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Executives

Katherine J. Harless - President and CEO

Dee Jones - Acting CFO and Sr. VP - IR

Analysts

Peter Salkowski - Goldman Sachs

James Boyle - CL King

Paul Ginocchio - Deutsche Bank

Meridith Alin - Bear Stearns

Ethan Lacy - Merrill Lynch

Andrew Finklestein - Lehman Brothers

Chris Smith - SCM Advisors

Jeff Shelton - Natexis Bleichroeder

Idearc, Inc. (IAR) Q4 FY07 Earnings Call February 7, 2008 10:00 AM ET

Operator

Good morning and welcome to Idearc's Fourth Quarter and Full Year 2007 Earnings Conference Call. With me today are Kathy Harless, President and CEO; and Dee Jones, Acting Chief Financial Officer.

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 risks and uncertainties. The company advices you not to place undue reliance on these forward-looking statements and to consider them in light of the risk factors set forth and the reports filed by Idearc, Inc. with the Securities and Exchange Commission. The company has no obligation to update any forward-looking statements.

The company will refer to some non-GAAP measures that exclude transition costs related to the spin-off and other special items that are intended to present full year and quarterly financial results. As the company has been a standalone entity at the beginning of the periods presented.

Given that the spin-off from Verizon occurred in November 2006, management believes these non-GAAP measures provide investors with a more meaningful view of the company's performance and a better benchmark to future performance. The company has provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures on the Idearc's website, idearc.com under the Investor Relations tab. Please note that an archived version of this call will be available on the website at idearc.com under the Investor Relations section. Additionally a replay of this conference call will be available through February 21st by dialing 800-642-1687. International callers should dial 706-645-92-91. The replay access code is 287-22-854. At the end of the Company's prepared remarks, there will be a question and answer session.

And now I would like to turn the call over to Kathy Harless, President and CEO. Kathy?

Katherine J. Harless - President and Chief Executive Officer

Good morning everyone and thank for joining us. We have three items on our agenda today; first we will review full-year and fourth quarter 2007 business performance and earnings. Second, we will discuss the first 2008 dividend payment to Idearc stockholders and finally we will discuss our view of 2008.

2007 was our first full year as an independent company. It was a year of transformation and investment. I want to highlight three key metrics that indicate the value we have built in for stockholders. We achieved internet revenue growth of approximately 24%. We maintained strong OIBTDA margin and we increased net income and earnings per share on an adjusted pro forma basis. Our many accomplishments throughout the year demonstrate that we are making progress on all fronts and gaining momentum. There are many initiatives and accomplishment behind our 2007 results. But our employees were the true driving force behind those results. Our progress has been the result of a strong management team coupled with a dedicated and passionate workforce is committed to the company's success. Idearc employees embrace the challenges and remain steadfast and doing what they said they would do and we owe our accomplishment to their hard work and dedication.

Now let's start with our print business. As you know this business accounts for the majority of our revenues and it is a strong free cash flow business. However we all fighting challenges and we feel the access of the cyclical economic headwinds. Now with respect to ad sales, there are two specific areas we have put a major focus on.

First, regarding national sales. We previously discussed the lack luster performance in our third party national channels. We are managing this softness in several ways including expanding our internet national sales force, working hand in hand with certified marketing reps so that they can better adapt to our transformation and augmenting the CMR channel with their our in-house national sales force. You will recall that we initiated a pay-for-performance model for select, non-traditional national advertisers and we entered into an agreement for presale future advertising inventories to a bulk sale to a third party. And while we continue to see softness in the near term, we are managing this portion of our print business with these opportunities to improve national sales performance as we move through 2008 and beyond.

Now second, on the local level, we did not perform as well as we wanted in Florida, Texas and California. Clearly, we saw economic stress in these markets and the objective is to protect our customer base. One of the ways we are protecting our customer base is by offering unique bundles designed to attract and retain profitable customers.

In addition we have made management and organizational changes to include our competitiveness. We are beginning to see some traction from these changes as it often happens in this business; it will be some time before we fully reap the benefit. Now while we remain in a disposition and that no single book makes up more than 2% of our revenues, we have taken and we will continue taking action across the board to mitigate the impact of current market condition.

Now we want to spend a little time focusing on some of the growth opportunities we see in our portfolio and some of the progress we made during the year. In the internet revenue, which as you know is a very strong and integral part of the multi-platform strategy; we achieved nearly 24% growth in 2007. We took several steps this year with content, technology and traffic to ensure that our internet products continue to evolve and to future our goal of being one of the strongest local service providers in the marketplace.

The Superpages.com network had an impressive 4.8 billion network searches in 2007, a 71% increase in the number of network searches from the prior year. Furthermore we expanded our advertisers' exposure by forming numerous distributions and partnership agreement. Our advertisers' visibility now spans across more than 250 internet sites and across multiple channels including internet, mobile, Blackberry, instant messenger, selective systems and other local search vehicles.

In addition, we streamlined Superpages.com to make searching for local information easier and faster. We introduced a new algorithm to deliver more relevant search results and added a number of new features and products. We expanded our consumer provided content by allowing users to add photos and blogs. We also introduced Superpages Mobile for Blackberry and a restaurant reviews applications for Facbook users.

We unveiled breakthrough new products like Superpages video which offers small and medium size business owners the opportunity to showcase their unique products and services to potential buyers through streaming video.

