Good morning, and welcome to Dex One Corporation's Fourth Quarter and Year-End 2012 Results Conference call. [Operator Instructions] Please note that today's call is being recorded, as well as webcast live over the company's website at www.dexone.com. I would now like to turn the call over to Mr. Tyler Gronbach. Sir, you may begin.

Thanks, Kathryn. Good morning, everyone, and thank you for joining us today. We will begin this morning with comments from Dex One Chief Executive Officer, Alfred Mockett; and Chief Financial Officer, Greg Freiberg. Following their comments, we will have time for some of your questions. I would like to remind everyone, certain statements made today may be forward-looking as defined by the Private Securities Litigation Reform Act. We call your attention to our press release for the year ended December 31, 2012, and the company's Form 8-K furnished to the SEC this morning. These documents discuss fourth quarter and full year 2012 results. The 8-K also includes the results package, which provides additional information pertaining to our discussion this morning. We encourage you to review these materials and the company's other periodic filings with the SEC, which set forth important risks and other factors that could cause actual results to differ materially from those contained in or suggested by any forward-looking statements. Electronic versions of Dex One's SEC filings can be obtained by contacting us, visiting dexone.com or visiting the SEC's website at sec.gov. Copies of the news release and results information package can also be found under the Investor Relations tab at dexone.com. During the call today, we will refer to certain adjusted figures that are non-GAAP financial measures such as expenses, EBITDA, free cash flow and net debt. Some of these reflect items such as stock-based compensation and long-term incentive program expenses, gain on debt repurchases, and merger transactions and integration expenses. One final reminder. This call is the property of Dex One Corporation, and any retransmission or broadcast without the expressed consent of the company is strictly prohibited. I would like to turn the call over now to Alfred.

Thank you, Tyler. Well, good morning, everyone, and thank you for joining us to review our fourth quarter and full year 2012 financial results. I'll start with a brief overview of the strategic and operation progress we have made at Dex One during the fourth quarter and throughout 2012. Greg will then walk you through the key metrics and financial results. I will wrap up with an update on our proposed merger with SuperMedia and discuss the significance of today's filings with the Delaware court. 2012 was about delivering on promises made, something that our management team at Dex One has done consistently since I joined the company in 2010. The transformational journey we embarked on in 2011 is delivering positive financial and operational results. The digital business once again posted solid gains. Digital bookings growth for the fourth quarter was 29%. And for the year, we achieved digital bookings growth of 34%. Our digital business is an increasingly important source of profit for the company with solid contribution margins nearing 30% of revenue and continuing to improve as the business scales. We generated adjusted EBITDA of $133 million in the fourth quarter and $561 million for the year. Adjusted free cash flow was $88 million for the quarter and $335 million for the year. Finally, we reduced debt by $525 million in 2012 and have retired $1.9 billion of debt since the company emerged from bankruptcy in 2010. We met 2012 guidance despite ongoing difficult business conditions for our SMB customers. We are yet to see much improvement. Local business conditions have not done us any favors in the last year. However, consumers' use of their browsers, mobile devices and tablets continues to increase to find local business information. We started to see this trend at the end of…

Thank you, Alfred, and good morning. I will start by reviewing our accomplishments for the year. First and foremost, we achieved our financial guidance for full year 2012 and came in at or above the midpoint of our guidance range in all areas. We delivered adjusted EBITDA of $561 million, near the high end of the guidance range, with net revenue of $1.3 billion at the top of the range. Adjusted free cash flow came in at $335 million, the midpoint of the range. We are pleased with 2012 digital bookings growth of 34%. Bundles and, in particular, our Dex Guaranteed Actions bundles, continue to gain momentum among advertisers. During 2012, we reduced debt by $525 million, achieved through a combination of scheduled payments, voluntary prepayments and below-market repurchases. These were made possible by successfully negotiating credit agreement amendments and executing on 4 tranches of below-market repurchases during the first and second quarters. We reduced bad debt to 2.5% of revenue for the year. We've accomplished this by actively managing less creditworthy customers out of the system. And as a result, we believe the full year bad debt level is sustainable. Turning to the fourth quarter. Although we devoted attention to merger-related activities, we continue to run the business efficiently. We aggressively managed expenses and delivered an adjusted EBITDA margin of 44% despite revenue pressure and the ongoing transformation of the business. Total expenses for the quarter were $168 million, a reduction of $33 million or 16% from a year ago with production and distribution, selling and support and G&A all declining. Digital bookings increased 29% in the fourth quarter. Bundles continued to perform very well and accounted for over 60% of total bookings in the quarter. As it regards forward-looking information, I do note that because of the pending…

Thanks, Greg. By joining 2 industry leaders to create the national provider of social, local and mobile marketing solutions, we believe Dex One and SuperMedia will accelerate the transformation of the newly-combined company and be positioned to deliver outstanding service and support. We have both secured the requisite stockholder approvals for our proposed merger. And earlier today, we both filed voluntary plans for Chapter 11 in the U.S. bankruptcy court in Delaware to implement prepackaged plan's reorganization. Dex One and SuperMedia intend to use this strategic process to facilitate completion of the merger. It's important to note that with this action, we did not impair the equity or bonds. All bank debt balances remain on the books. And in fact, we will increase the interest rate from the bank debt while tightening covenants. Since we announced the deal, both the debt and the equity have traded up. The filings do not reflect the financial health of the 2 companies, and the operations of both companies were expected to continue without interruption during the restructuring process. The integration teams remain hard at work, and subject to court approval of the plans, the companies expect to complete the merger within 45 to 60 days. , And with that, we are now ready to take questions.

