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Idearc Announces Q3 Earnings, 15% increase

Press release from the issuing company

DALLAS November 1, 2007 - Idearc Inc, home to Superpages.com and publisher of the Verizon Yellow Pages, today reported third-quarter 2007 earnings. The company reiterated full-year guidance and also announced another quarterly dividend to stockholders.
Strong OIBITDA and net income results;
Double-digit Internet revenue growth for quarter and year-to-date; and
Healthy cash flow funds another quarterly dividend to stockholders.
"We are ahead of other directory publishers when it comes to transforming the print business to a multi-product business. The steps we have taken throughout the year, along with our Internet growth, effectively position us for the future," said Kathy Harless, President and Chief Executive Officer. "We are forging ahead with our multi-platform strategy and meeting industry challenges head-on."
Harless continued: "We worked aggressively throughout the third quarter to grow the Internet business and to implement unique and strategic programs that are beginning to capture new and non-traditional advertisers across all channels."
Following are Idearc's operational highlights for the third quarter and nine months ended Sept. 30, 2007:
A strong and integral part of the multi-platform strategy, Superpages.com continues its evolution to one of the strongest local search providers in the marketplace, excelling in three distinct components: content, technology and distribution. During the third quarter, Idearc made a number of strategic investments and advancements in Superpages.com to support these components, including:
Acquiring Switchboard.com and other online directory assets from InfoSpace, Inc., which was completed on Oct. 31, 2007. This acquisition is consistent with the company's multi-platform strategy; generates profitable revenue; enhances the company's competitive position; and, fits well into the company's stated capital allocation program. The acquisition significantly increases the company's Internet traffic, distributing Superpages.com's advertisers'content to more and more end-users.
Acquiring the LocalSearch.com URL and making a strategic investment in AmericanTowns.com. The acquisition allows the company to further monetize performance-based advertiser commitments and the strategic investment provides Idearc with access to neighborhood-based information that can be easily integrated with many of its local search offerings.
Driving more traffic by placing advertisers'content across multiple channels. The company continued to expand its traffic base by signing additional distribution agreements. In addition, Idearc extended its relationship with WhitePages.com, which allows the company to drive Superpages.com advertisers'content across WhitePages.com's search platform. Idearc distributes advertisers'content across more than 250 Internet sites.
Enhancing its content with the launch of video advertising nationwide. The local sales force and Internet sales channel are now selling the product across the country. Video ad clips bring life to local search content and enable small-to medium-sized businesses to showcase their products, brands, services and specialties. To learn more about Superpages Video and to view examples, visit http://video.superpages.com/.
Providing local content within a trusted community-type and social networking environment by launching a Restaurant Reviews application for Facebook. With the application, Facebook's 50 million users can browse and research and/or write restaurant reviews. The application allows consumers to learn more and compare other users'favorite restaurant reviews available through Superpages.com's database. In addition, reviews written through the Facebook application will be incorporated into Superpages.com.
Launching Superpages.com's local mobile application, Superpages Mobile for Blackberry. The application benefits Superpages.com performance-based advertisers by delivering their content directly to business travelers and mobile users'fingertips. To learn more about Superpages Mobile for Blackberry, visit http://mobile.superpages.com/.
Idearc continued its market expansion strategy and introduced new sales packages in select markets. The company entered these markets with an Internet-centric advertising bundle to gain speed to the market and capture the high growth portion of the business. Idearc continues to evaluate potential markets that generate more advertising sales, enhance Superpages.com content, and strengthen appeal to large national advertisers.
Within the Verizon Yellow Pages, the company implemented a new performance-based pricing model for selected national advertisers. This strategy is designed to retain advertisers and attract new and non-traditional ones. Idearc, the only publisher to implement this model, has already seen new and return advertisers within the insurance, vision, restaurant, travel, entertainment and financial industries.
In addition, the company continued to drive references to advertisers by strategically partnering with leading magazine publisher Rodale Press. The company is developing a quarterly healthy living publication titled Refresh, Recharge, Renew. The magazine comprises editorial content from Rodale Press, publishers of Prevention Magazine, Men's Health and Women's Health. The magazine's premier edition will be available this winter in select markets. This partnership with Rodale marks Idearc's second agreement with a leading magazine publisher.
