Filing summary
Entity and period: The supplied filing is Dex Media, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2013, not a filing under the name Thryv Holdings, Inc. It covers the three and nine months ended September 30, 2013. Unless otherwise noted, amounts are in millions.
Business context and reporting comparability
Dex Media provided local marketing services to more than 600,000 business clients, including print directories, online and mobile search, and other digital marketing offerings. Dex One and SuperMedia merged and emerged from Chapter 11 on April 30, 2013. The 2013 consolidated results include SuperMedia only from May 1 onward, while 2012 results do not include SuperMedia; reported year-over-year comparisons therefore are not like-for-like.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $397 | $320 | $1,030 | $999 |
| Operating income (loss) | $(142) | $28 | $(259) | $107 |
| Net income (loss) | $(132) | $(13) | $(259) | $98 |
| Interest expense, net | $99 | $47 | $221 | $152 |
| Operating cash flow | Not separately provided | $250 | $261 |
- Operating margin, calculated from reported revenue and operating income, was approximately -35.8% in Q3 2013 versus 8.8% in Q3 2012, and -25.1% for the first nine months of 2013 versus 10.7% in 2012.
- Operating expenses were $539 in Q3, up from $292, and $1,289 for the nine months, up from $892. Depreciation and amortization was $242 and $524, respectively, substantially affected by merger accounting and shortened estimated useful lives of intangible assets.
- At September 30, cash was $234; current assets were $793 and current liabilities $461. Debt carrying value totaled $2,851, including $160 of current maturities; shareholders’ equity was a deficit of $142. Cash less debt was approximately $(2,617).
- Nine-month investing cash flow was positive $133, including $154 of cash acquired with SuperMedia; capital expenditures were $21. Financing cash flow was $(321), principally debt repayments. Cash increased $62 from year-end 2012.
Material changes and unusual items
- Reported Q3 revenue rose 24.1%, but included $132 of SuperMedia revenue. Nine-month revenue rose 3.1%, including $193 from SuperMedia. Management attributed underlying revenue pressure to reduced advertiser spending and competition from other media.
- Combined net advertising sales declined 15.3% in Q3 and 15.9% for the first nine months versus the comparable 2012 periods. Management described advertising sales as a leading indicator of recognized revenue.
- Unaudited pro forma results, adjusted to present the merger as if completed January 1, 2012, showed revenue of $537 versus $551 and net loss of $59 versus $43 for Q3 2013 and 2012; nine-month revenue was $1,686 versus $1,507 and net loss was $108 versus $81. These illustrative figures do not include potential cost savings and are not projections.
- Merger transaction and integration costs totaled $62 for the first nine months, including $41 of integration costs and $21 of transaction costs. Reorganization items were $37, including a $32 noncash write-off of a debt fair-value adjustment. The 2012 nine-month comparison included a $140 gain on early debt extinguishment, versus none in 2013.
- Acquisition accounting assigned no fair value to $386 of SuperMedia deferred revenue and $93 of deferred directory costs that otherwise would have been recognized over the following year; the filing says these accounting adjustments do not affect future cash flows. SuperMedia’s acquired debt was recorded at a $360 discount to face value, with discount amortization increasing interest expense.
Outlook, liquidity, risks and contingencies
- Management said operating cash flow and available cash were expected to be sufficient for working capital, estimated principal and interest payments, and other needs through the remainder of 2013. This is a near-term assessment, not formal earnings guidance.
- Management cited declining advertising sales and revenue, print directory usage, competition from digital and other media, client cancellations and collection risk, merger integration and cost realization, and the company’s leveraged structure and covenant restrictions as significant risks.
- Total debt was $2,851 at carrying value. Senior secured facilities mature December 31, 2016; senior subordinated notes mature January 29, 2017. The notes carry 12% cash and 14% payment-in-kind interest, with required payments split between cash and PIK through the senior facilities’ 2016 maturity. The company reported covenant compliance at September 30, 2013.
- Management reported no material changes to contractual obligations or risk factors from its prior disclosures. It said it had no off-balance-sheet arrangements. A 12.5-basis-point change in applicable interest rates was estimated to change nine-month interest expense by approximately $3.
- Legal matters included a securities class-action settlement preliminarily approved and described as fully funded by insurers, several employment and benefits cases, and a patent matter settled October 29, 2013. Management did not expect pending matters to materially adversely affect results, but some outcomes or loss amounts were not estimable.
- Disclosure controls were assessed as effective. The company had not completed an evaluation of SuperMedia’s internal controls over financial reporting; SuperMedia was excluded from the 2013 evaluation scope.
Important facts for investors to verify
- Confirm the registrant and corporate lineage: this source is a 2013 Dex Media, Inc. filing, not a filing labeled Thryv Holdings, Inc.
- Separate merger-related additions and acquisition-accounting effects from underlying performance; verify results against the filing’s pro forma disclosures and future comparable periods.
- Track advertising-sales declines, revenue trends, client retention and collections, and whether integration savings offset integration costs and operating pressure.
- Review debt service, cash-flow sweeps, interest costs, covenant headroom, and the sustainability of management’s stated liquidity outlook.
- Assess the assumptions behind intangible-asset values, useful lives and amortization, tax benefits, and unresolved legal matters.