlighted by strong digital sales performance. The company re-affirmed guidance and narrowed the ranges for net revenue ($1,250-$1,300 million), Adjusted EBITDA ($525-$575 million) and Free Cash Flow ($310-$360 million).

Ad sales for the quarter were one point better than expected at minus 12 percent compared to the previously provided guidance. Although quarterly bookings declined 13 percent, digital bookings increased 53 percent. The company’s revenue decline slowed to 11 percent.

The company expects digital bookings growth rates will continue well in excess of 30 percent for the balance of the year. In the quarter, bundles represented 58 percent of total bookings and are on track to generate more than half of all bookings by year end.

“We remain focused on transforming Dex One into a leading marketing services company,” said Alfred Mockett, Dex One CEO. “Our performance in the quarter demonstrates our efforts are paying off.”

During the second quarter the company used $110 million of cash to retire approximately $181 million of outstanding debt, remaining on track to retire at least $525 million of debt by year end.

“The successful execution of our debt retirement and great support from lenders as part of the buyback was a critical component of our strategy,” said Dex One CFO Greg Freiberg. “We will continue to reduce costs, while making targeted investments to drive digital growth.”

SECOND QUARTER 2012 PERFORMANCE

(dollars in millions)
   

Metric
 

RESULTS
     
Year over year change in bookings    

Total
  (13%)
Digital   53%
Print   (24%)
     
Year over year change in advertising sales   (12%)
     
Net revenue   $334
Adjusted EBITDA (1)   $141
Adjusted EBITDA margin (1)   42%
Free cash flow (1)   $79
Adjusted net debt (1)   $2,033

Net income, cash flow from operations and total debt (including fair value discount) in the second quarter were $53 million, $86 million and $2,069 million, respectively.

2012 GUIDANCE

The company announced third quarter ad sales guidance and updated its existing full year financial guidance for net revenue, adjusted EBITDA and free cash flow.

(dollars in millions)

Metric

Current Guidance
 

Prior Guidanc e (2)

Third Quarter
     
Year over year change in net ad sales (13%) – (14%)   n/a
       

Full Year
     
Net revenue $1,250 to $1,300   $1,225 to $1,300
Adjusted EBITDA (1)

$525 to $575
  $500 to $575
Free cash flow (1) $310 to $360   $300 to $375

The outlook for 2012 operating income (midpoint) and cash flow from operations (midpoint) are $125 million and $365 million, respectively.

Important information regarding operating results and related reconciliations of non-GAAP financial measures to the most comparable GAAP measures can be found in the schedules and related footnotes to this press release, which should be thoroughly reviewed. All figures are preliminary and subject to change pending the filing of our Quarterly Report on Form 10-Q.

Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based products and services with respect to which such advertising first appeared publicly during the period.

The year over year change in ad sales is calculated by dividing the difference between ad sales in the current period and adjusted ad sales in the prior year divided by adjusted ad sales in the prior year. Adjustments have been made to prior year’s ad sales in an attempt to create a same store sales metric.

Bookings is another non-GAAP statistical measure that represents sales activity associated with our print directories and Internet-based marketing solutions during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period.

The year over year change in bookings is calculated by dividing the difference between bookings in the current period and bookings generated in the prior year divided by bookings generated in the prior year.

It is important to distinguish advertising sales and bookings from net revenue, which is recognized under the deferral and amortization method.

SECOND QUARTER INVESTOR CONFERENCE CALL

Dex One Corporation will be hosting a conference call to discuss its second quarter 2012 results today at 8:30 a.m. (ET). Individuals within the United States can access the call by dialing 888-324-3181 – others should dial 312-470-7372. The pass code for the call is “Dex One.” In order to ensure a prompt start time, please dial into the call by 8:20 a.m. (ET).

In addition, a live Web cast will be available at www.DexOne.com and an archived version will be accessible for up to one year. A replay of the conference call can also be accessed from within the United States by dialing 888-566-0433 and internationally by dialing 203-369-3044. There is no pass code for the telephonic replay, which will be available through Aug. 8.

Endnotes1) These are non-GAAP financial measures. Please see the discussion of non-GAAP financial measures in the schedules and related footnotes at the end of this press release.2) Full year guidance for net revenue, adjusted EBITDA and free cash flow originally provided on March 1, 2012.

