DXM - Dex Media

[BargainValueHunter]

http://blog.supermedia.com/news/files/2013/04/dex-media1.jpg

 

www.dexmedia.com

 

Dex Media is a leading provider of marketing solutions for local businesses. Through our Dex One and SuperMedia Marketing Consultants, we partner with local businesses across the nation to help them achieve success. We’re passionate about helping our clients create and grow their customer relationships by providing comprehensive marketing solutions that include websites, print, mobile, search engine and social media solutions. We are trusted by more than 665,000 local business clients nationwide to help them achieve their business goals.

 

http://www.newsobserver.com/2013/04/30/2860978/dex-one-completes-merger-with.html

 

The combined company publishes yellow pages directories in 43 states and has more than 5,000 employees, including more than 2,700 salespeople, whom it calls “marketing consultants.” The two legacy companies have been aggressively moving into selling digital advertising that wasn’t limited to online directories. Dex One, for example, aligned itself with partners such as Google, Yahoo and Yelp to offer an array of online and mobile ad products.

 

Last year, Dex and SuperMedia combined generated $2.7 billion in revenue.

 

“This combination establishes Dex Media as a powerful marketing services company with digital revenue approaching $500 million and a near national footprint,” Schultz said in a statement.

 

http://www.forbes.com/sites/halahtouryalai/2013/05/10/whats-the-story-with-dex-media-and-why-is-it-so-darn-cheap/?partner=yahootix

 

Interestingly, the combination was also designed to preserve approximately $1.8 billion in net operating loss carryforwards (“NOLs) and other tax assets previously owned by DEXO.  As a result, the combined entity will see substantially-reduced corporate taxes going forward on account of these assets.  In fact, the tax asset owned by DEXO prior to the merger also helped justify the uneven 60%/40% equity split (instead of an even 50%/50% deal).

 

http://finviz.com/chart.ashx?t=DXM&ty=c&ta=1&p=d&s=l

 

Today, management projects that the new company (DXM) will achieve $150-175 MM in synergies by eliminating excess overhead, IT, sales, and digital/print costs.  In addition, it expects to benefit from a larger scale (through increased purchasing power/ad presence), increased offerings, tax benefits, and better cash flow/deleveraging opportunities going forward.

 

Based on today’s approximate $16.00 per share price for DXM, the market is valuing the company’s equity at just under $275 MM.  Add to that figure $3.4 BN face amount of debt and then deduct $490 MM in cash and tax assets it owns to get an adjusted total enterprise value of $3.2 BN.

 

This compares very favorably, at only 3.3x TEV/EBITDA, with the company’s last quarter’s annualized run rate of $960 MM in EBITDA.

 

Kyle Bass on Dex Media @ Ira Sohn:

 

http://www.bloomberg.com/news/2013-05-08/dex-media-debt-to-go-to-par-after-bankruptcy-hayman-s-bass-says.html

 

Dex Media Inc. (DXM)’s bonds will more than double in value to trade at par and its shares will jump to as much as 10 times current levels, according to Kyle Bass, whose Dallas-based hedge-fund firm Hayman Advisors LP made $500 million in 2007 betting against U.S. subprime mortgages.

 

Dex Media is a small company and a “cheap option,” Bass said today at the Ira Sohn conference in New York. Hayman owns 9.9 percent of the equity, he said.

 

 

[GrizzlyRock]

melting ice cube with no raison d^etre to exist online.

 

How many times has this gone BK? 2x?

[BargainValueHunter]

melting ice cube with no raison d^etre to exist online.

 

How many times has this gone BK? 2x?

 

http://www.marketfolly.com/2013/05/kyle-bass-sohn-conference-presentation.html

 

Print is declining 18% per year ad infinitum, but Digital is growing 22%. Digital should be bigger than Print by 2016. Total revenue will flatten out, from $2.3B now to $2.0B.

...

Bank debt creates company at 2x EBITDA. IRR is in the 30s if it gets re-fi'd in next year. DXM, with more actual digital revenue than pure-play peers, trades at a cheaper multiple. $3.2B of debt on $2B Rev, $700M EBITDA, but FCF pays down debt. Equity is a tiny sliver, only $180M. Equity could go up 300% with a 3x multiple.

[GrizzlyRock]

Good luck timing the inflection point.

 

Bank debt guys have lost massive $$$ regardless of what these have been called: Idearc, SuperMedia, Dex, RH Donnelly. Permanently. When the debt looked super "cheap"...

 

"Cheapness" is simply lipstick on a pig of a biz.

 

Do you think they have any reason to exist online?