Our commitment to growth, both organically and through acquisition, remains firm. In 2007 we invested in our internet business through a number of strategic acquisitions. The purchase at Switchboard.com from InfoSpace coupled with the purchase of LocalSearch.com URL has significantly increased our end user traffic in 2008. Each of these strategic acquisitions plays a key role in maximizing the future value of Idearc.

So as you can see, Superpages.com is successfully evolving from an internet yellow pages provider into a more comprehensive customer solution that includes powerful local search tool. However we have only scratched the surface of our Superpages.com and Idearc in the curve.

Transformation requires a better monetized internet searches, increased quality traffic, and place our sales force and assets to work where they are most affective. Clearly, we are doing much to meet towards our more multi-product feature. But I will tell you, transformation will not happen overnight. It is a strategic, well-managed process that balances all aspect of our business including sales, marketing operations and employees. Something you will hear more about over the course of 2008 is the work we are doing to achieve balance during this transformation.

Some markets are transforming faster than others. With market expansion, we are leading with our internet sales offer first and maintaining a print sales offer as appropriate. In other words, our sales channel is evolving to meet customer demand market by market.

Our multi-product advertising portfolio in Idearc [ph] consumers who are ready to buy to find what they need, wherever they are, wherever they need it. Thousands of advertises, small, medium and large business owners advertise with us to get fair information to on-the-go consumers. This is an exciting growing market and it will be a big part of our future.

Now I would like to turn over the call to Dee for a detailed look at our 2007 earnings. Dee?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Thank you Kathy and good morning everyone. I would like to start with our dividend announcement. Yesterday, our Board of Directors approved a quarterly dividend of $0.3425 per outstanding share. The dividend will be paid on or about March 13, 2008 to stockholders of record at the close of business on February 21, 2008. Consistent with our established balanced capital allocation program, and current view of continued, strong and stable cash flow we are maintaining our dividend to stockholders.

Throughout 2007 we allocated free cash flow to maintaining a strong dividend program and to servicing our debt and we invested in growth opportunities such as the Switchboard.com acquisition and funded it internally with our free cash flow. We achieved all that we said we would do with our capital allocation program and we intend to be consistent and steadfast with capital allocation in 2008.

Turning now to our financial results. On an adjusted pro forma basis, we had multi-product revenues of $3.189 billion for 2007, a decrease of 0.8% compared to 2006. On a GAAP basis we reported multi-product revenues of the same $3.189 billion for 2007, a decrease of 1% compared to 2006.

We reported internet revenue of $285 million for 2007, a 24% increase compared to 2006. Superpages.com's performance was driven by solid growth from all sales channels, increased traffic and contributions from both fixed-fee and pay-for-performance product offering.

We reported multi-product revenues of $787 million for the fourth quarter 2007, a decrease of 1.7% compared to the same period in 2006, and we reported internet of $75 million in the fourth quarter 2007, a 19% increase compared to the same period in 2006. The company reported operating income, net income and earnings per share on a GAAP and adjusted pro forma basis. The adjusted pro forma basis measures are described in the earnings release and are reconciled to the corresponding GAAP measures attached to the release.

In addition, you will recall that we adopted an accounting change in the second quarter 2007 to be consistent with others in the directory publishing industry and aligned with our revenue recognitions policy. Prior period financial information has been restated to reflect this change. On an adjusted pro forma basis, 2007 OEBITDA was $1.518 billion, a decrease of 2.8% compared to the prior year. Adjusted pro forma OEBITDA margins were 47.6% for 2007 as compared to 48.6 for 2006. This decline was attributed primarily to the relative impact of the accounting change, additional exposure in bad debt and continued mix shift in revenue, partially offset by various expense initiatives. Excluding the effect of the accounting change, a non-cash event, 2007 EBITDA on an adjusted pro forma basis would have been the same $1.518 billion, a 1.2% decrease versus 2006.

Excluding the effect of the accounting change 2007 adjusted pro forma OIBITDA margins reflected a slight margin contraction at 47.6% compared to 47.8% in 2006. After reflecting the impact of transition costs as described in the accompanying financial schedules, we reported 2007 OIBITDA of $1.431 billion, a decrease of 0.3% compared to 2006. Fourth quarter 2007 OIBITDA on an adjusted pro forma basis was $350 million, a 6.9% decrease compared to the same period in 2006. Adjusted pro forma OIBITDA margins were 44.5% in the fourth quarter 2007 compared to 46.9% in the same period in 2006.

After reflecting the impact of transition cost as describe in the financial schedules attached to the earnings release, we reported OIBITDA of $333 million for the fourth quarter 2007 and an 11.7% increase compared to the same period in 2006. On an adjusted pro forma basis 2007 net income was $484 million or $3.32 per diluted share, an increase of $4 million or $0.03 per diluted share over 2006.

We reported net income on adjusted for pro forma items of $429 million or $2.94 per diluted share for 2007. Fourth quarter 2007 net income on an adjusted pro forma basis was $110 million or $0.75 per diluted share, an increase of $5 million or $0.03 per diluted share over the same period in 2006. We reported net income of $100 million or $0.68 per diluted share for the fourth quarter 2007. Reduced interest expense and favorability and the effective tax rate contributed to our increase in net income for both full year and fourth quarter.

