Good morning, and welcome to Dex Media's Second Quarter 2017 Conference Call. With me today are Joe Walsh, Chief Executive Officer and President; 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 the future events and trends affecting the company's business and are subject to risk 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 July 31, 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. This morning, Paul and I will review our financial results from second quarter and year-to-date June 2017. I will highlight some key statements and then turn the call over to Paul to run through detailed financials. .

As you know, we just completed our acquisition of YP and are now DexYP. The first thing -- first though, it is important to share the results for the standalone Dex Media. .

We are tightening up our business. We're becoming lean and an efficient company. We have simplified our products, our processes and merged systems. We've come a long way, but we still have a ways to go. You will see our EBITDA results for the first half of the year that we're making substantial progress.

We've variable-ized cost of the business by streamlining and we're wringing efficiencies out of the business. We believe Dex is prepared now and an ideal platform on which to place the YP clients. .

As we bring YP clients onto the streamlined Dex platform, there will be many benefits, both in cost savings and in revenue opportunity. The YP sales organization is anxious to be able to offer our local business automation software, Thryv.

This enables them to be much more productive, offering unique solutions for real problems faced by independent business owners and reduces their reliance on commoditized, low-margin digital advertising products. By adding the YP sales coverage and the large client base that YP has, we will feed the growth of Thryv.

We expect the YP sales organization to contribute to Thryv's sales growth by early 2018. .

Overall, we're delighted thus far with the YP acquisition. We have picked up some talented members, adding some important skills and capabilities to the company. The YP.com audience is a welcome addition. We're on plan for the timeline of our integration and synergies that we targeted and associated cost to achieve. .

Now I want to turn the call over to Paul to take you through the financials from this past quarter.

Paul?.

Thank you, Joe, and good morning, everyone.

As Joe mentioned, on June 30, 2017, the company acquired all the ownership interest in the legal entities related to the operations of YP Holdings LLC and Print Media Holdings LLC, collectively known as YP, for $600 million in cash consideration and 3% of the company's common stock, which equates to 3,248,487 shares.

The newly formed company will do business as DexYP and will be led by the company's current Board of Directors and executive management team. .

To finance the acquisition, the company amended its Dex Media term note agreement to borrow an additional $550 million. In addition, the company amended its revolving line of credit, increasing the facility from $200 million to $350 million. We used $70.7 million of the additional facility to complete the transaction. .

Today, I will speak to the Dex Media business on a stand-alone basis for the majority of my remarks. We have presented DexYP combined on a pro forma basis for informational purposes only. Beginning in the third quarter, we will discuss the combined entity as we are working to integrate all operations and run the company as a single unit.

For Dex Media, non-GAAP adjusted pro forma EBITDA was $79.6 million in the second quarter. Our EBITDA margin for the second quarter was 31.3%, reflecting our continued focus on creating an operationally efficient company. This was the fifth consecutive quarter of EBITDA margins greater than 30%. .

I would like to point out that most of the financial measures presented and discussed this morning are non-GAAP adjusted pro forma results. We believe these non-GAAP metrics provide 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 building -- for budgeting, forecasting and compensation. Appendix Slides 7 and 10 provide reconciliations of GAAP results to non-GAAP adjusted pro forma results for EBITDA and free cash flow.

The adjustments made to our GAAP results remove the impact of fresh start accounting entries required upon emergence from bankruptcy, the non-recurring costs associated with capital restructuring and business transformation costs, acquisition fees incurred with the acquisition of YP and the noncash accounting entries associated with pension and long-term stock-based compensation.

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As previously discussed, 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 the tax calculations from 2010 through 2015.

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

We will now discuss in more detail our second quarter and year-to-date June 30, 2017, financial results released on our website on July 31. .

Moving to Page 3 of the second quarter 2017 flash. Client counts. Client counts overall declined 15.1% during the second quarter of 2017 compared to the end of the second quarter 2016, in line with industry trends. Multi-product clients declined 6.2%.

These declines primarily reflect clients canceling combined advertising programs, partially offset by transfers in -- from print-only clients. We would like -- we would also like to point out that multi-product client counts have stabilized for the past 3 consecutive quarters.

