Good morning, and welcome to Dex Media's Fourth Quarter and Full Year 2016 Conference Call. With me today are Joe Walsh, President and Chief Executive Officer; and Paul Rouse, Chief Financial Officer and Treasurer..

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. Actual results may vary materially from these forward-looking statements.

The company advises you not to place undue reliance on these forward-looking statements and to consider them in light of the factors that could cause actual results to differ materially from those in the forward-looking statements. These factors can be found in our press release dated February 15, 2017.

The company has no obligation to update any forward-looking statements..

I would now like to turn the call over to Joe Walsh. .

Thank you, Lori. So today, we'd like to review our solid results from Q4 and for 2016. I'd like to give a few highlighting statements, and then Paul is going to take us through the detailed numbers..

I'll start with the directories area, both online and print directories. These are the key assets that you're investing in. And we're very proud of our industry best performance in managing these directories, both in variabilizing the cost structure of those as our decline continues, but most importantly, really meaningfully slowing the decline.

And the changes that we've made in directories have improved directory usage. We're looking at better call counts for our customers. And we feel that, that aspect of our business is stable and really well run. And that's a key asset that you're investing in..

The digital, other, if you will, search engine marketing, SEOs, some targeted display, the other digital areas, we missed the top line revenue in that area. But importantly, we meaningfully changed the mix of what we're selling and how we're selling it there.

So that it was a much more profitable mix, and that's part of what enabled our good bottom line performance..

It's early days still in our local business automation strategy, but we're really encouraged by the results. Our DexHub sales have been strong. Client retention has been strong. And we're very encouraged, early days, with what we're seeing with our DexHub business..

So as Paul will share, we delivered $373 million of EBITDA on our $360 million objective, with 31% margins. So we're proud of that and feel good about what we were able to deliver there. And importantly, we're rapidly delevering.

So if you look at where we were at the time we emerged, you roll forward to today, we're making really good progress in managing cash and delevering this whole process. So 2017 is off to a strong start. Our team is focused on delivering the $321 million in our long-range plan, albeit at a little lower digital revenue.

But as I mentioned before, with a much more profitable mix. .

So I'd like to turn it over to Paul now and let him take you through some of the detailed numbers.

Paul?.

Thank you, Joe, and good morning, everyone. As Joe briefly described, we will now discuss in more detail our fourth quarter and full year financial results we released on our website in February 16. I am happy to report that our EBITDA results for the fourth quarter and full year came in ahead of our plan.

Non-GAAP adjusted pro forma EBITDA was $100.5 million for the fourth quarter and $373 million for the full year. Due to our effective cost management and changes to our product mix, our EBITDA margins have shown continual improvement for each quarter of 2016, from 28.1% in the first quarter to 35.3% in the fourth quarter. .

I would like to point out that most of the financial measures presented and discussed are non-GAAP adjusted pro forma results. We believe that these non-GAAP metrics provide a more useful and meaningful information to management and investors relative to the underlying financial performance of the company.

In addition, these non-GAAP financial measures are used internally by management for budgeting, forecasting and compensation..

Slides 4, 5 and 6 provide reconciliations of GAAP results to non-GAAP pro forma results for EBITDA and free cash flow.

The adjustments made to GAAP results removed the impact of noncash reorganization and fresh start accounting entries required upon emergence from bankruptcy, the nonrecurring costs associated with capital restructuring and business transformation costs, and noncash accounting entries associated with pension, stock warrants and long-term stock-based compensation.

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As previously disclosed, late in 2015, we detected an income tax accounting error related to our 2010 tax year for Dex One, which was prior to the merger and creation of Dex Media in 2013. To correct the error, we had to recreate all tax calculations from 2010 through 2015.

And as a result, we delayed the issuance of our 2015 annual report pending the correction of this error. We expect to be able to correct the prior period tax error and issue our 2015 annual report concurrent with our 2016 annual report during the second quarter of 2017..

It is important to note that the correction of prior period income tax accounting error will not have an impact on non-GAAP adjusted pro forma EBITDA for the periods presented.

However, the correction of the prior period tax -- prior period income tax accounting error will have an immaterial impact on the reorganization items recorded upon emergence from bankruptcy.

Since reorganization items are excluded from non-GAAP adjusted pro forma EBITDA, any change to reorganization items will not impact non-GAAP adjusted pro forma EBITDA..

Moving to Page 3 of our flash. Client counts. Client counts declined 14.6% during 2016 compared to the year-end 2015. The print decline of 15% was the main driver, in line with expectations given the print industry trends..

Now on to fourth quarter net revenue. We reported pro forma net revenue of $284.5 million for the fourth quarter 2016, a decline of 17.2% compared to the same quarter last year. We reported print net revenue of $177.6 million, a decline of 21.7% compared to the same quarter last year.

