Peter McDonald – President and CEO Dee Jones – CFO.

Mark Hetrick – Wells Fargo Advisors Bob Konefal – Phoenix Investment Seth Crystall – RW Pressprich Phillip Pennell – Mariner Investment.

Good morning, and welcome to Dex Media’s First Quarter 2014 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 33613106. The replay will be available through May 20, 2014. In addition, a webcast will be available on Dex Media’s website in the Investor Relations section at www.irdexmedia.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, CEO.

Peter?.

Thank you, Angie, and good morning everyone. I will start today’s call with comments about the quarter and then Dee will provide more details on the financials. Less than a week ago we marked the one year anniversary of the merger that created Dex Media.

We accomplished a great deal over the past 12 months and are realizing expense savings and now most of the integration actions behind us. I’m pleased with the way our team has tackled expense synergies, building a solid foundation for the future.

There is still some work to do on systems and product integration and we continue to advance in these efforts. We are now increasing our focus on improving our top line as evidenced by our steady progress in the first three months of 2014.

In the first quarter we saw improvement in overall ad sales of more than 290 basis points over the same quarter in 2013. We generated $194 million in Adjusted Pro forma EBITDA with a margin of 39.9%. Overall client retention remains at more than 80%, and that percentage is even better with our higher end clients. Bad debt is holding at around 2%.

These numbers are indicative of our client satisfaction with the value of our solutions we deliver. Free cash flow for the quarter was $97 million, and we paid down $74 million in debt. Dee will provide more color on these numbers in a few minutes.

The work we completed in the last half of 2013 to implement best practices laid a solid foundation for positive trends in both, print and digital during the first quarter of 2014. Digital ad sales growth of 8.5% was driven primarily by our bundled solutions.

As of the first quarter digital sales accounted for 27% of our amortized revenue as compared to 21% in the first quarter of 2013. In addition, 36% of our clients, approximately 200,000 have a digital relationship with Dex Media versus 33% in the same quarter last year.

When you consider that our digital client spend an average of $2,500 to $2,600 annually, you can see the potential for a continued improvement and digital sales remains strong. Our bundled solutions are resonating in the marketplace with target customer segments and contributed to our solid growth in the first quarter.

Flex bundles and our guaranteed ad program are driving growth in mid-size and larger client segments, and our smaller clients are seeing the value of a digital presence through our Start Smart Solution.

Overall, our clients see value and positive results when they choose a complimentary set of solutions versus relying on a standalone marketing solution.

We offer complete array of advertising solutions local businesses are looking for, from search, to optimization, to text, mobile, social, video, loyalty and reputation management, to traditional media such as print and direct mail. Our simple solutions offer valuable combinations of our broad product set in easy-to-buy packages.

By consolidating a variety of advertising approaches in one place and producing solid results, we are a one-stop shop for local businesses. We deliver solutions that help our clients get found, chosen, and talked about. So they are confident in their investment with us.

On the last call, I mentioned encouraging results with our Start Smart bundles, and the momentum continued into the first quarter.

This entry level product combines a number of solutions designed to help local businesses establish a presence online, such as listing claiming, a website, mobile website, social media, reputation management, and call tracking, as well as print; simple to present and value priced.

Start Smart really solves our client’s question of how to get their business found in the digital world. Let me give you an example. One experienced ophthalmologist has purchased print ads with us for several years. He has little knowledge of online advertising but knew we needed to be there.

Our marketing consultants showed the doctor what potential patients saw online when they search for ophthalmologist, a listing that included only his name, address and phone number. He walked in through the elements of the Start Smart Bundle and he immediately recognized the value it offered for a very affordable price.

He was also able to demonstrate how digital presence would enable him to track results he was getting for his marketing investment.

We were able to upgrade the eye doctors marketing program from a relatively blend for an ad with no attracting to an attractive new website, Google+ listing, and mobile website, where he can not only get found by potential patients but also easily track his results.

With a small investment to establish his digital presence, this client has received 57 calls and nearly 1,500 impressions in the first six months of his new program, at a cost per call of about $15. He is also getting exposure on search engines, and can now manage how his practice appears online.

With the Start Smart Bundle Solution this ophthalmologist has made a positive entry into digital advertising and established a solid platform for the future growth. We’re also pleased to report that our Flex Bundle digital solution is also doing well.