Digital-only clients grew by 6.8%, continuing the growth trends we have experienced this year. This increase is primarily attributable to our focus on selling our new digital solution product, Thryv, which was recently rebranded and formerly known as DexHub. .

Print-only clients declined by 23.6%, in line with continuing business trends. A portion of the decline did shift to multi-product client set, mostly through combined print advertising with our exclusive solution products offerings such as Thryv and our Internet Yellow Pages. .

Now onto second quarter net revenue. We reported pro forma net revenue of $254.5 million for the second quarter 2017, a decline of 14.6% compared to the same quarter last year. Pro forma print net revenue was $151.2 million, a decline of 23.4% compared to the same quarter last year.

The majority of the decline was driven by the continued reduction in print clients and decreases in print directory advertising sales. We reported digital net revenue of $101.4 million for the second quarter, an increase of 3.4% compared to the same quarter last year.

The increase was primarily driven by the growth of our strategically important exclusive solutions such as Thryv and our Internet Yellow Pages, partially offset by a planned deemphasis of our search engine marketing and presence digital products. .

Onto adjusted pro forma EBITDA. Adjusted pro forma EBITDA for the second quarter of 2017 was $79.6 million, an 11.3% decrease compared to the same period last year. This decrease was primarily due to our net revenue decline of 14.6%, partially offset by expense reductions.

However, our EBITDA margins improved by 1.2 percentage points to 31.3% for the second quarter of 2017 compared to 30.1% during the same period last year. The continued year-over-year improvement in our EBITDA margin is primarily due to a shift in revenue to our more profitable exclusive solution products and continued focus on expense reductions.

As previously mentioned, this was the fifth consecutive quarter of EBITDA greater than 30%. .

Moving to free cash flow. Free cash flow for the second quarter 2017 was a negative $14.9 million, a decrease of $53.1 million from the second quarter of 2016. This decline was primarily driven by income tax payments of $64.4 million. This was an increase of $60.6 million over 2016, related to the first and second quarters of 2017..

Starting in 2017, Dex Media became a taxpayer for federal income taxes. In addition, we paid $21.8 million related to our YP acquisition. These expenses were partially offset by lower interest payments of $25.7 million related to our new capital structure. .

Now onto year-to-date results. Year-to-date June 30, 2017, net revenue. We reported pro forma net revenue of $523.1 million for the year-to-date June 30, 2017, a decline of 14.3% compared to the same period last year. Pro forma print net revenue was $325.4 million, a decline of 19.7% compared to the same period in 2016.

We reported digital net revenue of $193.6 million for the year-to-date June 30, 2017, a decrease of 4.1% compared to the same period last year.

The decrease in our digital revenue was primarily driven by the continuation of our planned deemphasis of our search engine marketing and presence digital products, partially offset by continued growth of our strategically important exclusive solutions, including Thryv and our Internet Yellow Pages. .

Onto adjusted pro forma EBITDA. Adjusted pro forma EBITDA for the year-to-date June 30, 2017, was $172.1 million, a 3% decrease compared to the same period last year. This decrease was primarily due to our net revenue decline of 14.3%, mostly offset by expense reductions.

However, our EBITDA margin did improve by 3.8 percentage points to 32.9% for the year-to-date June 30, 2017, compared to the same period last year. The improvement of our EBITDA margin is due to a shift in revenue to our more profitable exclusive products and continued focus on expense reductions. .

Moving on to free cash flow. Free cash flow for the year-to-date June 30, 2017, was $91.8 million, an increase of $36.6 million compared to the year-to-date June 30, 2016.

The increase was primarily driven by lower interest payments of $69.6 million, lower capital restructuring payments of $26.9 million and improving working capital management of $25 million, partially offset by higher income tax payments of $61.9 million and YP acquisition fees paid of $21.8 million. .

Moving to DexYP combined. Please note Page 4 of the presentation is presented for informational purposes only. This assumes the companies were combined prior to January 1, 2016, and have been run as a combined company throughout. One item I would like to specifically call out on this page is net debt.

As I previously described, we funded the acquisition of YP by increasing existing debt facilities. We ended June with $780 million due under our term note facility and $174.1 million on the asset-backed line of credit. These actions increased our net debt by $601.8 million during the second quarter of 2017.