Our free cash flow for 2007 was $323 million based on cash from operating activities of $369 million, less capital expenditures of $46 million. For 2007, multi- product advertising sales declined 2.2% compared to 2006. For the fourth quarter 2007, multi- product advertising sales declined 4.9% compared to the same period in 2006. As we discussed, current softness in the economy continues to impact our multi-product ad sale.

It is important to note that our long term view of the business and the underlying fundamentals are unchanged. While we are currently facing cyclical economic headwind, we are have a number of initiatives in place to mitigate the impact. With that in mind we expect slightly lower amortized multi-product revenues primarily due to economic softness in the second half of 2007 continuing into the first half of 2008. We also expect some operating margin contraction due to the continued transformation of the business and associated changes in the revenue mix.

Now let's take your questions. Operator will you please open the call for questions?

Question And Answer

Operator

Thank you. [Operator Instructions]. Your first question is coming from Peter Salkowski with Goldman Sachs. Please go ahead.

Peter Salkowski - Goldman Sachs

Good morning Dee and Kathy. Just a question I guess with regards to the economic conditions. If you could talk a little bit about what you expect with regards to 2000 revenue declines, either on the print or you can talk about the total revenues but you booked a lot of revenue obviously in the deferral and amortization model. I am just kind of getting a sense of what magnitude you might think in terms of revenues in 2008 and you could either talk about ad sales or reported revenue, whichever you'd like. And then on that, I know in the past you had given sort of statements that the margin contraction with regards to the business was going to be in the 30 basis point range over several period of time, so your guidance a while ago, and wondering how that's going to look now in 2008 if you have a sense again of the magnitude of the decline in the operating margin? And then I have a follow-up.

Katherine J. Harless - President and Chief Executive Officer

First, let me just address the performance attributing to the general economic downturn. We acknowledge those current conditions and we have a number of initiatives in place to mitigate that impact. We said we didn't perform as well as we wanted to in California, Florida and Texas. But let me tell you some of the actions that we are taking in order to solidify those markets. We have gone out with offering more bundled internet and print products. We are offering more paper and ink as you know that's the way to ensure that we provide improving value proposition to our advertisers. We improved our management organizational structure there. I would tell you that I am beginning to see some traction on the different changes that we made but as you know in this business it does take some time before we reap the benefit and I will let Dee address anything on the margin contraction. Dee?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

And Peter, welcome back by the way.

Peter Salkowski - Goldman Sachs

Thank you very much.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

With respect you know the guidance or further stress fetidity [ph] around, the 08 revenues -- I mean we saw guidance as we stated in our -- restated it in my comments, and so getting -- putting further specifics around that is really not something we are prepared to do at this point. We will say as we have talked before the economic softness we have seen in the second half of the year, we do foresee it continuing for a couple of quarters as we look forward. We will see the degree or how long it takes to move beyond that and certainly that's going to influence on the revenues as we look forward. But having said that back to our guidance statement that we expect slight decline in the revenue line. With respect to margins as we have pointed out, I think, we showed 47.6% margins for 2007. When we say and there is some contraction against that expected for next year as we see the revenue mix change and the business evolve, it's a function of how significant that transformation occurs and how fast it occurs, that's exactly how much we arrive there but as far as the greatest specificity beyond that and we are also not prepared to provide that. And we will say when we look back at 2007, 47.6 absent the accounting change versus 47.8 or the degree of contraction that we've comment around in 2007. And 2008, we are looking at some additional contraction but it remains to be seen how the transformation evolves.

Peter Salkowski - Goldman Sachs

And then just on -- a personnel question, Kathy, I guess how the search is going with regards to appointing a new CFO in that situation and then also understanding as in the online world, Eric Chandler lost at the end of January, wondering if your replacing him. And certainly you are going with someone from the outside?

Katherine J. Harless - President and Chief Executive Officer

Hi Peter, thanks. On the role of the CFO, let me address that first. We have retained an executive search firm and we are actively working to secure a selection there for the CFO. We don't have any realistic specific timing but we will update you as soon as we can on that position. On Eric's departure, we want to wish him well. He has a great opportunity ahead of him and a new pal. So we are in the same means there. We have retained an executive search firm and we are also working closely to secure appointment election there. I'm very pleased with the slides [ph] that we have gotten from people outside of the company who are very interested and coming to join us and we will also give you an update on that as soon as we can.

Peter Salkowski - Goldman Sachs

Can you share with us where Eric went?

Katherine J. Harless - President and Chief Executive Officer

Pardon.

Peter Salkowski - Goldman Sachs

Can you share with us where Eric went off to?

Katherine J. Harless - President and Chief Executive Officer

No.

Peter Salkowski - Goldman Sachs

That's fine.

Katherine J. Harless - President and Chief Executive Officer

Basically he's still -- let me put it this way. He is still here in Texas, I don't know if that has been completely announced but he's taken a great opportunity. He's going to be a CEO of a company and he'll be very well and we wish him all the luck.

Peter Salkowski - Goldman Sachs

Excellent. Well thank you very much.

Operator

Thank you. Your next question is coming from Jim Boyle with CL King. Please go ahead.