This offer gives our marketing consultants the flexibility to design customized solutions to fit a specific need and budget for each client. They get exactly the solutions they need for one bundled price. Many of these businesses are confused of how to market their digital world and want easy solutions to enable them to track the results.

Our simple approach to offering customized solutions is very attractive to local businesses and helps them see the value of their marketing investment. One example of how Flex Bundles can not only can make a difference for our client is an auto parts store that relied on only print ads to market their business.

Our marketing consultant was able to show how upgrading their program to include a website, Superpages.com listing, and search engine marketing could positively impact the number of calls they receive.

The auto parts store specialized in hard-to-find parts, and our team worked with the client to ensure keywords, highlighting this expertise was associated with the store’s listings. Now potential customers can easily find and choose a specialty auto parts store when they search online.

Our support to the auto parts client continues long after the sale. Our internal optimized teams proactively monitor and track auto parts store account by looking at how many days they are online, how many calls and other conversions they receive, and their average cost per call.

As you can see on this slide, our auto parts client achieved solid results in the first three months of their new bundled program with more than 9,900 impressions, 495 clicks, and 170 calls at an average of $2.18 per call.

We also support our clients by helping them monitor and track their own marketing program by providing easy-to-read written reports in terms they can understand, customized to individual solutions they selected, the report show clients how often they were getting found, chosen, and talked about online.

This level of transparency helps our client see for themselves the value they are getting for their investment. We make it simple and easy for our clients to select the right marketing solution and deliver trackable results.

Essentially local business want leads and with our digital solutions and patented technology, as well as our print products, we deliver the low cost, effective leads they are looking for.

Many businesses don’t have the time or desire to become experts in search engine optimization, social media, mobile marketing, reputation management, video, text messaging or stay abreast of every new development in this rapidly changing space.

It could be overwhelming for business owner to keep up with and manage all the different emerging media in order to promote their business.

With Dex Media as their local marketing department, our more than 550,000 clients are better equipped to navigate the complicated world of promoting their business across digital media that can choose from our comprehensive suite of multi-platform solutions with confidence, knowing that they have the right support in place to get found, get chosen, get talked about.

We have amazing employees at Dex Media who are passionate about winning in a space. Our teams will continue focusing on top line growth, while managing expenses, and delivering great experience for our clients and helping local businesses growth. We’re very proud of the momentum we achieved in the first quarter.

Our bundled digital solutions are resonating with our marketing consultants in getting results for our clients. We are confident in our ability to serve local businesses and very excited about the future. Thank you. And now let me turn it over to Dee..

Thank you, Peter, and good morning, everyone. Before I provide the first quarter financial results, I would remind you that some of the results I will be speaking to you this morning are non-GAAP numbers. We have provided a reconciliation of GAAP to non-GAAP results in the appendix of this presentation.

Now, turning to first quarter 2014 financial results. Total multi-platform ad sales for the first quarter declined 12.9% as compared to the same period last year. Print declined 19.7% and digital grew 8.5%. As Peter mentioned, we are pleased with the performance of our bundled solutions that helped local businesses get more leads.

Bundles such as Start Smart and Flex Bundles are providing results. Our client relationships are a key element to helping them understand the value in our bundle solutions. It’s about providing the right services for those particularly businesses needs, not just a do-it-yourself product.

With most of the merger transition efforts behind us, we will continue to focus on client engagement and solutions to improve client value and our top line revenue. For the first quarter, Dex Media reported pro forma combined revenue of $486 million, a 16.4% decline compared to the same period last year.

Adjusted pro forma expenses were $292 million and Adjusted pro forma EBITDA was $194 million, with a margin of 39.9%. These results do include a one-time credit-to-expense during the first quarter. The company reported a $10 million credit-to-expense associated with the settlement of a liability relative to one of our publishing agreement.

In addition, the company realized favorability associated with the true up of a certain operating tax liabilities. The company did incur $18 million of merger integration costs in the first quarter. With respect to margins, we continue to realize synergy and other cost initiative benefits.

As Peter mentioned, we have made good progress with respect to our integration efforts and have a good bit of that work behind us. The margins for the first quarter reflect some of the synergy benefits associated with these activities along with the benefit of other cost initiatives.

These savings will continue to float through the remainder of the year as the full annual effects are realized. While we believe there will be some overall margin contraction as the transformation of the business continues.

As we have stated and demonstrated in the past, we will continue to work to effectively manage cost through efforts such as product integration and simplification, rationalization of print costs, systems consolidation, and numerous other initiatives.