Our net debt as of June 30, 2017, was $934.8 million compared to $333 million as of March 31, 2017. .

In conclusion, we are proud that our Dex Media side of the business generated growth in our adjusted pro forma EBITDA margins in the second quarter and year-to-date June 30, 2017, compared to the same periods in 2016. It is a testament to the dedication and hard work of our employees. .

While we have had 2 consecutive strong quarters of adjusted pro forma EBITDA performance, we want to caution everyone that we are operating in a very competitive digital marketplace and continue to manage a print business in secular decline. Our teams are hard at work integrating the YP business onto the Dex Media platform.

We are already viewing and running the business as a combined entity and we'll report as a combined entity going forward. Now I would like to turn the call back over to Joe for some closing remarks. .

Thanks, Paul. The numbers back up our strategic plan to produce effective financial results. We are doing a better job for our customers through service, fulfillment and the results that we deliver.

We have better processes and an ownership mindset in our employee base, where they're taking ownership of what's happening out there we and are just doing a lot better job for our customers. We're flowing the cash. We're squeezing out waste and ineffective processes out of the business. And we're building our future.

Thryv is operating system for independent businesses, and we have a leadership position in this large and fast-growing Software-as-a-Service market. .

With that, Lori, I'd like to turn it over to you to open it up for questions. .

[Operator Instructions] We do have a question from the line of Jonathan Sacks of Stonehill. .

Can you tell us a little bit more about the Thryv software and what services that's providing exactly to the customers and how it's being received so far?.

Sure. So think of Thryv as an operating system for an independent local business owner. They're largely up against big national and regional companies and even some venture-backed app providers and e-commerce players. And the consumer experience is a lot better with these giant companies.

Consumers can whip out a smartphone and talk to it and look at the map, schedule an appointment, deal with it. For a lot of independent business owners, they don't have any of those tools. They do things in an analog world.

So what Thryv is really doing is it's coming along and it's allowing those local independent businesses to play at the same level as the larger national and regional companies. And so it handles appointment booking and scheduling within the business, it handles 2-way communication where they can do text and e-mail communications with their customers.

They can maintain a digitized database and record in a CRM-type format of all the transactions, the interactions they have with their various business owners. It also does a lot for managing their listings and reputation out across the web. We work closely with Yext in that element. There's also a social media component to it.

So it really is kind of the operating system for those local businesses, helping them to find more efficiency, and essentially, run their business from a mobile device. .

And how is it being received? Or what industries is it getting traction in?.

Well, because our legacy is, the Yellow Pages is A to Z, every business from A to Z, we are working in a horizontal fashion as we implement what we call local business automation. So we've got very happy Thryv customers, more than 28,000 of them at this point, that are really coming from all different walks of life from lots of different industries.

We don't just have just any one vertical approach. And we are offering some minor vertical customization that we plan to do more in the future. But it's early days. We've only been at this for a couple of years, and we're really just getting a head of steam up. But the uptake is very good. They're selling briskly. They're retaining at a high level.

And increasingly, we're getting clients more and more engaged in using a lot of these tools. One of the important differentiators for Thryv is it has a Dallas-based service team here that work closely with the local business owners across the country with their various questions and helping them to set up and optimally use this tool.

There are various CRM and marketing automation-type software tools that you can buy from other providers. But for the most part, they come with no service. It's a buy-it-yourself, do-it-yourself type thing.

And as you can imagine, the 700-or-so thousand customers we have at DexYP are largely baby boomer, kind of a little bit more mature businesses and not necessarily overall as tech-savvy. So the service offering is a big part of the differentiation and big part of the success.

We're not just offering tools, we're actually coaching and teaching and leading these local businesses in how to implement and use these tools. .

That's great. And can you just give a little bit of an overview of sort of our mix of digital products? I know there are several different ones, but it's hard to know how large each one is or what comprises the bulk of the revenue.

And if you could compare and contrast that a little bit with YP's digital business and what would you expect that, that would look like going forward as the 2 companies are merged. .