ABOUT DEX ONE CORPORATION

Dex One Corporation (NYSE: DEXO) is a leading marketing solutions provider helping local businesses and their customers connect wherever and whenever they choose to search. Building on its heritage of delivering print-based solutions, the company provides integrated products and services to help its clients establish their digital presence and generate leads. Dex One’s locally based marketing experts offer a broad network of local marketing solutions including online, mobile and print search solutions, such as DexKnows.com. For more information, visit www.DexOne.com.

SAFE HARBOR PROVISION

Certain statements contained in this press release regarding Dex One Corporation’s future operating results, performance, business plans, prospects, guidance and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, the words “believe,” “expect,” “anticipate,” “intend,” “should,” “will,” “would,” “planned,” “estimated,” “potential,” “goal,” “outlook,” “may,” “predicts,” “could,” or the negative of such terms, or other comparable expressions, as they relate to Dex One Corporation or its management, have been used to identify such forward-looking statements. All forward-looking statements reflect only Dex One Corporation’s current beliefs and assumptions with respect to future business plans, prospects, decisions and results, and are based on information currently available to Dex One Corporation. Accordingly, the statements are subject to significant risks, uncertainties and contingencies, which could cause Dex One Corporation’s actual operating results, performance or business plans or prospects to differ materially from those expressed in, or implied by, these statements.

Factors that could cause actual results to differ materially from current expectations include risks and other factors described in Dex One Corporation’s publicly available reports filed with the SEC, which contain a discussion of various factors that may affect Dex One Corporation’s business or financial results. Such risks and other factors, which in some instances are beyond Dex One Corporation’s control, include: the continuing decline in the use of print directories; increased competition, particularly from existing and emerging digital technologies; ongoing weak economic conditions and continued decline in advertising sales; our ability to collect trade receivables from customers to whom we extend credit; our ability to generate sufficient cash to service our debt; our ability to comply with the financial covenants contained in our debt agreements and the potential impact to operations and liquidity as a result of restrictive covenants in such debt agreements; our ability to refinance or restructure our debt on reasonable terms and conditions as might be necessary from time to time; increasing interest rates; changes in the company’s and the company’s subsidiaries credit ratings; changes in accounting standards; regulatory changes and judicial rulings impacting our business; adverse results from litigation, governmental investigations or tax related proceedings or audits; the effect of labor strikes, lock-outs and negotiations; successful realization of the expected benefits of acquisitions, divestitures and joint ventures; our ability to maintain agreements with CenturyLink, AT&T and other major Internet search and local media companies; our reliance on third-party vendors for various services; and other events beyond our control that may result in unexpected adverse operating results. Dex One Corporation is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers. This press release is being furnished to the SEC through a Form 8-K. The company’s Quarterly Report on Form 10-Q for the period ended June 30, 2012 to be filed with the SEC may contain updates to the information included in this release.

(See attached schedules and related footnotes)

DEX ONE CORPORATION   Schedule 1

INDEX OF SCHEDULES
 
 
Schedule 1: Index of Schedules
 
Schedule 2: Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011
 
Schedule 3: Unaudited Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011

 
Schedule 4: Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011
 
Schedule 5: Reconciliation of Non-GAAP Measures
 
Schedule 6: Statistical Measures - Advertising Sales and Bookings
 
Schedule 7: Notes to Unaudited Condensed Consolidated Financial Statements
and Non-GAAP Measures
                   
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION    

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Schedule 2
 
Amounts in millions, except earnings (loss) per share
           
Three Months Ended Six Months Ended
June 30,   June 30,
  2012   2011   2012   2011
Net revenue (1) $ 334.5 $ 377.3 $ 678.9 $ 768.5
Expenses 194.8 222.1 390.8 439.2
Depreciation and amortization (2) 105.0 61.9 208.7 116.0
Impairment charges (3)   -     801.1       -     801.1  
Operating income (loss) 34.7 (707.8 ) 79.4 (587.8 )
Gain on Debt Repurchases, net (4) 70.8 - 139.6 -
Gain on sale of assets, net (5) - - - 13.4
Interest expense, net   (47.9 )   (58.0 )     (105.0 )   (115.8 )
Income (loss) before income taxes 57.6 (765.8 ) 114.0 (690.2 )
Tax (provision) benefit   (4.7 )   163.7       (3.5 )   143.5  
Net income (loss) $ 52.9   $ (602.1 )   $ 110.5   $ (546.7 )
 
Earnings (loss) per share (EPS):
Basic $ 1.05 $ (12.01 ) $ 2.19 $ (10.92 )
Diluted $ 1.05 $ (12.01 ) $ 2.19 $ (10.92 )
Shares used in computing EPS:
Basic 50.6 50.1 50.4 50.1
Diluted   50.6     50.1       50.4     50.1  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
       