[Operator Instructions] Our first question comes from Chad Quinn with Bennett Management.

I saw your comment about the not providing guidance given the merger. In mid-December, we -- there was an 8-K filing that had some forecasts surrounding the merger for the next couple of years. Are you pulling back from those numbers for -- that we saw for 2013 at that time?

Now first of all, the plan of record remains the plan of record. We're within 45 to 60 days of closing the merger. We thought it inappropriate to put out sort of guidance for the first quarter from one side of the equation without the full context of the year's outlook. And so really the question of forward guidance now falls to the new management team and the new board for Dex Media. And that's about as much as we can say on the subject.

Okay. If you could just talk a bit, Alfred, about the print decline, the decline in print bookings in the fourth quarter, negative 23%, it seems to be accelerating a bit there. I was wondering if you could provide some color around that.

Well, certainly, there's no doubt that print will continue to decline. We've seen the greatest decline in the metro -- major metros, and now we're beginning to see that trend spread through Tier 1, Tier 2 and Tier 3 cities. That said, I think historically, we've demonstrated that we're capable of taking costs out in line with the print declines to maintain margins and turning fixed costs into variable costs and addressing it that way. I think we can continue to manage the print by rescoping and consolidating books and running the business by book P&L and book profitability. I mean, this is the heartland of our cash flow, and we intend to preserve it. I think the game changer comes with bundles. And bundles will start biting when we get into the full renewal cycle of the bundles that we signed up last year. I mean, although, there's always perhaps a bit of latitude around planning, early indications are that we do in fact see an uptick when we sign a bundle. We get a decrease in the rate of decline of print. We get an increase in the sale of digital. We get higher retention rates, which long term are going to help the top line. And we get a higher average sale per customer. So we're looking for bundles to bite to take a few percentage points out of that print decline.

Great. And my final question, for Greg. I saw the slide on the adjusted net debt at quarter end. Have those numbers changed at all? Can you report, has there been any subsequent paydowns on any of the tranches?

No, there's been no changes subsequent to the end of the year.

Our next question, from Colin Murphy with Bowery.

What are the renewal rates for bundled products and the guaranteed products?

We're getting higher bundle -- higher renewal rates than we would have anticipated. We're up in the mid-70s.

Okay. And how are your out-of-market trials going selling those digital products?

Well, the out-of-market trials have demonstrated that we can sell without the umbrella of the master brand. They've shown that we can actually recruit, retain and develop self talent, and that we can achieve penetration against the incumbents in those out-of-territory markets. But I mean, I think, it's important to add that once -- I mean, in 45 to 60 days, what was out of territory is going to be in territory.

Our next question, Sam Sekine with ALJ Capital.

Can you guys give us the breakdown of what's the percentage of digital revenue versus print?

Right. So on -- I don't think we've given that. Let me -- why don't you give me a second here? If you have another question and I'll keep looking here.

Can you also talk about pricing, just pricing pressure in the bundled products? Obviously, print products are declining -- or the price in print is declining. And how -- can you talk about methodology of how you guys allocate the price in your bundled products?

Okay. Yes, certainly. First of all, we undertook a complete repricing exercise less than a year ago, and we brought all prices down to market on the print side and the digital side. And when we bundle, we price based on the list prices of each component and apply the -- any bundle discount proportionately. I mean, the fact of the matter is we've designed bundles to be easier to sell and easier to buy and to take away the allocation decision from the customer. And so from that perspective, I think, our pricing is very competitive. And of course, for GAAP revenue recognition, we have to be able to demonstrate that we're pricing each component against fair market price.

In regards to the digital revenue, we reported $1.3 billion revenue for the full year. It's about $300 million is digital. The balance is print.

Got it. Can you also talk about just -- so in your presentation, you guys are 68% of bundles this year. Where were you guys kind of a year ago?

A year ago, we were probably less than half that. It's -- although, we've penetrated 60% of the base by revenue terms, by customer terms, we're only at about 1/3 penetration rate.

And 1/3 of the customers are purchasing bundles, but 68% of the total revenues account for bundles. Is that correct?

That's right. And so -- we just give you some figures on that, we've got about -- a little over 124,000 bundled customers. Of those, about 87,000 are straight bundles, about 10,000 are DGA. The balance being people buying digital business a la carte.

Got it. And if you can talk a little bit further about the comment you made of turning fixed costs to variable costs. So are you guys just changing geographies of books or are expanding the regions? I mean, how does that exactly work?

It's really -- it's as the revenue declines and the business continues to transform, costs that were fixed in the near term become variable, right? So even if I step back to the beginning of the year, there were some costs I couldn't attack. And then as you're progressing through the year, you can. And what I'll do is I'll give you an example of this, book profitability. So we -- as the book and the actual number of advertisers in the book declines, one of the tools is you can consolidate the book, right? So that's an example I give you.

And as soon as the book turns, I guess, negative profitability, does that -- do you guys just cut it for next year? Or what is the top -- on the list from which you cut?

Yes, absolutely. That's what we do, we cut it. In fact, last year, we eliminated about a dozen titles. It may be about 20 this year. And that's out of more than 800 publications. Okay? So if there are no more questions, I'd like to thank you all for joining us today. In closing, I'm very proud of the hardworking men and women of Dex One who brought us to this point. And let me share 3 final thoughts. Firstly, our transformation is generating positive results. Secondly, we achieved our 2012 guidance. And finally, the proposed merger with SuperMedia will accelerate the pace of the transformation each company was pursuing independently, strengthen our balance sheet and generate benefits for all constituencies. Thank you again for joining us, and have a nice day.

Today's call has concluded. Participants may disconnect at this time. Thank you for attending today's conference.