Sure. The slippery slope in this business is reselling other people's low-margin products and ending up in a commoditized digital battle where you're just selling the same thing that everybody else is selling. There's no barrier to entry out there at all to just go be a Google reseller or just resell for Facebook.

As you -- most of you on the call here know, in the digital advertising space, Google and Facebook are first and second place and then there's a long, long way before you get to third place. They really are dominating that space. So it's a pretty low-margin operation to just resell, particularly for Google.

So if you look at our business, one of the things that we've done over the last couple of years in Dex is we have been weaning ourselves off of or deemphasizing search engine marketing and putting more focus and more emphasis on owned and operating or exclusive solution products which have much, much higher retention.

They don't churn out the way that search engine marketing, Google does. And they have much, much better margins, much stickier, much better financially for us.

So as to your question about YP coming in, over the last couple of years, YP was pushing very hard to try to maintain digital revenue growth or slower digital revenue decline, and they pushed the sales force to get the digital sales, and they got them. A lot of them are search engine marketing sales.

So while they've got a nice mix of business, they've got a big IYP business, Internet Yellow Pages that is, YP.com, with a great audience that we're really excited about and that's a very profitable line of business for them, over the last couple of years, they were sort of flipping into that search engine marketing hole.

And so there's a lot of search engine marketing there, and it is churning, and that would be one of the issues that we need to address early on. .

[Operator Instructions] Your next question comes from the line of Christina Murphy of Paulson & Co. .

Yes, this is John Paulson.

Could you talk a little bit about your plans for YP.com and how you plan to integrate that with Dex?.

Yes, absolutely. One of the things that we're most excited about in the combination with YP is the tremendous audience that YP.com brings to us. YP.com has multiples more traffic than Superpages or DexKnows does. And this represents a real opportunity for the company. So we intend to -- we maintain the team that runs YP.com.

We're going to carry on investing in that and nourishing that because we think that owned and operated traffic is a real differentiator. When you're out there walking up and down the street selling commoditized digital products, having your own giant audience makes a big, big difference. And it makes that difference in several ways.

One is that when you do get involved in running search campaigns, you have much of your own traffic that you can feed in, which helps improve the margins. You also have the data that comes from that search activity to infuse into those search campaigns to run them better. So it helps in that way.

About a little over a year ago we made an arrangement with YP where we included YP.com into our Extended Search Solution for Dex. And that's part of the really strong growth you've seen over the last year of our Internet Yellow Pages within Dex.

And so now, that's a combined entity, and we feel that, that growth will be -- continue to be very, very strong in Dex.

Unfortunately, recently, within YP, they've actually been declining a little bit in the Internet Yellow Pages and we're going to work on that and see if we can include the entire YP organization into our ESS solution, our Extended Search Solution, which really features the IYP.

And we think that, that will hopefully allow us to return the YP side back to growth and the IYP as well. But John, that's a great question because the real asset here are the owned and operated references that we have, both to the printed telephone directories and to the online Yellow Pages. That's the real, real asset.

And we're endeavoring to really level leverage that asset to a maximum. .

At this time there are no further questions. I'll now return the call to Joe Walsh for any additional or closing remarks. .

Well, thank you very much, everyone, for attending the call. We're very pleased overall with the progress that we're making.

We've got the Dex legacy company platform at a very operationally efficient level at this point, and now, as we bring the YP 300,000-or-so clients on to that foundation, we think that there's a lot of margin flow-through opportunity and we're really excited about the reach this gives Thryv.

We feel like we can now accelerate the growth and development of Thryv with a full national footprint and a very skilled sales force that's chomping at the bit.

If I could just give you a little bit of color on what these last few weeks working with the YP sales organization has been like, they are just so enthused about this pivot, the idea of moving away from just selling marketing and sales things, to really getting into Software-as-a-Service and working with local businesses on local business automation.

The energy level, the enthusiasm in YP to get started with that, is incredible. We are planning before the end of this year to get that sales force trained up and selling Thryv, but they want to start today. I mean, they're ready to go right now. So we look forward to updating you at our next call. But we're on track, on plan with the integration.

And we feel really good about how it's going. So I'll close there. Thank you. .

Thank you. That does conclude Dex Media's Second Quarter 2017 Conference Call. You may now disconnect..