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION   Schedule 3

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
Amounts in millions    
June 30, 2012 December 31, 2011
Assets
Cash and cash equivalents $ 82.9 $ 257.9
Accounts receivable, net 570.3 605.7
Deferred directory costs 120.1 130.8
Short term deferred income taxes, net 71.3 67.8
Other current assets   42.7   51.4  
Total current assets 887.3 1,113.6
 
Fixed assets and computer software, net 129.6 151.5
Intangible assets, net (2) 2,007.4 2,182.1
Other non-current assets   15.5   13.0  
Total Assets $ 3,039.8 $ 3,460.2  
 
Liabilities and Shareholders' Equity (Deficit)
Accounts payable and accrued liabilities $ 99.6 $ 126.2
Accrued interest 22.4 29.2
Deferred revenue 592.5 644.1
Current portion of long-term debt (6)   233.6   326.3  
Total current liabilities 948.1 1,125.8
 
Long-term debt (6) 1,835.2 2,184.1
Deferred income taxes, net 79.3 75.5
Other non-current liabilities   73.6   84.7  
Total liabilities 2,936.2 3,470.1
 
Shareholders’ equity (deficit)   103.6   (9.9 )
 
Total Liabilities and Shareholders' Equity (Deficit) $ 3,039.8 $ 3,460.2  
       
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
         
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION    

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Schedule 4
 
 
Amounts in millions          
Three Months Ended Six Months Ended
June 30, June 30,
    2012 2011 2012 2011
Net cash provided by operating activities $ 85.6 $ 103.1 $ 163.7 $ 212.6
 
Investment activities:
Additions to fixed assets and computer software (6.9 ) (9.9 ) (11.9 ) (14.8 )
Proceeds from sale of assets   -     -     -     15.4  
Net cash (used in) provided by investing activities (6.9 ) (9.9 ) (11.9 ) 0.6
 
Financing activities:
Long-term debt repurchases and repayments (109.8 ) (60.2 ) (323.5 ) (155.0 )
Debt issuance costs and other financing items, net (0.8 ) 0.2 (2.8 ) 0.4
Decrease in checks not yet presented for payment   (0.4 )   (0.2 )   (0.5 )   (16.9 )
Net cash used in financing activities (111.0 ) (60.2 ) (326.8 ) (171.5 )
 
Increase (decrease) in cash and cash equivalents (32.3 ) 33.0 (175.0 ) 41.7
Cash and cash equivalents, beginning of period   115.2     136.6     257.9     127.9  
Cash and cash equivalents, end of period $ 82.9   $ 169.6   $ 82.9   $ 169.6  
 
Non-cash financing activities:
Reduction of debt from Debt Repurchases (4) $ 71.7 $ - $ 144.3 $ -
           
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
         

 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.  
 

DEX ONE CORPORATION

RECONCILIATION OF NON-GAAP MEASURES
    Schedule 5a
 
(unaudited)
 
EBITDA and Adjusted EBITDA are not measurements of operating performance computed in accordance with GAAP and should not be considered as a substitute for net income (loss) prepared in conformity with GAAP. In addition, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Management believes that these non-GAAP financial measures are important indicators of our operations because they exclude items that may not be indicative of, or related to, our core operating results, and provide a better baseline for analyzing our underlying business. Adjusted EBITDA for the three and six months ended June 30, 2012 is determined by adjusting EBITDA for (i) gain on Debt Repurchases, net and (ii) stock-based compensation expense and long-term incentive program. Adjusted EBITDA for the three months ended June 30, 2011 is determined by adjusting EBITDA for (i) impairment charges and (ii) stock-based compensation expense and long-term incentive program. Adjusted EBITDA for the six months ended June 30, 2011 is determined by adjusting EBITDA for (i) impairment charges, (ii) gain on sale of assets, net and (iii) stock-based compensation expense and long-term incentive program.
 