James Boyle - CL King

Good morning. It's stated in the press release and you mentioned that the second half of the similar [ph] softness continues into the first half of '08. Do you have sufficient visibility to roughly project a second half of '08 as better than the ongoing softness and why it might get a little bit better?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Jim, let me take that one, real quick. With respect to the second half of '08, we don't have a lot of visibility into that at this point, we are just starting to touch those markets and those activities I will say. I have heard that some of the initiatives that we put in place and some of the activities we have undertaken in both the national channel as well as, I mean, the local channel that we expect to start seeing some of the benefits of that. We also recognize and foresee that that sort of the second half of '08 is sort of the one year anniversary of the start of the economic downturn at least as far as our markets our concerned and I think the second pass through those markets, I think, will not see the degree of impact as you normally do in this business on a first pass-through in an economic downturn situation. So with that said we are hopeful that second half is going to start sure [ph] turnaround, it remains to be seen, but we do have some initiatives in place that we are hopeful will start showing benefits as we move into that part of the year.

James Boyle - CL King

Speaking along those lines, the forward [ph] prints revenue 6.7% drop, is that likely to get worst near-term or is that the bottom in you experienced view?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Well Jim I don't think we are giving guidance or specificity around ad sales or with regard to quarterly results. As we've said and I think the degree of indication we are providing is that we do expect softness to continue into the first quarter and somewhat into the first half of the year where it remains to be seen exactly where that lands.

James Boyle - CL King

And given these various initiatives that are starting to show a little traction, are there 2 to 3 potential signals that you would look for would show up first when the softness starts to recede?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

I think Jim the best indicator for us is the response in the marketplace to our value proposition to the advertisers, our ability to retain those advertisers and the ad sales aspects and results as we move through our various canvasses, and those are the -- what happens on a day-to-day basis in the marketplace as the sales force works through their canvasses.

James Boyle - CL King

But there are any advertising categories or sellout or ad rate increases or anything though that would be on definable in-house for you to say, Aha! Things are going slightly better?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

I think in response to the various product offerings, in response to the initiatives that we have undertaken will be our best indicator.

James Boyle - CL King

Okay. And finally could you give us some color on those regions of Texas, Florida, California that were particularly hard hit, could you give us some feel for that?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, Jim, I think the party [ph] is where we have put that because we don't give specific results on a region-by-region basis. But what I will say is that fourth quarter is more heavily influenced by those particular markets, the results in those particular markets is obviously disproportionate to the overall results of a broad base of markets absent the disproportionate impact in those particular markets, we probably would have seen the results more along the lines of what the third quarter results were and the impact of that. We did have an influence in Florida and Texas and California that impacted fourth quarter that was more significant than what we had seen in the third quarter because of the waiting of the books. As you know you get -- you work in different markets and different times of the year. So we did see a disproportionate impact there. It did obviously influence the results from a quarter-to-quarter basis and I would say that there are particular markets and regions of the country where on a full year basis we actually improved results 2007 versus 2006. I am very happy with the progress we continue to make in those regions and areas of the country. We've got to get out and address what we are facing in the economy in the three regions that were mentioned as well as in the national channel.

James Boyle - CL King

Thank you.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Thank you Jim.

Operator

Thank you. Your next question is coming from Anthony DiClemente with Lehman Brothers, please go ahead. Mr. DiClemente your line is live.

We will move on to our next question coming from Paul Ginocchio with Deutsche Bank. Please go ahead.

Paul Ginocchio - Deutsche Bank

Thanks. I have just got a couple of minor questions. First, could you just -- I know you talked about your network, search growth, why don't you give us the search growth for just Superpages.com, as that [ph] URL? Second, I know the national accounts pay for the full year of advertising upfront. I am wonder if that's maybe the turmoil in the national channel which is causing the working capital outflow as national decline that would cause obviously less cash upfront? And third, did Switchboard acquisition have any impact on the fourth quarter RMI [ph] growth? And finally does your guidance include any future online acquisition that you haven't announced yet. Thank you?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Okay. Paul, [indiscernible] with respect to searches and the network, we view our business in the online space in an aggregate sense and a value proposition we provide to the advertiser goes well beyond just Superpages.com. So we don't break out on searches just on a individual basis, I will say we did see strong growth and strong results from our organic traffic, but not really prepared to give any more specifics around that. With respect to the national channels and the influence on the working capital, that actually is not -- certainly the decline in the revenue or the influence to the revenues there impacted the cash because it is like you say more an upfront cash aspect to the business. But the activity in the receivables account and activity in the working capital was more influenced by an item I believe we've spoken about before which was the transition away from Telco billing under the Verizon umbrella to our own direct billing and if you understand a way the dynamics of the Telco billing worked underneath Verizon, we were getting our money in 30 days in the Sediment [ph] process irrespective of when the customer, the clients were actually paying that bill.

As we moved away from Telco Sediment [ph] process to direct billing, we saw an increase in our day sales outstanding from that activity, because we were relying on the actual timing of the cash in from the customer and so we did see a one-time bump-up in working capital associated with the increase in day sale outstanding on the receivable side, we've seen a collection activity and those day sales outstanding flatten out as we got into the end of the year and so we are optimistic that the cash flows will not see that additional impact as we look into 2008.

Paul Ginocchio - Deutsche Bank

Dee, can I just follow? So it sounds like that was the one time investment is '07 and that '08 we are not going to get the money back or we are not going to see the same level of outflow?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, you won't see the same investment required in working capital associated with that particular item. Day sales outstanding are going to move around but we had a one time bump in day sales outstanding as a result of the transition to the direct billing.

