Hello, and welcome to DexYP's Fourth Quarter and Full Year 2018 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 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 forward-looking statements. These factors can be found in our press release dated February 14, 2019. The company has no obligation to update any forward-looking statements. Please refer our website dexyp.com/about/corporate/investors for a brief presentation to be used in today's comments. We will give you a few moments to reference the deck. And I would now like to turn the call over to Joe Walsh.

Thank you, Felicia. Today, Paul and I will review our financial results from the fourth quarter and the full year 2018. I will highlight some key statements and then turn the call over to Paul to run through the detailed financials as well as discuss what we see for 2019. We closed out the year with strong financial performance and continue to grow EBITDA and EBITDA margin and generate tremendous cash. Our simple SaaS software and flagship product, Thryv, continues to lead the industry by helping small business owners manage their appointments, communicate with clients and get paid, so that they can take control of their business and be more successful. As Paul will detail soon, this year we increased recurring Thryv revenue to over $100 million. While we're thrilled with Thryv's growth, 2019 will serve as a year of engagement and nurturing. As we transition the company, we recognized our focus needs to shift to engagement rather than just adding numbers of subscribers. We expect as a result of this increased emphasis on driving subscribers' engagement, this will likely lead to a slowdown in Thryv unit growth in 2019, but we expect growth in 2020 and beyond. We continue to focus on our leads platform, Thryv Leads, that allows small business owners to generate leads across multiple media through a single budget and see these new leads flow into their Thryv CRM. This is a tremendous advance for small businesses to able to generate, track and communicate with new prospects and current customers, all in one place. Now I want to turn the call over to Paul to take you through the financials from this quarter and for the full year. Paul?

Thank you, Joe. We will now discuss in more detail our consolidated fourth quarter and full year 2018 financial results. Released on our website on February 14, our results are presented on a consolidated basis for DexYP as if YP had been acquired on January 1, 2017. I would like to point out that most of the financial measures that will be presented and discussed this morning were prepared on a non-GAAP adjusted pro forma basis. We believe these non-GAAP pro forma results provide more 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. The adjustments made to our GAAP results remove the impact of accounting entries required following the acquisition of YP on June 30, 2017. In addition, nonrecurring costs associated with the acquisition of YP, including acquisition transaction fees, integration activities, business transformation and noncash expenses associated with long-term, stock-based incentive compensation and pension expense, were removed from our non-GAAP adjusted pro forma results. Non-GAAP adjusted pro forma EBITDA for the fourth quarter of 2018 was $144 million. That represents an $18 million increase over the fourth quarter of 2017. We generated an adjusted pro forma EBITDA margin of 34% for the quarter. Needless to say, we are very proud of our fourth quarter results. Now I will discuss the results in more detail as seen on Slide 5. I would like to point out that we are providing more details on revenue streams and cost structure than we have before. We agreed to provide this level of detail in our new term loan agreement, and we believe all stakeholders of Dex will benefit from the additional disclosure. From past earning calls and discussions with investors,…

Thank you, Paul. We produced solid financial results in 2018. In 2019, we expect continued strong financial results. We'll increase our focus on our SaaS business, particularly Thryv subscriber engagement. We launched several partner integration programs to solidify partnerships with innovative and like-minded developers, designers, entrepreneurs, resellers and affiliates to further our mission of helping small businesses succeed. With that, I will open the floor up for questions. Felicia?

[Operator Instructions] Your first question comes from the line of Lance Vitanza with Cowen.

Could we start with the interplay between Thryv and Thryv Leads? And I'm not sure that I appreciate the difference there. And when we think about the revenues associated with Thryv, as you know, as a SaaS product, does that -- should we be thinking about that as one or both of the Thryv revenue lines?