Specific to our digital products, we continue to make progress in regard to incremental margin contribution. Our individual and overall digital solutions are profitable today, and we look to realize the benefits of further scale as this base of business grows. Now, onto the debt payment activity for the first quarter.

Our total debt balance at par for all four silos was $2.653 billion. Payments made in Q1 were $74 million, coupled with an $8 million pick associated with the bonds resulting in an overall net debt reduction of $66 million. We have provided debt balances at par, and cash by silo located in the appendix of this presentation.

In the first quarter the company generated free cash flow of $97 million, representing cash from operations of $100 million, less capital expenditures $3 million. This includes merger-integration cash cost of $16 million. Cash on-hand as of March 31, 2014 was $179 million.

As I close the quarterly financial remarks, I would like to mention, we will be posting silos financial statements to the Investor Relations Section of our website within a week. In addition to the normal posting, supplemental schedules relative to Adjusted Pro forma EBITDA by silo will also be provided. Operator, we are now ready for questions..

(Operator Instructions) Your first question comes from the line of Sam Begot [ph] with Citigroup..

Hi guys, thanks for taking the question.

Can you give some below par [ph] for the debt back in November, what’s your appetite to view more of those over the next couple of quarters in 2014?.

Yes, I appreciate the question. As always, we’re interested in efficient deleveraging and we’ll be evaluating that in the coming months, we still got a few qualifying elements we’ve got to complete with respect to the filings with the agent.

But after that’s done we’ll have some measure of opportunity to step into the market and we’ll be looking at it seriously in the next month or two..

And any sense on what silo you would target in those purchases?.

I think with trading levels and where we’re at with respect to each of the silos we have an interest in looking at all of the silos..

Okay, thanks..

The next question comes from the line of Mark Hetrick with Wells Fargo Advisors..

Guys, great quarter. I love the growth trend for the digital and the fact that your print business is contracting less than expected.

My question is, last quarter you talked about hopefully working on a partnership for this year and just curious to see how that’s going?.

Mark, its Peter. There is a lot of activity in this area, we’re going to continue to look for strategic partners, there is nothing to report at this time but it’s on our radar, let’s just put it that way..

Your next question comes from the line of Jane Bensley [ph] with New Mark Capital..

Hi, thanks for taking my question.

With regards to the digital growth which is now much stronger than the past couple of quarters, is there a way to give us a sense of like – if that 8.5% growth was similar across all silos, or did some kind of show stronger growth trends running the digital side?.

Yes, there was a little variability across the respective silos but we did show growth in all of our regions and we had growth within each of the – meaningful growth within each of the respective silos, thus as you would expect some measure of variability but we were pleased with the trends in each of the silos..

Great, thanks, it’s helpful. And then just in terms – on the print side, again, is that – pretty much similar trend across the silos in terms of that sort of – around minus 20% or so, down..

Yes, I mean you get a little variability there as well, but I think it’s an order of magnitude during the same ballpark..

Okay, that’s helpful, thanks.

And then, just – maybe you can talk a little bit more about margins – obviously, your margins improved since the last – since the last percentages of increased – I’m just wondering is the margin on digital getting better as defined more significant part of your business, like how should we think about that going forward?.

Yes, I mean, as I mentioned, I think we are looking to – we’re benefiting from synergies and no synergy opportunity is in the integration, it’s in both the digital part of the business, as well as the print part of the business, so we’re experiencing some of that and some of those benefits are flowing through.

As we built scale in that digital business, we look to take advantage of potential for improved margins in that regard. Certainly as the mix of products even within digital on shifts, it moves and changes it as margin implications.

But I will say that we are profitable with respect to – incrementally profitable with respect to all of our digital solutions that we offer in the marketplace.

And we’re looking for continued improvement there, certainly pressure in the marketplace and those elements will play in regard to that, but we do believe there is opportunity to provide meaningful and strong margins in the digital space as we move forward..

Okay, great. And then, just in terms of like – on the digital like, a competitive landscape, a little bit more, do you find that as you guys do or feel it – are things getting easier or harder in terms of, sort of pricing power, things like that, if you could just talk a little bit more about that..

Jane, I think you asked a number of questions there but on the competitive front with the digital, I think the way I would see the business is, we continue to get better and better each day and as we’ve said in the last couple of quarters, we continue to improve our solutions to better fit the customers and the client’s needs.