Paul Ginocchio - Deutsche Bank

Great, thank you.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Okay. On the Switchboard.com acquisition we began placing our advertisers in the Switchboard.com on January 1 after the contract with AT&T expired in that space and we did see a little bit of influence in the fourth quarter but relatively minor in the revenue activity in the online space from the Switchboard acquisition in fourth quarter and as we move through 2008 we expect a ramp up as we further integrate our advertisers into that and as we work through our cycle with our fixed-fee advertisers and our pricing opportunity associated with the additional value of bringing to them from the Switchboard.com acquisition. So that -- the influence of Switchboard.com will grow as we move through 2008. Some minor impact in fourth quarter but not terribly significant. And then your last question Paul was --

Paul Ginocchio - Deutsche Bank

Sorry, there were a lot of questions. Just that, do you -- are you including any sort of minor internet acquisitions that you might make in '08 in your '08 guidance or is that -- would that be incremental?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

We are always looking at opportunities in the internet space for -- to grow that business and enhance our portfolio and opportunity to offer -- to enhance our offering in the marketplace. But we do feel comfortable with our share of assets right now as to being able to achieve the guidance we've held out.

Paul Ginocchio - Deutsche Bank

Thank you.

Operator

Thank you. Your next question is coming from Ian Whittaker [ph] with UBS, please go ahead.

Unidentified Analyst

All right, thank you very much. I am -- just have a question really with let's say -- one of your competitors' Geo [ph] was saying this morning they were talking about 3% organic revenue growth for the year end and March '09. It sounds that therefore that they are talking the baking gain and some quite significant share vis-à-vis yourself. I am just wondering can you give us an idea as to the competitor pressures that are coming from the independent directories and particularly from yellow book at the moment. And whether that is far behind, I mean your guidance for 2008. And also as well, you can't comment specifically on your guidance, but from what you know about the economic situation at the moment and indeed your own measures, would you say something like a 3% revenue growth in the current environment at time is a little bit too aggressive?

Katherine J. Harless - President and Chief Executive Officer

Well Ian let me just start with and talk a little bit about the competitiveness and with the year [ph]. We are not seeing any change than what we saw in 2007 which was as you know very favorable for us when we rolled out and continued to offer the companion product. At that we saw the yield and I believe that even maybe in the press release that they were having trouble growing any organic or gaining market share. We actually saw when we were winning back market share and so we will continue with the programs we had in place and we are not seeing anything in the marketplace that would say that they are taking market share away from us. As far as the guidelines on the economy and the growth there, we really wouldn't speculate on that.

Unidentified Analyst

Just in terms of all -- sort of the competitive environment, and I had two follow up questions. One, are you seeing any of the other -- and apart from the other book, are you seeing sort of other end of [ph] patents exit the markets as conditions toughen. And then also as well in new metropolitan areas which in the past have been impacted perhaps more significantly in terms of competition. Can you give us a bit more color perhaps in terms of some of those sort of AM market share gains over the past 12 months against the competition?

Katherine J. Harless - President and Chief Executive Officer

Let me on the -- about other independent exiting we are seeing -- really haven't seen any exit the market, everyone still seems to be competing with each other and for market share but as I mentioned earlier we're -- we see where we are taking market share away and on your question about the larger metro market, what we are seeing there is that print still remains an important direction of media for advertisers. If you think about small to medium size advertisers such as your plumbers or your roofers or your electrician and as you know we do have presence in many of the large metropolitan markets and that's why our internet offer is really sound important. And what are we really seeing is that our markets are evolving and we are evolving with them, and some of the markets are transforming faster than others, but we are there in the marketplace in order to take that market share.

Unidentified Analyst

Okay. So it's serves as a metropolitan areas, sort of there's no real change in terms of your reversal in some of the market share losses you have seen in the past year's bill, gaining some market share from competitors, would that be a fair comment to make?

Katherine J. Harless - President and Chief Executive Officer

That's correct, Ian.

Unidentified Analyst

Okay, that's great. Thank you very much.

Operator

Thank you. Your next question is coming from Meridith Alin with Bear Stearns. Please go ahead.

Meridith Alin - Bear Stearns

Good morning, just a couple of question. Going back to the issue of visibility, could you give us a sense of what percentage of revenues you have booked for 2008 at this point? I think you have shared a number in the past?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

At this point obviously from an amortized revenue perspective, half of -- close to half assuming a normal distribution in the revenue which we -- we are close to that, approximately half of it will be pubed [ph] because it's driven by 2007 publication. And the other half remains to be published as we move through 2008. As far as sales activity, around that other half we are probably 20% and 25% though that revenue base at this point or a combination of those two gives you the mathematics necessary to get at your amortized proportion.

Meridith Alin - Bear Stearns

So you said you're about 20% to 25% through the other half that's not booked?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

That's right.

Meridith Alin - Bear Stearns

Okay. And can you give us any additional color on what's going on with local versus national. I know you made a few comments and if you could remind us as to what percentage of the business national versus local represents?