Well, Thryv Leads really is taking the traditional former leads business that we would sell on kind of a -- the traditional basis, and it's sort of repackaging it for people -- people are buying a monthly service at a fixed price, and we're out in the marketplace delivering those leads to them. And so it's more SaaS-like. I mean, I don't know, it might be a stretch to say it is SaaS, but it's more -- we're selling it more on a Leads-as-a-Service basis. And we find that -- there are positives and negatives to it for the customer. The big positive is it doesn't require the customer to figure out which media products to buy or to emphasize. It allows them to sort of buy on a cost per lead basis really. It's more of a black box. For some businesses that fancy themselves experts in this stuff and really want to fondle every little detail of it, they sometimes get frustrated by the black box part of it. And we steer them back to buying some of our more traditional products when they have that view. So anyway, that's the way we think about it. It solves for us, Lance, a couple of big problems. The first is that we only get credit for a small portion of the leads that we deliver to customers. People assume that because our legacy is Yellow Pages, that we must not be very good or something. And so there's -- we just don't get credit for all the leads that we deliver. And when we deliver Thryv Leads, we deliver it right into their CRM. They get a notification on their smartphone that says, you just got a Thryv Lead. It's a little orange card that pops up. They click on it, it takes them right through to the customer's interest. And not only that, but it stays in the CRM database with the date and time and source. So if they fix a hot water heater today and in 9 months the customer decides to remodel the whole kitchen, we get credit for the lifetime value of that customer. So the first problem it solves for us is getting credit for those leads, and that's just a big deal. Anyway, I'll stop there.

Great. That's helpful. So then -- so the big increase from '18 to '19, I mean, it's a $40-plus million increase, is that $40 million plus coming away from one of the other line items that you have? I mean, was that basically -- I guess, I'm trying to get a sense for the true sort of underlying growth versus sort of the reclassification or recharacterization, if you will?

Without a doubt, there's cannibalization. We're not out on purpose trying to move stuff, but it's just a simpler, less friction way for us to try to sell our various lead products. And so we're finding that, that's working very well. So yes, when you look at a lot of the various line items and you look at the fairly large declines in some of the digital line items, part of that is they are...

They're moving to -- moving the leads.

Yes.

Okay. So just with respect to the -- to Thryv, I guess, I'm not clear why isn't it possible to improve engagement while continuing to grow overall users. Is the initiative -- is this a response to an undesirable level of churn that you may be experiencing? And if it's possible, and I apologize if I missed this in some of the materials or on the call, but could you share with us any statistics around churn, gross or net adds and the number of subscribers that you had at the end of the year, average monthly billings, et cetera?

Yes. So you all remember that for 134 years, we were a Yellow Pages publisher. And 4 years ago, we decided to make a big change and pivot to becoming a small business software company. And so there's a whole journey that's been taking place in that process. What we found is that we had a super product market fit that when we went out to talk to our 0.5 million small business base of Yellow Pages advertisers, they really identified with the problem that we were describing, that Thryv was meant to solve. And so we found good strong sales growth, and we found that they were extremely sticky. And one of the things that we were excited about with Thryv is just how sticky it is, that when customers buy it, they tend to keep it. And so that was something that we really felt great about. And Lance, in all honesty, as we ventured outside our existing customer base and began to acquire customers untouched by human hands, buy yourself online or with the help of some agents buying online, we started using it as a new business acquisition tool, we started bringing in a different group of customers with different problems, different opportunities. And we found that group was churning at a higher level than we wanted. And so we really have backed up a step and taken a hard look at the tools that we use to manage those customers at the onboarding process and mission, and there's kind of a whole rework. We really started in the middle of last year and are making great strides. We've overhauled onboarding, we've overhauled the process of overhauling, the way we incent the reps, the way we pay them, when we pay them. We're not so much going to paying them to sell a Thryv, but more as they get their customers fully engaged on Thryv. So it's so broad that it really is taking a lot of the resources, the focus, the heat and light that we have in the company to do that. And we feel like to try to scale on top of the little bit higher churn number we've seen in these new client acquisitions would be dumb. We really need to make sure we have all the kind of software metrics where we want them, that our cost of acquisition, lifetime value, churn numbers, daily active user engagements, that those things are where we all want them to be as we kind of reaccelerate in 2020 and beyond. We want to make Thryv a very big business. And we think there's an enormous opportunity based on product market fit. But we're just kind of tapping the brakes a little bit. I guess I'll call it the pause that refreshes to really get some of those things addressed.