So, on a competitive front, we’ve talked in the past about that guy as kind of the guy in the ground [ph] shop there as one of our key competitors, and I think our scale will be an asset and I think our services.

And I did mention on the call today, I think that one of the things that we do that I think is rather unique is how proactive we are internally at managing the accounts and making sure our clients are getting results. And I think this is one of the differentiators for us in the competitive market.

So I see us getting better and better as we continue to roll these out and improve in the training, the execution on all fronts of the business..

And Jane, with respect to pricing – the pricing part and the pricing aspect, I mean, we’re always evaluating what we can command in the marketplace with the solutions.

I think as the bundles continue to evolve, and the solutions get broader and become more effective and more valuable, even than they are today with respect to the advertisers, we’ll look to – look at that on a pricing opportunity and see where those opportunities lie.

And we’d also look into grow those clients programs across the digital space and so, average spend we would expect to move in trend in the right direction with respect to that. Having said that, there is always competitive dynamics that you have to take into consideration when you’re looking at your pricing opportunities in the market..

Great, thanks so much..

Your next question comes from the line of Jeff Klein with Phoenix Management [ph]..

Good morning, guys..

Good morning..

Can you just comment on the – towards the timing and magnitude of the synergies today NSA [ph] or meeting your original forecast at the time of the merger – at the time when merger was announced?.

Yes, I mean – you know, magnitude was – you can run the math against the reduction in expenses. We are pleased with what we’re at with respect to the synergies; obviously the identity of synergies versus cost reduction and other cost initiatives is lost in regard to that.

But relative to where we had anticipated being on the cost side of this business, I would say that we’re ahead. In that regard I think we’re ahead of schedule and pace as to the activities underlying those initiatives and activities.

And getting at the run rate necessary or that we had originally anticipated for this year, we feel good about whether it’s a good chunk of the activity and the implementation of the events that would give rise to the expense reductions or behind us in regard to the most functions; here is an – finances consolidated, we’re on a single system, etcetera etcetera, and we see that across good number of the functions, the annual effect of that will continue to flow through as we move through the year.

And having said that, as you would expect – systems is a little bit slower process and we have to be in a very mindful and methodical in consolidating systems so it should not create risk with the business, and we’re doing that and we’re making good progress, I’m not saying we’re behind schedule by any means with respect to systems but that’s one of the elements where we still have activities left.

And we still are looking at more complete product integration and simplification in that regards, there are two primary areas where we still got integration efforts left to go..

Okay. And then Dee, I just missed one of your earlier comments when you were reporting numbers but did you say there was a $10 million onetime cost benefit that was related to a publishing agreement, previous….

Yes, there was some cautionary elements within that and within our publishing agreements with respect to the partners, with even reasons that can, not looking to disclose the partner but just – today, we did have a favorable settlement with respect to some cautionary elements that had been included across to our balance sheet that $10 million float into the income statement in the period, so it’s sort of a one-off and there will be disclosure around that in the queue..

Okay, thank you..

The next question comes from the line of Matt Kaplin with CIFC [ph]..

Hi, just a follow-up on some of the synergy questions.

Is there any way we can estimate how much of the $150 million of estimated synergies have actually been realized in there for following through versus are yet to come?.

I mean, like I said, good bit of that activity is behind us, we do expect to continue to get a cost and see with this cost going forward.

We’re not providing guidance in respect to the original elements but from a color perspective I think our [indiscernible] our cost base will be less than what we had originally anticipated a while back with respect to this, I think some of that synergy is some of that’s normal cost initiatives, and other reductions that were after.

We are ahead of pace with respect to the timing of the synergies. If I remember right, I think we were – we held out $120 million or $150 million or so of synergies flowing into this year, and then in 2015, get into the full effect. I think that’s going to – will be ahead of pace with respect to the timing of that and you’ll see a lower expense base.

But it is as you would imagine, as you bring two businesses together and you’re reducing costs and getting out costs on a lot of different fronts, but synergies integration, as well as other initiatives to manage – effectively manage cost, you lose identity of what synergy versus what is normal cost saved..

Okay. And I want to understand a little bit better how you price and how you sell? So it’s as average value per order is around $25 to $26 [ph].

Is the average order for a year, for a certain shorter time period, how does that work?.

Yes, the average price per order is an annual number, the number that we quote as an annual number. We’re not only been working with the client, in a month we price but in most cases, most products we’re selling on an annual contract, and so we quote annual average value per order..