The majority of the decline was driven by the continued reduction of print clients and print spend, in addition to a reduction in directory titles to eliminate unprofitable directories and to rescope directory markets. We reported digital net revenue of $104.3 million for the fourth quarter, a decline of 10.1% compared to the same quarter last year.

The decline was mostly driven by planned deemphasis of our search engine marketing products, partially offset by the emphasis on growing our strategically important exclusive solutions, such as DexHub and our Internet Yellow Pages. I also would like to note that digital revenue has grown sequentially for the last 2 quarters..

Onto adjusted pro forma EBITDA. Adjusted pro forma EBITDA for the fourth quarter 2016 was $100.5 million, a decline of 3.8% compared to the same period last year. However, EBITDA margins have improved 4.9 percentage points to 35.3% for the fourth quarter of 2016.

The improvement is due to a shift in revenue to more profitable exclusive solution products and continued focus on cost reductions. .

Adjusted pro forma EBITDA compared to plan. As I just mentioned, adjusted pro forma EBITDA for the fourth quarter 2016 was $100.5 million. This is compared to $90.6 million in our plan, a $9.9 million improvement. The performance improvement was driven by tight expense management as part of our continued drive to variabilize our cost structure..

Moving to free cash flow. Free cash flow for the fourth quarter of 2016 was $59.9 million, a 309.7% increase over the fourth quarter 2015. This improvement was primarily driven by reduced interest expense related to our new capital structure..

Now on to the full year 2016 results. We reported pro forma net revenue of $1.2 billion for the -- for 2016, a decline of 20.6% from 2015. We reported print net revenue of $781.6 million, a decline of 21.6% for the year.

As with the fourth quarter, the majority of the decline was driven by the continued reduction of our print clients and print spend, in addition to the reduction in directory titles to eliminate unprofitable directories and to rescope markets. .

We reported digital revenue of $401.1 million for 2016, a decline of 20% compared to 2015. The decline was driven by the planned deemphasis of search engine marketing products, partially offset by the emphasis on growing our strategically important exclusive solutions, such as DexHub and our Internet Yellow Pages.

Other revenue reflects billing fees launched in the middle of 2015 and continued through 2016..

Moving to full year adjusted pro forma EBITDA. Adjusted pro forma EBITDA for 2016 was $373 million. This represents a 29.4% decline from 2015. EBITDA margins were 31.3% for the year compared to 35.2% for 2015. The margin decline was expected given the continued decline in our high-margin print business..

Adjusted pro forma EBITDA compared to plan. Adjusted pro forma EBITDA was $373 million, exceeded our plan of $360 million by $13 million. As with the fourth quarter, the performance improvement was driven by tight expense management as part of our continued drive to variabilize our cost structure..

Moving to free cash flow. Free cash flow for 2016 was $180 million compared to $207.2 million for 2015, a decline of 13.1%. Reduced interest expense prevented free cash flow from declining at the same pace as EBITDA declined..

Now on to Page 4. Adjusted pro forma EBITDA reconciliation. There are a couple of items we would like to point out. Reorganization items of $1.6 billion for the full year represent all cash and noncash accounting entries required to fresh start our GAAP financial statements upon emergence from bankruptcy.

The largest component of the reorganization accounting entries was the elimination of $2.1 billion of debt and replacing it with a new $600 million debt facility. Other reorganization items include the restatement of all balance sheet items to their fair value, including intangible assets, goodwill and the company's equity value..

In addition, the full year provision for income taxes of $229.4 million primarily reflects the impact of deferred taxes associated with intangible assets that were revalued for fresh start accounting. The company does not expect to pay material income taxes in 2016 due to its net operating loss carryforward.

However, the audit of our tax position is still in progress..

The adjustment for fresh start accounting was $96.9 million for the fourth quarter and $179.3 million for the full year is primarily the result of fresh start accounting requirement to eliminate deferred revenue and costs from the predecessor company's balance sheet.

The deferred revenue and costs, which have been recognized as they -- were amortized by the predecessor company, cannot be recognized by the successor company in its GAAP results.

In addition, the company makes adjustments to exclude the nonrecurring cost of capital restructuring and business transformation costs and the noncash accounting entries associated with pension, stock warrants and long-term stock based on compensation.

As previously discussed, management analyzes and runs the business based on non-GAAP adjusted pro forma results..

Moving to Page 5. We wanted to clearly provide a breakout of earnings between the predecessor company and successor company associated with our emergence from bankruptcy at the end of July 2016. Please note that our full year 2016, the first 7 months are associated with our predecessor company and the last 5 months for our successor company.

It is important to note that the reorganization items of $1.6 billion required by fresh start accounting were recorded in our predecessor company by the end of July 2016..

business transformation costs, which are onetime, nonrecurring costs associated with workforce reduction; sales office closures and system transformation expense; capital expenditures net of a minor asset sale reflect the investment we continue to make in our business to develop systems and software necessary to support operations in key products into the future..