[BargainValueHunter]

Good luck timing the inflection point.

 

Bank debt guys have lost massive $$$ regardless of what these have been called: Idearc, SuperMedia, Dex, RH Donnelly. Permanently. When the debt looked super "cheap"...

 

"Cheapness" is simply lipstick on a pig of a biz.

 

Do you think they have any reason to exist online?

 

http://www.alexa.com/siteinfo/superpages.com

 

http://www.google.com/ads/premiersmbpartner/advertisers-findpartner.html#tab=partner-supermedia-com

 

As a Google AdWords partner since 2006, SuperMedia has helped thousands of small and medium-sized businesses plan, create and optimize their online advertising campaigns through effective campaign management, transparent reporting and excellent customer service.

 

 

[siddharth18]

I noticed Kyle Bass owns a decent chunk and so does Paulson. There was a frenzy following the IPO where the price shot from $10 to $20+ and I suspect some sold out. Now the stock is becoming boring again it seems but for those with a long term horizon.

 

Dex flies under the radar, is involved in boring business, recently emerged out of bankruptcy, lack analyst following and faces uncertainty.

 

Can any board member can provide clarity on this?

[siddharth18]

melting ice cube with no raison d^etre to exist online.

 

How many times has this gone BK? 2x?

 

Investor won't be rewarded (or in this case - harmed) by the past performance (or lack thereof).

 

Good luck timing the inflection point.

 

Bank debt guys have lost massive $$$ regardless of what these have been called: Idearc, SuperMedia, Dex, RH Donnelly. Permanently. When the debt looked super "cheap"...

 

"Cheapness" is simply lipstick on a pig of a biz.

 

Do you think they have any reason to exist online?

 

This is PRECISELY why one should look at such stocks. Anything that generates cash has a reason to exist. Surely it won't be the next Apple or Google but that doesn't make it worthless, right?

 

Such biases are squarely the reason why such stocks are under-followed and under-valued.

[ItsAValueTrap]

Most of their revenue comes from calling up small business owners and convincing them to buy advertising (either phone directory and/or online).  I don't think that their online advertising is very good since their websites don't get a lot of traffic.  There have been times where the phone directories' sales tactics are a little questionable.  They make it very difficult for clients to cancel.

 

The phone directories do generate a lot of value for some of its advertisers.  Some people do use phone directories to find a plumber, waste removal, etc. etc.  However, I think that many people will switch to searching online for these kinds of things.  And when they search for a "Toronto plumber" online, they will be inundated with Google's highly profitable search ads.

 

If I was a small business owner, I would likely look to advertise on Google and to a lesser extent Google's competitors and Facebook.  Both Google and Facebook give away free advertising like candy.  There are lots of ways you can easily get ~$100 in free advertising (as an individual or small business owner).  To some degree the phone directory companies have to compete against that.

 

Buffett says that Berkshire Hathaway was a mistake.  You might be able to make some money from bad businesses, but you're probably better off buying a wonderful company.  The phone directory industry will clearly be in decline and may be worse than textiles.

[Packer16]

The way to play this is via the debt as you will get all the residual cash flows.  I think Francis Chou recommended this at the FFH meeting in April.

 

 

Packer

[ItsAValueTrap]

This is PRECISELY why one should look at such stocks. Anything that generates cash has a reason to exist.

There are other industries that will likely be around several years from now.

 

Here are things that are beat down right now:

Mining*

Coal*  (*The mining industry in general destroys a lot of shareholder value.  So be careful, because the vast majority of these companies do really dumb things and lie to shareholders.)

Pinetree Capital Debt - the company holds semi-liquid stocks and its debt has yields of ~20%.  I think the debt is safe.

For-profit education

Microsoft?  Dell???  Maybe Intel???

Newspapers.  Buffett is trying to buy the ones that aren't in decline.  e.g. The little community newspapers and industry newspapers.

[siddharth18]

The way to play this is via the debt as you will get all the residual cash flows.  I think Francis Chou recommended this at the FFH meeting in April.

 

 

Packer

 

Packer, thanks for the tip. There are a fair amount of articles about debt on SA and I found this http://distresseddebtinvestorsclub.com/home/details/1646

 

If I recall correctly, Paulson holds a fair amount of debt too.

 

May I ask what's your opinion on equity? Thanks & cheers!

[Packer16]

In my book, the equity is a speculation while the debt (if bought cheap enough) could be an investment.  I have lost capital on these declining levered firms in the past and stay away from the equity these days.