So when you work with the client, you found this new automobile client – automotive client, you typically will negotiate a contract for a few months?.

No, it’s normally an annual contract. I mean we do have some exceptions but the vast majority of our contracts are annual. And our pricing programs are established as if they are annual pricing programs..

Okay.

And then just lastly, how do your prices compete to our competitors?.

I think relative to – the overall value price equation for us; we think we’re effectively very competitively priced in the marketplace. Certainly there is different price approaches in the marketplace but we feel like we’re effectively priced..

Okay, thank you very much..

Your next question comes from the line of Sam Minopia [ph] with Independent Credit..

Hi, good morning, thanks for taking my questions.

To begin with, can you please tell us your average price of $2,400 to $2,500 per year for a digital client, does it include webpage development or this is just a combination of several fees, monthly fees?.

Most of our pricing programs are built out over a 12 month annual period; you know there is probably a few instances where we’ll have an upfront fee but for the most part we’re pricing based on monthly billings.

And some of our packages include website or developing a website, some of them don’t, depending upon what the client needs and what the bundle or the package is that we’re providing to him. But in most case, even if we’re developing them from scratch, with the website on monthly rates, it’s not build upfront or anything of that sort..

And your digital growth, does it derive mostly from new client developments or from preservation and developments of existing clients?.

Now when you look at the growth that we delivered in the quarter, I mean, I think there was a mix but the bulk of what we’re seeing right now with respect to the digital is getting our print clients and converting our base from a print product or print centric solution to a multi-platform solution, and migrating them to a digital solution as well.

Flex Bundles, as Peter mentioned, was a major contributor to the growth aspects of the business in the quarter, with Start Smart, our lowering bundle, we are seeing some benefits of that with respect to new clients and bringing new clients into the business with those digital solutions, and then we’ll look to improve that as we move forward as well.

So we’re encouraged by what we’re getting with respect to those types of bundles but the bulk of the growth in the quarter was driven by the Flex Bundles and the migration of clients from print centric to a multi-platform solution.

As you would expect, I mean, your base of client and your base of relationship is one of the biggest assets we’ve got, and we’re capitalizing on that with some meaningful solutions in the marketplace..

And how would you compare the average fees that you are getting from old clients, from those of new clients?.

Well, as you would expect, your average value per order for your existing clients and the ones that have been with you for a longer period of time are normally higher than your average value for a brand new client. I mean there is a migration path for most clients as you move through that.

So on an average value per order, the client that has been with you for five years is going to probably spending more than a client that’s been with you one year..

Okay. Alright, thank you very much..

Thank you..

(Operator Instructions) Your next question….

Angie, did we lose you?.

(Operator Instructions) Your next question comes from the line of Lenny Benson [ph] with Georgia Bank..

Hey guys, it’s John on with Lenny [ph].

Just a quick question about other one-time items, I know you mentioned the $10 million to clarify Jeff’s question earlier, were there any other one-time items away from that $10 million and then I know the merger and integration cost which you guys break out, anything else we should keep in mind?.

We had – I mentioned that in past I’ve been given order of magnitude around it because it was a smaller element but we did have some operating tax favorability but we’re always kind of looking at operating taxes and looking for some favorability in regard to that.

So – you know State seldom use tax type things, then we had a little favorability on the quarter with respect to that item but the order of magnitude was that it wasn’t – one near what the one item was that I sided.

But other than that you sided the integration cost aspect of things, but other than that – no, we didn’t characterize anything as a one-off type development within those pro forma results that we held out..

Okay. And then just on the synergy, while I guess it’s on synergies and more – just generally on expenses.

How are you guys managing the business? Are you – when you talk to – whether its regional managers or any sales people – thought of not doing at sales person level but are you driving them towards a synergy target and trying to capture synergies? Are you thinking about it at a higher level on a margin basis or are you thinking about it as a percentage of change in your year-over-year costs? I mean, how are you guys thinking about whether you are achieving kind of – or what are your goals on margins or synergies or costs? I mean, how do you drive the business and kind of get employees thinking that way?.

Well, first and foremost, with respect to the field and those folks, we’re driving top line and driving to get our top line, and we’re always looking for investment opportunities that are going to enhance top line, and ways we can deploy the resources more effectively or even deploy more resources if it’s going to deliver a return in the form of top line growth, that’s first and foremost.