Katherine J. Harless - President and Chief Executive Officer

Well Meridith, national represents roughly around 15% of our business, and we continue to see softness in the near term on the national level. But let me tell me how we managing through those softnessess. I think we talked about this some on the last call that we have gone in and we had expanded our internet national sales force. We are really working hand in hand with our certified marketing reps so that they really can better adapt to our transformation; I think we alluded to that in our last call. And the other thing we have done is we have augmented the CMR print channel with our own in-house national sales force. Now you might recall that we initiated the pay-for-performance model for some select non-traditional national advertisers and we are also entered into agreement to sell pre-sell future advertising inventory through bulk sale to a third party. Both are going well for us. But near-term we still see some softness there in national and it's in the dollars, not the advertisers. By that I mean we are not particularly loosing advertisers but it's in the dollars with the softness in the market.

On the local side, we did not perform as Dee alluded to earlier at California, Florida and Texas; books didn't perform as well as we wanted them to, so we've taken action there and offering more bundled internet and print product; given our advertisers more paper and ink and we are seeing some good traction there, but it will take some time for us to be able to see that come through the financials.

Meridith Alin - Bear Stearns

Could you comment then on the print side -- I am sorry, on the local side in terms of what you are seeing then in terms of -- you said before softness in dollars but not advertisers on the national side, what would be your comment then on local?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, with respect to local, we actually in 2007 have seen a improvement and our advertiser accounts saw the degree of decline in that count much more in line with sort of the flat view slightly down in that -- in our customer accounts. And what we are feeling is more decrease or reductions in programs in this economic tough -- in the economic times, not a matter of actually loosing the advertisers. The ones that we have lost have been on the low end side of the business and we have mitigated the degree of loss in that channel. At this point we will continue to make progress with some of the offers that we've made there to get them a better value proposition such that they stick with us and as we move forward. But we are still loosing some in the low end channel, but we are encouraged by what we are seeing and as far as customer accounts thus far.

Meridith Alin - Bear Stearns

And then where is your bad debt stand now in terms of percentage of sales?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

We looked on -- we've looked up a little bit in the third and fourth quarter, we ended the year with a 5% accrual rate and we feel like that's a -- the appropriate level as to where we are at and in the different circumstance we are in if you recall. We had been looking to get out that particular element of our cost structure and we continue to do so, we've put some initiatives in place calling earlier, addressing concerns or customers that would not have concerns with in a faster and more complete fashion earlier in the process.

We think we will continue to see some benefit of that and having said that you have got the economic conditions and the circumstance; so that's put a little uncertainty around that but the 5% low is where we are right now and that -- and that's what we are looking at, I believe, somewhere in that range for 2008.

Meridith Alin - Bear Stearns

And then last question. I don't know if you can share with us what you paid for cash taxes in 2007 in the quarter and how you would guide us going into 2008?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Full year cash taxes, I believe, came at 248 for the year. I don't have the quarterly number in front of me. I will say there was some favorability in the quarter because of some favorable state tax rulings under FIN 48 that allowed us to have a lower effective tax rate. And some of those were more one time in nature, but I think we will have a tax rate in the 37% to 38% range as we look forward.

Meridith Alin - Bear Stearns

Terrific. Thanks very much.

Operator

Thank you. Your next question is coming from Christina Luzama [ph] with JP Morgan. Please go ahead.

Unidentified Analyst

Hi. Thanks for taking the question. Wanted to talk about the incumbent business that you have versus some of the independence. Could you remind us what revenue you derive from one versus the other and also are you seeing different trends in -- based on those types of books?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

The independent business still represents relatively small proportion of business at about 3% on the print side. As far as trend lines are concerned that depends on market by market. In the independence space in the tougher markets we are seeing the same softness that we are seeing in the incumbent space; still growing revenues in the independent space in the aggregate. But trend line -- and that sort of directional view is not terribly different. It varies in the same fashion market by market.

Unidentified Analyst

And as part of your initiatives are you planning any new independent launches in 2008?

Katherine J. Harless - President and Chief Executive Officer

Yes, Christina, let me just -- in 2000 -- when we do, we will let you know what those markets are but let me explain a little bit on those market expansion. We are now leading with internet sales offer and then we are following with the print offer as appropriate, and we are seeing some really good success there and especially in the big metropolitan markets that we are; Denver, Salt Lake City and Miami. We believe we can capture the growth portion of our business with internet offer in these markets and we really fine tuned this approach and we have been looking at it and working at the last couple of months and we are really excited about the preliminary results we are seeing.

Unidentified Analyst

And then switching gears a little bit, can you remind us within your floating debt, how much of that is hedged right now?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

We are 90% -- our overall capital structure is 90% fixed at this point.

Unidentified Analyst

Okay. And then can you remind us just given where your bonder trading and everything, do you have the capacity to buy back bonds in the open market and is that something you guys are looking at?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

The Board and the senior team here evaluate all opportunities relative to the capital allocation program. We think we put forth a balanced approach. We sustain -- ability to sustain the dividend and maintain it in that level. Bonds -- buying back bonds and all other aspects of the capital allocation program are certainly an area where we looked at it and considered it but we think the capital allocation program being consistent and steadfast with our capital allocation program from 2007 as we move through 2008 is the appropriate one. And so to that end we are comfortable with the leverage and where we are at in the market and we will evaluate those opportunities as the markets evolve.

Unidentified Analyst

Right, thanks.

Operator

Thank you. Your next question is coming from Jamie Newman [ph] with Wachovia. Please go ahead.

Unidentified Analyst

Hi, thanks for taking the question. Most of my questions were answered, just a quick one on the M&A front, can you talk about what you are seeing there as far as possible internet acquisitions?