 

 

Packer

[BargainValueHunter]

http://finance.yahoo.com/news/dex-media-announces-second-quarter-113000971.html

 

Pro forma free cash flow, a non-GAAP measure, was $176 million for the six months ended June 30. These results are net of $20 million integration costs and $30 million of merger transaction costs. Dex Media and its predecessor companies have repaid $209 million of debt year to date through the second quarter. The company had a cash balance of $244 million as of June 30.

 

http://seekingalpha.com/article/1613822-dex-media-management-discusses-q2-2013-results-earnings-call-transcript

 

In sales, we have a very dedicated and quality team focused on our clients and their needs. We continue to build strong relationships as we retain our clients in the 80% to 85% range. The combination of channels available and managers in place, we are working on our plans to improve the top line and attract more clients.

 

Recurring revenue, on a dollar basis, for our clients has been in the 70% to 80% range, which indicates they are receiving value and getting results from our products and solutions. This year, we have seen stronger recurring revenue among clients who purchased bundles last year.

 

Our new business is in the 3% to 5% range, and we see an opportunity to improve this. In terms of the second quarter and year-to-date, sales trends are not what we would like or what we expect them to be, once we have completed the merger integration and our team's products and processes are in place. We continue to see increasing pressure on print. The combined sales trends across all products and markets over the past 2 quarters have remained consistent.

 

Meanwhile, digital sales growth has slowed in the first 2 quarters of the year. 3 factors account for this trend: first, we saw some weakness in the national channel for both print and digital, particularly among clients that work through digital agencies; second, the penetration growth of bundles in the former Dex One markets has slowed. Bundling did help drive and establish initial digital relationships with many clients in the former Dex One markets. Now our attention will turn to growing that relationship by upselling existing products like SEM or adding new products such as video or text marketing; and third and perhaps the most important, the merger and integration have caused some distractions that impacted performance across the board.

 

Although these factors caused digital growth to slow in the first half of the year, the digital business continues to move in the right direction as we create bundled solutions that are very attractive to local advertisers and lead to high retention rates. Our digital business has significant scale with over $260 million in ad sales in the first half of the year.

 

This quarter, I have been in the field to welcome new associates and make sales calls. I have been impressed with the people I've met and the sales calls that I've been on. We have improved our approach, skills and knowledge in both former companies.

 

On a call last week with a home improvement contractor in New Jersey, it was great to hear the clients say to his marketing consultant, "I trust you." He tracks every call to his business and our marketing consultant helps him see the business he gets from his advertising programs. And [indiscernible] with a dentist. I again saw the trusted relationship between the client and our marketing consultant. The dentist had doubled his business with the Dex One bundles and was very happy.

 

We have a powerful platform with the combination of print, digital, bundles and the ability to track performance, as well as our hundreds of thousands of client relationships. Our patented technology, Merchant Platform, continues to give us an efficient way to distribute our clients' messages and get results that we track daily. Along with the algorithms of DexNet, we can provide customized programs that track their performance. We have been committed to selecting the best people and best practices, and we know this will pay off.

 

All the work in the next quarters will be designed to improve our sales trends and help us acquire more clients. With most of the people issues out of the way, our focus now is on building a solid foundation for 2014.

[BargainValueHunter]

Fairfax Financial initiates a position in Dex Media:

 

http://whalewisdom.com/filer/fairfax-financial-holdings-ltd-can

[compoundinglife]

Fairfax Financial initiates a position in Dex Media:

 

http://whalewisdom.com/filer/fairfax-financial-holdings-ltd-can

 

Interesting. Does anyone off the top of their head if they made any money on the Super Media position?

[Chris DeMuth Jr]

I thought that Kyle Bass' presentation at Ira Sohn earlier this year was compelling, but it was too frustrating to try to buy it at the time when the stock rocketed; it is hard to wait for the impact of such presentations to fade but can be worth the wait -- http://seekingalpha.com/instablog/957061-chris-demuth-jr/2136262-fast-is-fine-but-accuracy-is-final.

[tombgrt]

I thought that Kyle Bass' presentation at Ira Sohn earlier this year was compelling, but it was too frustrating to try to buy it at the time when the stock rocketed; it is hard to wait for the impact of such presentations to fade but can be worth the wait -- http://seekingalpha.com/instablog/957061-chris-demuth-jr/2136262-fast-is-fine-but-accuracy-is-final.

 

9 forumposts and 8 of them reference to your seekingalpha postings, all posts in rapid succession of each other. Please stop?

[ItsAValueTrap]

I think he should post and share his thoughts on the company.  The point of a forum is to have a discussion!