But – secondly, with respect to the cost aspect of the business, we will focus on as effectively as we can, deploying that sales force or deploying an operations unit, and then getting at cost relative to revenue and trying to manage as closely as we can the various aspects of the expenses, for example, in print; as print declined, we need to find opportunities to capture the cost saves, with respect to that to mitigate those declines as much as we can.

As you would imagine with a declining base of business on the print front, we would expect some margin contraction there but we’re after as much expense opportunity as we can on the print front. On the digital side, and with respect to sales, we look at deploying that sales force in those markets where we can generate the biggest return.

We’re always looking at how we manage and go after that customer base, whether it’s with telephone or premise or some other means, and managing the resources in that respect.

So there is not one answer to your questions, it’s not like I’m – we’re not out there targeting a percentage or a percentage reduction or something of that sort, it’s about optimizing expenses, identifying what we believe to be the optimal mix of resources in the marketplace, and chasing that cost element and those cost dollars that we can identify.

But at the same time looking for investment opportunities to allow us to deploy resources and drive improved top line..

But, so – just because I mean, I know you mentioned a couple of different times around synergies and how they kind of blend together with synergies and then just general cost reductions.

So, there really is no target for you guys as it relates to cost reductions, you’re just trying to look at the cost thing, where to cut costs but you don’t have a target that you’re managing the overall business to?.

No, we have targets, we have targets and elements where we think the business should go. Now as opportunities present themselves, plus or minus against those targets, we’re absolutely going to get after them.

But with respect to the targeting, when we establish our integration plan, those estimates are sizing around both synergies but on top of that as we work through our respective budget process and outlook processes, we identify additional elements that fold into that.

And so – yes, we do have cost targets throughout the organization but having said that, we’re also looking at trying to manage the business day-to-day to identify the opportunities to further reduce cost to be more efficient or identify those opportunities where we can make an investment and grow the business..

Okay, understood, that’s helpful. I think the margins were definitely encouraging.

As we all think about the business going forward, I’m just trying to model it out I think, as we get further away from the restructuring and obviously the planned projections that you guys put out, it gets harder for you but I think it’s harder for us to determine what synergies and what’s just general cost cut, so – thinking about targets around that once we get further and further away from the synergies, it will be helpful for us to think about.

So, anything that could be helpful. Thanks..

Okay, understood. Thanks..

Your next question comes from the line of Bob Konefal with Phoenix Investment..

Thank you. And my question is probably for Dee, and it’s around bank debt covenants. And as the covenant step down, I guess, it’s a two part question.

One is, are you allowed to add back some of the adjustments that you make to – that rolls up to the $94 million of Adjusted EBITDA that you reported this quarter or is the covenant measured off of an adjusted number? And then the second part of my question is, if there was a covenant default, are you allowed to use this discretionary access cash flow to help cure it?.

With respect to your first question and the calculation of the EBITDA, we speak through a more traditional pro forma Adjusted EBITDA of – I think – within these numbers and $194 was that calculation.

There are tweaks and adjustments within each of the respective side of the debt to that explicit calculation, I don’t want to get in those technicalities here but those calc and those definitions are public out there with respect to the agreements but there are adjustments and add backs that work against that in regard to those covenants.

As to the technicalities around – what with respect to a particular covenant, you know there is various remedies, some of which might involve the discretionary cash we may not lose but to cure any kind of potential breach and there upon what circumstance might be if we found ourselves in that circumstance, we’d look to those remedies but there is not an explicit remedy that says, okay, if you breach then you go do XYZ, that would have to be [indiscernible] with the agents and the lenders with respect to that particular situation..

Okay. So the banks would be using a lower than 194 number or….

No, you’ve got to – first of all, you’ve got to look to the silos, specific results in making those calculations, and there are some pluses and some minuses relative to those calculations.

For example, the integration cost flow in, you’ve got – you got other elements that get added back, so there is pluses and minuses against that and you have to make the calc within – at a silo specific level..

Okay. Thank you..

Your next question comes from the line of Seth Crystall with RW Pressprich..

Good morning.

Just two quick questions, one, I guess during the call you said that you expected margins to contract and I just want to confirm that’s because print is declining faster than – you can pick out cost, is that all that it refers to?.

Well, I think there is – as the mix shift occurs in the transformation of the business, as you guys know and as we’ve articulated in the past, the margins associated with print are higher than the margins associated with digital, at least at present.

And as that migration and a greater mix of your business shifts in for the digital round, you’ll see a lesser margin associated with that product than what we’re experiencing today with respect to print.