Great. I mean, I -- should I get back in queue? I've got a couple of more questions, but I'm happy to get back in the line if you'd prefer.

Go ahead and ask your next question.

Great. So -- okay. So the variable margin, and I like the way that you're presenting that now. My question is, when you break that -- it remains in the 70% to 75% range. When you break that down by revenue line, aside from SEM, of course, how much variation do you see from line to line? Or are they fairly clustered kind of in that 70% to 75% kind of margin area?

It's going to vary. The -- where you're going to have a discrepancy is around SEM just because of the traffic purchases. But other than that, the other products are pretty much in the 70% range.

Great, all right. And then on the balance sheet, I know you are in the process of finalizing plans. So I'm not going to ask what you're going to do or what you might do, but rather what the terms of your new credit agreement would potentially allow you to do. You mentioned potentially repaying the ABL, returning capital to shareholders, making acquisitions. Are there specific baskets that sort of say, with each of those 3 ideas, you can -- you're sort of limited, I mean, not the ABL repayment, I'm sure, you could pay that all down if you want to. But is there a sort of a basket that would say, you could pay up to this much for acquisitions? Or issue a special dividend up to a certain amount? Or is that unlimited?

It's unlimited. We could do whatever we want.

Okay, great. And then last question from me is, recognizing that you're losing a lot of your tax shields, and therefore, cash taxes are going up quite a bit despite the expected declines in the print business. But so to the extent that EBITDA ultimately comes in higher or lower than guidance, should we expect sort of just kind of a straight proportional 20 -- mid-20% variance in the cash taxes? Or are there sort of breakpoints that might protect you on the downside and maybe dampen a little bit on the upside?

I guess, with a wide brush, I guess, you're right. But taxes isn't easy. And we do have some AMT credits remaining on the base. And it's a little bit more complicated than that, but with a big brush, yes.

I'm sorry. With a big brush, which? You mean it would be more or less just proportional to the increase?

Correct.

Your next question comes from the line of [ Rick Leach with Georgica ].

I was just wondering if you could kind of maybe prioritize for us your capital allocation. It's a little bit like the question Lance asked, but maybe more direct in terms of what do you see is making the most sense to you this year and whether you do see acquisition opportunities out there.

Like we just said, we're still figuring that out. And when we do figure it out, we'll let everybody know. But we're not in a position to disclose that right now.

Okay. So the priority is figuring it out?

We're working on the priorities.

[Operator Instructions] Your next question comes from the line of Kurt Hoffman with Imperial Capital.

Just had a question on the net debt in your 2019 budget. I guess if net debt was around $510 million at the end of the year, in theory, all else equal, it would still be around that level after the second drawdown. But the budget is projecting $765 million net debt at year-end. It seems like it's not including most of the cash the company will receive from the second drawdown. Just curious why you didn't include that cash or if I'm missing something?

Well, we're assuming we'll do something with that money.

Right, right. But if you buy a business, obviously, the EBITDA would be hopefully higher?

We had to build a budget and put it out there and we used some assumptions. I think you could figure out what that assumption was, but we're not prepared to disclose anything more about it right now.

Okay. And I think last December, you provided some longer-term guidance kind of through 2021, which, if I recall correctly, kind of kept EBITDA around this 2019 level you're calling for today. Do you think that still holds on a longer-term basis?

We haven't [ announced ] our projections for the 5 years, so we're not prepared to comment on that right now.

Your next question comes from the line of Jim Bennett with Bennett Management.

I guess, this is along the same question lines. You've got, looks like, $224 million of free cash flow this year. And -- but your debt is going up by $250 million. So what's the discrepancy there?

Well, there's an assumption that we're going to use that cash for other purposes.

Okay. And I guess, if -- it's about a $475 million difference, and if I look at your shareholder equity going down by $420 million, I'm just asking, for your -- for the purposes of your assumptions that you're presenting, are you assuming a stock buyback? Is that the purpose of this presentation?

That's what we assumed. But we haven't -- we didn't finalize anything.

And at this time, there are no further questions. And we thank you for joining. This does conclude DexYP's Fourth Quarter and Full Year Conference Call. You may now disconnect, and have a wonderful day.