Katherine J. Harless - President and Chief Executive Officer

Well let me just talk about acquisitions in total. We see -- as you know last year we made several acquisitions on the internet front, and as -- we always look out for these great opportunities and we will continue to do that in 2008. So you know the, whether or not, as we talk about the internet, there is different types of companies that we look at based upon our content traffic and technology needs and we will continue to explore those opportunities.

Unidentified Analyst

Okay, thank you. And can you tell us where, what your numbers of customers were at the end of the year versus last year?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes we reported approximately 850,000 customers last year on a multi-platform basis. We will be very -- in that range we are close to that level on when we report and put out the 10-K at the end of the month.

Unidentified Analyst

Okay, thank you.

Operator

Thank you. Your next question is coming from Eri Lap [ph] with Morgan Stanley. Please go ahead.

Unidentified Analyst

Yes thanks. I am not sure if this is an easy question to answer but I was wondering if you could give us a flavor for the impact to your business from a secular standpoint versus a cyclical standpoint, however you want to delineate that?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

I think as we look at that and as you understand the business, it is very difficult to isolate specifically on what's driving what. We understand and recognize and acknowledge that the business is transforming. I think the easiest way for me to maybe address that question is to look back before we were starting to see the cyclical headwinds and the economic conditions that we are dealing with. And when I look back at '06 and the first half of '07, we were making strong solid progress towards getting this business back into a growth mode with respect to overall multi platform revenue. We think that's -- that's the path we will be back on when we work through these economic circumstances and the economic conditions that we are in.

Isolation on what's pure just cyclical and economic versus what appears -- what is secular, is going to vary by -- market by market, but delineating that in specific term is very difficult to do. But I will say as we look at the first half of '07 and what our performance was with respect to revenues, I am getting very close back to flat on a multi-platform basis. It's how we view this business that we were making the steps necessary to get them; we think we will continue to make those steps even through these economic times, and then coming out on the backside, prepared to continue and move through the transformation.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Your next question is coming from Ethan Lacy with Merrill Lynch. Please go ahead.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Not muted.

Operator

Well, Mr. Lacy your line is open.

Ethan Lacy - Merrill Lynch

Can you hear me now?

Operator

Yes.

Ethan Lacy - Merrill Lynch

Okay, sorry about that.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Not speaking up.

Operator

We will move on to our next question coming from Andrew Finklestein with Lehman Brothers. Please go ahead.

Andrew Finklestein - Lehman Brothers

You are talking about the business in transition here, just want to know what your thinking in terms of expense growth and how much you have to invest in the business as look forward to '08 with -- in that digital platform, in that -- in the transformation of the business?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, Andrew. As we look at the mix shift and the shifting in revenues as far as growth, we are sourcing our revenues in the margin contraction. I think we have given guidance, so we are going to see some margin contraction as we look into 2008. But having said that, we are also at the same time got to be steadfast in managing our cost structure and looking at that cost base such that we can manage through that transformation at the margin level as well as at the revenue line. It certainly is going cost money to continue to drive the growth in the dotcom side of the house, but at the same time we are also looking for cost opportunity as we did through out 2007 to get out that. Can't really be -- don't look to be anymore specific than that, we do expect some contraction. We are anticipating doing things to manage the margins in all of our lines of business as we look into 2008.

Andrew Finklestein - Lehman Brothers

Okay. And then just you mentioned a few other markets, I guess, where you closed the books in the quarter. People ask -- a lot of people ask about the north-east, where there's maybe some more internet competition, can you tell us what you are seeing in some of those market also?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Actually when I alluded -- I alluded to earlier that we see in certain regions and areas of the country where we saw actual improvement in our results in 2007 versus 2006 and actually with markets in the Mid-Atlantic region and up into the North East, our markets where we did see improvement in multi-platform sales results in those areas. Now having said that in certain areas there are certain pockets in that part of the country are more conducive to getting at our growth in the internet side than others and we are taking advantage of that and we think we are position well to take advantage of that and that was one of the driver of us being able to get at improvement in those two regions in '07 versus '06.

Andrew Finklestein - Lehman Brothers

Okay. And just one follow-up. How much difference are you seeing I guess in sort of the amount of spend coming out of your accounts. It sounds like you are trying to beef up the offer a little bit with more internet or maybe some more space in the book but you know sort of what's that doing to the end -- what are you seeing coming from the average spend on your advertisers?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Average spend and average value per order was relatively stable in 2007. We did see a slight uptick. We have lost some -- we did loose some customers on the low end side. So the mathematics works such that your average value per order does tick up. But when you look at it on an account by account basis, our capacity and ability to get price ups -- pure price ups is still pretty flat in that area with respect to getting an increased spend with some of them; when you provide the paper and ink and you provide the references and try those sorts of elements in your value proposition, the advertisers are willing to spend more money with you if we can bring in the references. That's what this business is all about. And so that's part of the strategy behind proving more paper and ink through that advertiser at the end of individual offer level.

Andrew Finklestein - Lehman Brothers

Okay, thanks.

Operator

Thank you. Your next question is coming from Jim Boyle with CL King. Please go ahead.

James Boyle - CL King

Could you clarify one of your earlier answers you mentioned of the 50% still to be sold in '08 that roughly 20% to 25% had been booked, was that 20 to 25 percentage points or 20% to 25% of the 50%?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Well -- of the 50% Jim. 50% of the revenue to be amortized comes from '08 publications, and with respect to '08 publication we're approximately 20% to 25% complete.