At the same time, as the base of print contracts, you know the hold in absolute margins in regard to that is a more difficult proposition, so you will see some contraction associated with that. But the biggest shift is because of the mix of the – the change in the mix of business.

If you go back – if you go back to the margins that would held out a year or two ago, you saw that margin contracting forecast and in large part it’s about the transformation and shift of the base of revenues amongst those platforms..

Okay, great.

And just – in the fourth quarter you guys talked about your competition or lack of there [ph] in certain segments or who is the competitor, so given that articulated what your addressable market really is in terms of gauge, I mean there is always kind of wild numbers thrown out in terms of local advertising, but if you had really pin pointed what your addressable market might be?.

Well I mean, we’ve talked in terms of – whatever number you want to use from the marketplace, 11 million small and medium businesses, 5 million or 6 million of those being in our territories and territories where we operate. And the small and medium business base is where we tend to focus on and I think that number of businesses is what we focus on.

And depending upon your definition of the advertising space and what you’re after, you can get any number of sizing’s in that regard.

We believe within our existing base of customers there is opportunity, and we believe that in our marketplace there is meaningful and significant opportunity beyond our present customer base, and we’re looking to get after that, it’s a big opportunity, there is a big space here..

Okay, thank you..

Our final question comes from the line of Phillip Pennell with Mariner Investment..

Yes, I just wanted to go back to Seth’s question to a certain extent and ask in a different way.

If you would look at the bundled product, and what that entails for obviously, digital uptakes, especially in the richer if you will bundle, how much of a cost impact does that have, in other words, if you were integrating website management, mobile management, plus the online offering for search, is that expected to be a firmed out cost such that you’re contracting with third party providers for that to provide that service or you’re providing it on your own? And if we get bigger uptakes on a go forward basis, what does that mean in terms of the overall cost associated with providing that service?.

Yes, it depends on what’s in the bundle. Some of those services on the digital front that you made mention of – like the website development, we have – web.com and [indiscernible] we have good partner relationships with them and when we have a new website to develop, the bulk of that word goes to them.

As far as the initial set up and gathering of data and gathering of information from the client, that’s an internal element. If you got an SEO program or an SEM program, depending upon which market you want client, make sure that could very well be done by an internal resource. So there is a mixed bag with respect to that.

The bundle solutions sale, while it may cause some contraction in the margin, and that’s not always the case, it depends on what’s in the bundle, and it depends on what the existing pricing program is for the client with respect to their existing spend.

Some measure of that in the margin contraction is a simple shift between the two platforms and the costs associated with provisioning and value proposition underlying the digital space.

But having said that, the longer term value proposition for that client, the longer term value proposition and profitability for our enterprise because of the retention aspects and the growth opportunities with regard to those clients, total margin dollars, we have opportunity to ultimately grow with respect to that sale and that shift from a print centric client to a digital and print or a digital only bundle, we believe the long-term proposition with respect to that is strong, with respect to retention and the ability to grow those programs, and to the degree we’re able to grow digital inside that bundle relative to the print.

Even within that per sale, absolute dollar amounts of margins with that individual client could very well grow, and in a lot of cases do..

So effectively the hard at least what I’m hearing you say of the cost associated with installing a new bundled client is going to be borne by the existing infrastructure that you guys would have used for doing the same exact thing for print, is that fair?.

Yes, I mean to cut through the chase, I think incrementally as we had base, as we had clients, as we migrate from print centric to digital, there is a measure that will be absorbed within the base, and so we would expect that as we build size with scale that we’ll get some benefit relative to that.

That’s not across all cost element, but some measure of the cost elements within our structure and within our marketplace, and provisioning elements to fulfillment elements will get benefit from size and scale as we move forward..

And from the customers standpoint, they are simply facing the company, correct, I mean you’re getting as you pointed out, some of the – for example, web development from an outside third party but they are simply facing DXM, they don’t see anyone else?.

Yes, that’s basically correct, that’s essentially correct, they see it as our product suite and our set of product solutions that we’re bringing to marketplace.

They know that some of this activity and some of the value has been sourced via the Google Search activity or our network or search partners or other elements but as far as the customer facing event, they see it as Dex Media..

Right, but if they have a service issue they call their DXM provider?.

That’s correct..

Okay, thank you..

Okay. I believe that was the last question. So, thank you very much for your attention and your time this morning. Have a good week..

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