[Chris DeMuth Jr]

I thought that Kyle Bass' presentation at Ira Sohn earlier this year was compelling, but it was too frustrating to try to buy it at the time when the stock rocketed; it is hard to wait for the impact of such presentations to fade but can be worth the wait -- http://seekingalpha.com/instablog/957061-chris-demuth-jr/2136262-fast-is-fine-but-accuracy-is-final.

 

9 forumposts and 8 of them reference to your seekingalpha postings, all posts in rapid succession of each other. Please stop?

 

I am sorry.  My thought was to consider discussing ideas here instead of Seeking Alpha prospectively due to a higher content quality.  My intent was to mention ideas that I thought could be some combination of interesting or useful.  I simply didn’t grasp the utility of re-typing something that I thought to be relevant but had already said elsewhere, hence the links. 

[Olmsted]

Chris has written some great articles, has original ideas and an interesting perspective, and his participation here is good for the forum. I do not think it is unreasonable for a new poster to inject thoughts he has already formulated into the discussion in rapid succession.

 

I can see how posting too many links could be interpreted as trolling for hits - even though I am positive that is not the case here. Chris, perhaps quoting a favorite point or summary paragraph in the post along with a link would make it more "thread friendly"?

 

Apologies for the non-DXM post.

[fareastwarriors]

http://online.wsj.com/article/SB10001424127887324755104579073170866279840.html?mod=WSJ_Heard_LEFTTopNews

 

Dex Media: Too Soon to Close the Book on Yellow Pages Publisher

 

Dex Media Shows That Phone-Book Publishing Still Generates Lots of Cash

[BargainValueHunter]

From the article:

 

Dex's total debt outstanding was $3.29 billion at the end of the second quarter, excluding an adjustment for an accounting discount taken when SuperMedia's debt was acquired. Over the past four quarters, Dex has used its cash to pay down $341 million, or about $20 a share, in debt.

 

If the pace of de-levering continues, logic suggests at least some of this value should transfer to the equity value. Say, for example, that 75% of the debt value accrues to equity. If Dex pays down $20 a share of debt in 2013, that would add up to $15 a share of equity. The stock started the year at $7.90, implying a share price of $23 by year-end.

 

http://finviz.com/chart.ashx?t=DXM&ty=c&ta=1&p=d&s=l

[Packer16]

This assumes something will be left for the equity after the debt is paid down.  This think is sinking like the titanic.  The T6 mo FCF is $176 million which is down 45% from the same period last year.  The remaining debt is $2.8 billion.  If you want to invest in this one look at the debt as the equity will probably be a 0.

 

Packer

[Guest hellsten]

The way to play this is via the debt as you will get all the residual cash flows.  I think Francis Chou recommended this at the FFH meeting in April.

 

 

Packer

 

Yes, you're correct. It was a bit difficult to find the presentation:

 

http://www.bengrahaminvesting.ca/Outreach/2013_Conference/PPT/Chou.pdf

 

Dex West term loan is complicated so I am going to simplify it.

 

You can buy the common stock of the holding company Dex One,

and you can make an argument that you can make 5 times the

money – a five bagger so to speak -- but I feel so much safer with

this bank term loan.

 

http://humblecapital.com/wp-content/uploads/2013/06/2013-FFH-and-Value-Investing-Conference-Notes.pdf

 

Dex West Media Term Loan – Mandatory paydowns by FCF, fully covenanted.

 

https://www.santangelsreview.com/2013/04/22/notes-from-the-ben-graham-centres-2013-value-investing-conference/

 

- Investors are short-changing themselves big-time if they don’t look at debt securities

- Always important to give up some returns to get higher margin of safety

- Some companies are C.R.A.P. – “Cannot realize a profit” but if the balance sheet is good enough, the debt can be a way to make money rather than through the equity

- Dex West Media is one he is buying now, but most debt is fully priced today

- Dex West Media Term Loan – Dex West  is one of the subsidiaries of Dex One and the term loan is the most senior debt in capital structure. They are using free cash flow to buy back debt at 100 cents on the dollar and trades at 76 cents now (4x FCF), as they buyback debt it will trade at 1x FCF in 2016

- Can get returns as good as equities with far higher margin of safety in bonds sometimes

[Guest hellsten]

44% of Hayman Advisors LP's total assets are in DXM according to Morningstar (see Institutions tab):

http://investors.morningstar.com/ownership/shareholders-concentrated.html?t=DXM&region=USA&culture=en-US

 

I thought that can't be correct, but Whalewisdom also shows the same number:

http://whalewisdom.com/filer/hayman-advisors-lp

 

I'm not familiar with Hayman Advisors, but they seem to make very concentrated bets. TPX ~50%. NSM ~40%.