James Boyle - CL King

Percent complete not percentage points?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Right, that's right.

James Boyle - CL King

Okay, thank you.

Operator

Thank you. Your next question is coming from Chris Smith with SCM Advisors. Please go ahead.

Chris Smith - SCM Advisors

Yes, thanks. Just a quick one. Can you remind us what percentage of total revenue Florida-California represent?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, it's pretty consistent with the GDP across the nation as far as are influenced in those markets; so the 20% range of you business comes from those particular markets.

Chris Smith - SCM Advisors

Okay, thanks.

Operator

Thank you. Your next question is coming from the Jeff Shelton with Natexis. Please go ahead.

Jeff Shelton - Natexis Bleichroeder

Thanks. I was hoping you could talk a little bit more about trends within Superpages.com? Have you seen any change in take up rates from your customers and for your existing customers, are you seeing them spend more or less or about the same on you SCM offerings?

Katherine J. Harless - President and Chief Executive Officer

Yes, Jeff, on the -- ideally on the internet side, we are continuing to see that go up as we started experiencing that in 2007. So that continues to be a good story. As I mentioned earlier our searches improvement just about 71% of that we would call from what I did the prior year and we are seeing -- continuing to see a lot of demand on our internet offer in the marketplace. So we believe that we achieved 24% growth there in 2007 and we don't foresee that as slowing down.

Jeff Shelton - Natexis Bleichroeder

Now, that you've switched over the business model for Switchboard, what's sort of revenue contribution do you expect from that asset in 2008?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

One thing we talked about the Switchboard acquisition way back, I think we were in the low 20s with respect to the revenue number that we have allowed with regard to that. And then ramping, which was -- would ramp through the year as we migrate through a whole set of advertisers and get out that value and continue to integrate the advertisers into the model. And I think we are still looking for that sort of number and from that embedded within the -- our expectations for Superpages.com as a whole.

Jeff Shelton - Natexis Bleichroeder

And a follow up on a previous question about your provision for bad debt expense in the fourth quarter, it was very similar to what you showed in the third quarter. But if I recall, the third quarter was sort of a one time step-up because of the billing switchover. Are you seeing increased delinquencies from your existing accounts that's causing you to be more cautious on that line.

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Well I think with respect to the day sales outstanding and the risk profile of our accounts receivable, we felt like getting to the 5% level for the full year and bad debt was the appropriate thing to do and that's why you did see an additional booking in the fourth quarter. And like we said earlier, we've got some initiatives in place and some activities underway in the collection side as well as the credit side. That is why we believe that the 5% level is appropriate one as of the end of the year and that as we look forward we believe that it will be in that range and some of the initiatives will start to take effect and start providing us a little more better view with respect to the bad debt number.

Jeff Shelton - Natexis Bleichroeder

And if I were to take that out of your G&A for the fourth quarter, it does look like that your standard G&A spiked up in the fourth quarter. Is there a seasonal element to G&A or is that a good run rate going forward into '08?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Okay. Are you looking on a quarter-to-quarter basis?

Jeff Shelton - Natexis Bleichroeder

If I take your G&A and back out the uncollectibles on a sequential basis it seems to have spiked up --

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes. On a sequential basis, yes, and if you recall the third, I was looking at it on a sequential basis if you recall with respect to the third quarter. You did see -- we did have the benefit of the print plant sale in the third quarter, so that's causing much of the spike. G&A actually without those elements we are seeing a slight decline on a sequential quarter basis.

Jeff Shelton - Natexis Bleichroeder

And last question, if I look at the cash flow from operations in the fourth quarter, it seemed to have been impacted on a negative side from a big change in working capital. You did talk earlier about the billing change over but that was really a second quarter event. Is there a timing issue involved in the fourth quarter and we should see some reversal in the first quarter?

Dee Jones - Acting Chief Financial Officer and Senior Vice President - Investor Relations

Yes, I think, to begin -- the best way to look at the cash flow, I think, is taking a look at the full annual level and adjusting for the transition items and then the element of the day sales outstanding and the shift from telco billing to direct billing. I think it's a better view to look at the full year as opposed to looking at the individual quarter as there are some -- there is some timing aspect there.

Jeff Shelton - Natexis Bleichroeder

Okay, thank you.

Operator

Thank you. At this time I will like to turn the floor back over to Kathy Harless for closing comments.

Katherine J. Harless - President and Chief Executive Officer

Thank you. In summary our accomplishments of 2007 generated immediate benefits and more importantly it enhanced our potential for the future and our ability to deliver solid earnings over the long term. It was the beginning of our transformation. We are reshaping our operations and our cultures to build a company that is keenly focused on growth, productivity and solid operating margins. We are confident that our multi-platform strategy will bring long-term value to our stockholders, sales leads to our advertisers and relevant local results to consumers. And of course we are committed to fostering a rewarding and compelling environment for our employees to execute our strategies in 2008. So -- and I thank you all for joining us today and for your continued interest in Idearc.

Operator

Thank you. This does conclude today's Idearc's fourth quarter and full year 2007 earning conference call. You may now disconnect.

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Source: Idearc, Inc. Q4 2007 Earnings Call Transcript
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