Amounts in millions
                 
Three Months Ended Six Months Ended
June 30,   June 30,
Reconciliation of net income (loss) - GAAP to EBITDA and Adjusted EBITDA 2012   2011   2012   2011
 
Net income (loss) - GAAP $ 52.9 $ (602.1 ) $ 110.5 $ (546.7 )
Plus (less): tax provision (benefit) 4.7 (163.7 ) 3.5 (143.5 )
Plus: interest expense, net 47.9 58.0 105.0 115.8
Plus: depreciation and amortization   105.0     61.9     208.7     116.0  
EBITDA $ 210.5   $ (645.9 )   $ 427.7   $ (458.4 )
 

Plus: Impairment charges (3)

-
801.1

-
801.1
 
Less: Gain on Debt Repurchases, net (4) (70.8 ) - (139.6 ) -
 
Less: Gain on sale of assets, net (5) - - - (13.4 )
 
Plus: Stock-based compensation expense and long-term incentive program 1.5 1.9 2.9 3.2
             
Adjusted EBITDA $ 141.2   $ 157.1     $ 291.0   $ 332.5  
 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
     
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION  
RECONCILIATION OF NON-GAAP MEASURES (cont'd) Schedule 5b
(unaudited)
 
Free cash flow is not a measurement of operating performance computed in accordance with GAAP and should not be considered as a substitute for cash flow from operations prepared in conformity with GAAP. In addition, Free cash flow may not be comparable to a similarly titled measure of other companies. Management believes that this cash flow measure provides investors and stockholders with a relevant measure of liquidity and a useful basis for assessing the Company's ability to fund its activities and obligations.
 
Amounts in millions
           
Three Months Ended Six Months Ended
June 30, June 30,
Reconciliation of cash flow from operations - GAAP to free cash flow 2012 2011 2012 2011
 
Cash flow from operations - GAAP $ 85.6 $ 103.1 $ 163.7 $ 212.6
Less: Additions to fixed assets and computer software - GAAP   (6.9 )   (9.9 )   (11.9 )   (14.8 )
Free cash flow $ 78.7   $ 93.2   $ 151.8   $ 197.8  
 
       
Reconciliation of debt - GAAP to net debt and net debt - eliminating fair value discount (6) (7) June 30, 2012 December 31, 2011
Debt - GAAP $ 2,068.8 $ 2,510.4
Less: Cash and cash equivalents   (82.9 )   (257.9 )
Net debt 1,985.9 2,252.5
Fair value discount   47.4     63.2  
Net debt - eliminating fair value discount $ 2,033.3   $ 2,315.7  
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
   
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION

RECONCILIATION OF NON-GAAP MEASURES (cont'd)
Schedule 5c
(unaudited)
 
Amounts in millions
     
Full Year 2012
Reconciliation of adjusted EBITDA outlook to operating income - GAAP outlook   Outlook
 
Adjusted EBITDA outlook $ 550
Less: depreciation and amortization   (415 )
Adjusted operating income outlook 135
Less: Stock-based compensation expense and long-term incentive program   (10 )
Operating income - GAAP outlook   $ 125  
 
     
Full Year 2012
Reconciliation of adjusted free cash flow outlook to cash flow from operations outlook - GAAP Outlook
 
Adjusted free cash flow outlook $ 335
Plus: Additions to fixed assets and computer software   30  
Cash flow from operations outlook - GAAP   $ 365  
 

DEX ONE CORPORATION        
STATISTICAL MEASURES

CALCULATION OF ADVERTISING SALES AND BOOKINGS PERCENTAGE CHANGE OVER PRIOR YEAR PERIODS
Schedule 6
(unaudited)
 
 
Amounts in millions, except percentages                  
Six Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended
Advertising Sales (8) June 30, 2012   June 30, 2012   March 31, 2012   December 31, 2011   September 30, 2011
 
Advertising Sales $ 631 $ 334 $ 296 387 269
                 
Advertising sales percentage change over prior year periods   (14%)     (12%)     (16%)     (13%)     (14%)
                     
Six Months Ended   Three Months Ended   Three Months Ended   Three Months Ended   Three Months Ended
Bookings (8) June 30, 2012   June 30, 2012   March 31, 2012   December 31, 2011   September 30, 2011
 
Bookings:
 
Print bookings $ 443 $ 206 $ 237 $ 253 $ 257
 
Digital bookings   137     69     67     60     57
 
Total Bookings

$
580 $ 275 $ 304 $ 313 $ 314
 
Bookings percentage change over prior year periods:
 
Print bookings percentage change (22%) (24%) (21%) (18%) (22%)
 
Digital bookings percentage change   42%     53%     32%     34%     29%
 
Total bookings percentage change over prior year periods   (13%)     (13%)     (13%)     (11%)     (16%)
 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements and Non-GAAP Measures - Schedule 7.
 
Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.
 

DEX ONE CORPORATION Schedule 7

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NON-GAAP MEASURES
 

(1) 
Our advertising revenues are earned primarily from the sale of advertising in yellow pages directories we publish. Advertising revenues also include revenues from our Internet-based marketing solutions including online directories, such as DexKnows.com and DexNet. Advertising revenues are affected by several factors, including changes in the quantity and size of advertisements, acquisition of new clients, renewal rates of existing clients, premium advertisements sold, changes in advertisement pricing, the introduction of new marketing solutions, an increase in competition and more fragmentation in the local business search market and general economic factors. Revenues with respect to print advertising and Internet-based marketing solutions that are sold with print advertising are recognized under the deferral and amortization method whereby revenues are initially deferred when a directory is published, net of sales claims and allowances, and recognized ratably over the directory’s life, which is typically 12 months. Revenues with respect to Internet-based marketing solutions that are sold standalone, such as DexNet, are recognized ratably over the life of the contract commencing when they are first delivered or fulfilled. Revenues with respect to our marketing solutions that are performance-based are recognized as the service is delivered or fulfilled.
 

(2) 
The Company evaluated the remaining useful lives of definite-lived intangible assets and other long-lived assets during the first quarter of 2012. Based on our evaluation, we reduced the estimated useful lives of our directory services agreements, local and national customer relationships and tradenames and trademarks to a combined weighted average useful life of 9 years. As a result of reducing the estimated useful lives of these intangible assets, the Company expects an increase in amortization expense of $161.6 million and total amortization expense of $349.4 million for 2012.
 

(3) 
The Company concluded there were indicators of impairment as of May 31, 2011. As a result, we performed impairment tests of our goodwill, definite-lived intangible assets and other long-lived assets as of May 31, 2011. The impairment testing results for recoverability of our definite-lived intangible assets and other long-lived assets indicated they were recoverable and thus no impairment test was required as of May 31, 2011. Based upon the testing results of our goodwill, we determined that the remaining goodwill assigned to each of our reporting units was fully impaired and thus recognized an aggregate goodwill impairment charge of $801.1 million during the second quarter of 2011, which was recorded at each of our reporting units.
 

(4) 
On April 19, 2012, the Company utilized cash on hand of $26.5 million to repurchase $98.2 million aggregate principal amount of Dex One senior subordinated notes. On March 23, 2012, the Company utilized cash on hand of $69.5 million to repurchase loans under our credit facilities of $142.1 million. These debt transactions are hereby referred to as the "Debt Repurchases." The Debt Repurchases have been accounted for as an extinguishment of debt resulting in a non-cash, pre-tax gain of $70.8 million and $139.6 million during the three and six months ended June 30, 2012.
 

(5) 
On February 14, 2011, we completed the sale of substantially all net assets of Business.com. As a result, we recognized a gain on sale of these assets of $13.4 million during the first quarter of 2011.
 

(6) 
In conjunction with our adoption of fresh start accounting, an adjustment was established to record our outstanding debt at fair value on the Fresh Start Reporting Date. The Company was required to record our credit facilities at a discount as a result of their fair value on the Fresh Start Reporting Date. Therefore, the carrying amount of these debt obligations is lower than the principal amount due at maturity. This fair value adjustment is amortized as an increase to interest expense over the remaining term of the respective debt agreements and does not impact future scheduled interest or principal payments. The unamortized fair value adjustment resulting from fresh start accounting was $47.4 million at June 30, 2012.
 

(7) 
Net debt represents total debt less cash and cash equivalents on the respective date. Net debt – eliminating fair value discount eliminates the fair value discount as a result of fresh start accounting described in Note 6 and represents principal amounts due at maturity.
 

(8) 
Advertising sales is a non-GAAP statistical measure and consists of sales of advertising in print directories distributed during the period and Internet-based marketing solutions with respect to which such advertising first appeared publicly during the period. In order to calculate a percentage change over prior periods, adjustments have been made to the prior year’s advertising sales in an attempt to create a same store sales metric.
Bookings is also a non-GAAP statistical measure and represents sales activity associated with our print directories and Internet-based marketing solutions during the period. Bookings associated with our local customers represent signed contracts during the period. Bookings associated with our national customers represent what has been published or fulfilled during the period. It is important to distinguish advertising sales and bookings from net revenue, which is recognized under the deferral and amortization method.
     

Note: These schedules are preliminary and subject to change pending the Company's filing of its Form 10-Q.

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