Moving to Page 7, net debt. As we announced in January 2017, we were able to complete an asset-backed line of credit with Wells Fargo and PNC. This ABL facility allows greater flexibility in treasury management, reduces interest expense and generated the cash necessary for an additional $100 million reduction in our term loan than originally planned.

At December 31, 2016, we retained $41.4 million of cash to cover outstanding debt repurchases where the trade had -- has not been closed and covered outstanding checks. All other cash was distributed to our term loanholders on December 30, 2016..

In conclusion, we are proud to overdeliver on our adjusted pro forma EBITDA plan for 2016, even as we managed the company through a successful but time-consuming bankruptcy process. It is a testament to the dedication of our employees..

Now I would like to turn it back to Joe for some closing remarks. .

Thank you, Paul. I appreciate that. So Dex Media is becoming a lean, entrepreneurial, operationally efficient company. We've worked really hard at variabilizing the cost and getting the company to basically -- good at what it does and provide services that really work to our end customers.

And '16, we feel was a solid year, and we're off to a great start in '17 and very confident we'll be able to deliver on the plan for '17..

So with that, I'd like to open it up for questions.

Lori, can you help us?.

[Operator Instructions] Your first question comes from the line of Colin Wilson-Murphy of Lyness [ph]. .

My first question is can you talk a little bit about the digital directory decline in 2016 versus your digital marketing? So just if you isolate the digital directory, how did that perform in '16?.

Yes. Great. That's an excellent question. So one of the things we identified when we got here was a decision had been made previously to essentially not invest in the Internet Yellow Pages product. At one time, if we go back a dozen years, Superpages was by far the market leader in online directories, Internet Yellow Pages.

And they sort of -- because the company was in, I guess, indebted and they were focused on trying to do cost reductions, they chose not to really carry on investing in that area. And we just didn't agree with that. Felt like that the Internet Yellow Pages played a really important role in the current ecosystem.

And so we've been working at improving both DexKnows and Superpages.com. Unfortunately, there's a little bit of a lag when you're doing that. It takes a real time to rewrite some of the code, work on the user interface to overcome some of the latencies.

And there were many search engine optimization errors made, many links broken that needed to be put back together. So that took some time. I'm happy to say that as we sit here today, we are making progress and those sites are more usable. They're coming up higher now in organic searches across the country in various headings.

And we're making progress with our -- building our audience and building our traffic. In addition to that, we also, in an effort to try to speed this up, we went out and extended the distribution of our own IYPs by including a number of other sites. We've created something we call our ESS, our Extended Search Solutions.

And that allows you, through us, to buy our Internet Yellow Pages and then an extended network of other ones. We're delivering a lot of traffic, and it becomes a really important and viable alternative to very expensive Google traffic. So that has worked out really well. And throughout last year, we were building momentum in that.

And that's a growing part of our business today. So it's a bit of a mixed result for the year because of -- in the beginning of last year, all of that hadn't taken effect. But it was really kicking in, in Q3 and Q4 and carries through today. .

Very good. Okay, I appreciate that color.

And then, Joe, can you talk a little bit about the digital regions? One of the ways I look at the digital geos is you have markets where print media does not publish directories, right? Those are sort of your new markets that you're entering in and versus markets where print media is published or you could classify those as legacy markets.

How are we doing in those respective markets?.

Well, let me say that the way you just described that and the way you referred to it was really kind of through the goggles of the way our colleagues over at YP do it. They've got a pretty big business where they've gone outside of their footprint and built a business. Ours is much more modest. It's not a very big piece of our business.

It's circa $15 million size business. It's not a very big deal. We had some folks that -- we've worked with before that followed us over here, that are working outside of our footprint. But it's not a very big initiative for us. So it's not really a needle mover. It's going pretty well, but we don't have a real big plan to accelerate that. .

Okay. That's helpful.

And the $15 million top line business for you now, roughly plus or minus, how does that compare to, let's just say, 24 months ago? Is it roughly the same? Or is it -- has it been growing a touch?.

No, it was 0 24 months ago. So it was an initiative that when we first got here, we parked a few guys out there and tried to get that going. And it's challenging, honestly, when you're selling just digital only. I mean the print really provides a lot of brand cover. It provides a lot of support.

And again, our colleagues over at YP have a big initiative, but they're working outside their footprint. We done it in a much, much smaller way. And we're continuing to do it, and that business is growing for us. But it's -- we're not willing to invest losses in it, honestly. .

[Operator Instructions] At this time there are no further questions. Thank you for participating in Dex Media's Fourth Quarter and Full Year 2016 Conference Call. You may now disconnect your lines and have a wonderful day. .

Is there one still sitting there?.

Sir, you now have a question from Michael Phillips of Highland Capital. And actually, he just disconnected. .

Yes, I think he thought he was too late. So thank you, Lori. I'm sure he'll call us if he has a question. All right. Thank you. .

Thank you and have a good day..