The company continues to work with Meredith Publishing, publishers of Ladies Home Journal, Better Homes and Gardens and Traditional Home, to publish Solutions At Hand, a targeted, quarterly home improvement publication, in select markets. In the third quarter, Idearc expanded its Solutions suite of products - all designed to increase references - to additional markets. Solutions products include Solutions At Hand, Solutions at Home, Solutions on the Move and Solutions Direct .
Following are Idearc's financial highlights for the third quarter and nine months ended Sept. 30, 2007:
"We experienced strong OIBITDA and net income results, along with double-digit Internet revenue growth both on a quarterly and year-to-date basis," said Andy Coticchio, Executive Vice President and Chief Financial Officer. "We were also prudent in managing our expenses, which contributed to OIBITDA and net income performance."
Revenue Performance Consistent with Guidance
On an adjusted pro forma basis, third-quarter multi-product revenues were $791 million; a -1.7 percent difference compared to the same period in 2006. Internet revenue was $69 million in the third quarter of 2007, a 15.0 percent increase compared to the same period in 2006. On an adjusted pro forma basis, year-to-date multi-product revenues were $2,402 million, a -0.5 percent difference compared to the same period in 2006. Year-to-date Internet revenue was $210 million, a 25.7 percent increase compared to 2006.
Strong OIBITDA and Net Income Results
Idearc had OIBITDA of $380 million for the third quarter of 2007. On an adjusted pro forma basis, excluding non-recurring costs, OIBITDA for the third quarter was $398 million, or a -1.7 percent difference, compared to the same period in 2006. Adjusted pro forma OIBITDA margins, excluding non-recurring costs, were 50.3 percent in the third quarter of 2007, compared to 50.3 percent in the same period in 2006.
On a year-to-date basis, OIBITDA was $1,098 million. On an adjusted pro forma basis, year-to-date OIBITDA was $1,168 million, or a -1.4 percent difference compared to the same period in 2006. The change in year-to-date adjusted pro forma OIBITDA was driven by increased selling expenses, offset by lower overhead costs.
As previously reported last quarter, the company adopted a change in accounting methodology associated with sales commissions. Previously, sales commissions were recognized as incurred. Idearc now is deferring sales commissions and recognizing these costs over the life of the product. This methodology is consistent with other directory publishers and is aligned with the company's revenue recognition policy. Prior period financial information has been restated to reflect this change.
Excluding the effect of the accounting change, third-quarter OIBITDA on an adjusted pro forma basis would have been $408 million, or a -0.2 percent difference over the same period in 2006. Year-to-date adjusted pro forma OIBITDA would have been $1,174 million, no change compared to the same period in 2006.
The company reported net income of $117 million, or 80 cents per diluted share, for the third quarter 2007. Adjusting for non-recurring costs, as described in detail in the accompanying financial schedules, Idearc's adjusted pro forma net income for the third quarter was $128 million, or 88 cents per diluted share.
Year-to-date reported net income was $329 million or $2.25 per diluted share. On an adjusted pro forma basis, year-to-date net income was $374 million, or $2.56 per diluted share, a difference of $-1 million, or -1 cent per diluted share, over the same period in 2006.
Free Cash Flow Funds Quarterly Dividend
Free cash flow for the nine months ended Sept. 30, 2007, was $303 million based on cash from operating activities of $334 million less capital expenditures of $31 million. Strong cash flow will fund another quarterly dividend of 34.25 cents per outstanding share. Yesterday, Oct. 31, 2007, the Idearc board of directors declared a quarterly dividend of 34.25 cents per outstanding share to be paid on or about Dec. 13, 2007 to our stockholders of record at the close of business on Nov. 21, 2007.
Multi-Product Advertising
For the third quarter of 2007, multi-product advertising sales changed -2.7 percent as compared to the same period in 2006. On a year-to-date basis, multi-product advertising sales changed -1.1 percent as compared to the same period in 2006.
Idearc Reiterates Guidance for Full Year
Idearc is reiterating 2007 guidance, as of Nov. 1, noting close to flat multi-product revenues expected for the year and only slight OIBITDA margin contraction from 2006 adjusted pro forma results due to continued changes in the company's revenue mix.