Dex Media announced today that former Yellowbook CEO Joe Walsh will take over as its President and CEO, replacing Peter McDonald.

It has been widely rumored for some time that Walsh was in line for a key role at Dex Media. Walsh and his former Yellowbook colleagues Gary Shaw and Gordon Henry have recently been doing consulting work at Dex Media. Their presence sparked rumors that a succession plan was in the works, likely involving Walsh, 51, replacing the 64 year old McDonald, who came out of retirement to run SuperMedia, which later merged with Dex One to become Dex Media.

Walsh was a popular leader at Yellowbook, but he left the company in 2011, not long after its parent company Yell (later renamed hibu) brought in a new management team led by Mike Pocock. Since leaving hibu, Walsh has consulted and served on boards and has remained visible at local search industry conferences.

Walsh’s leadership of Yellowbook changed the U.S. Yellow Pages landscape.  Through expansion and acquisition, he built the publishers from a small regional independent into a roughly $2 billion giant that challenged incumbent publishers, particularly in major markets.

Yellowbook’s push into large markets was advanced when it was acquired by British Telecom (later Yell). Major metros had once been considered too expensive for small publishers to take on, but BT gave Yellowbook the necessary financial wherewithal. Walsh’s mantra was that the then utility based incumbent publishers (one of which he now runs) charged too much for their advertising, while Yellowbook offered small business advertisers a lower cost per lead.

While it may take a little while to get a sense of where Walsh wants to take Dex Media, his appointment does raise immediate speculation about another wave of industry consolidation. Back in 2011, Walsh gave a keynote address at a BIA/Kelsey conference in which he made the case for the ultimate consolidation of the major U.S. directory publishers.

In that address, Walsh said his analysis showed that consolidating two major directory companies would help stabilize revenues declines and improve margins. Much has transpired since that presentation, including the Dex One/SuperMedia merger, which created the company Walsh now leads.

Walsh and McDonald will take questions on the transition on Dex Media’s November 4 Q3 earnings call. One question that may come up is whether Walsh still advocates consolidation.

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Dex Media plans to spend 2014 moving past the integration phase that occupied much of last year, and into an execution phase focused on dialing in the right digital product set for small-business advertisers. The result should be an improving trend on digital revenue, and possibly a more stable picture on the print side.

That’s what we inferred from this morning’s Q4 and year end 2013 earnings call. Dex Media executives do not offer guidance, and they largely resisted analysts efforts on this morning’s call to provide any specific revenue forecasts.

What we do know is that the digital results moved in the right direction in Q4, following a negative trend through the first three quarters of 2013. Dex Media reported zero Q3 digital ad sales growth on its Q3 earnings call, culminating a steady declines in online ad sales throughout the year. For Q4, digital ad sales were 5.1%. What accounts for the improvement? Dex Media executives blamed much of the poor performance on the inevitable integration disruption. The improvement is a combination of moving through the bigger integration hurdles while also making some progress on the product and sales effectiveness side.

For the full year, Dex Media generated 24% of its roughly $2.1 billion in revenue from digital, or about US$500 million in online revenue. Print ad sales results stabilized a bit in Q4, but CFO Dee Jones cautioned not to over interpret one quarter. He noted that the mix of markets in Q4 slightly favored better print results. That said, the effect of bundling print along with digital products is expected to have a slight stabilizing impact on print over time. Print ad sales declined by 19.1% in Q4, compared with a 20.6% Q3 drop. In Q4 2012, print ad sales were down 23.3%.

Dex Media CEO Peter McDonald was more focused on the digital opportunity on today’s call, emphasizing the opportunity Dex Media has to make digital simple for small-business advertisers. He noted that with 2,000 local sales reps, Dex Media is well positioned to bring SMBs online at scale, something others have tried and failed to do. When asked about competition, McDonald said the biggest threat is from what he referred to as “that guy,” an informal expression Dex Media has coined internally to describe small local digital consultants and agencies.

“They tend to be good at one or two things, like SEO or social media,” McDonald said of these small local agencies. Dex’s opportunity is to offer a simplified, comprehensive solution for SMBs that includes presence, search engine marketing, social media, reputation management and other solution, with measured performance. “Businesses need us.”

McDonald said Dex Media is constantly trying out new bundles, looking for the right mix that will maximize revenue growth and retention. At the entry level, McDonald said  the company is getting traction with its Start Smart bundle.

Dex Media ended 2013 with about $2.7 billion in bank debt, down from $3.3 billion at the end of 2012. Moving forward, the company plans to use some of its cash to further reduce debt, but when asked, Jones would not rule out making strategic investments, including acquisitions.

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Dex Media, the newly minted company that was once SuperMedia and Dex One, is counting on a strategy of serving as the “outsourced marketing partner for small-businesses” as they wade into the complex and confusing world of digital media.

That was a key message from this mornings investor call to reveal the Q1 results of predecessor companies, as well as talk about what the future holds for the new company.

The company’s CFO also suggested that the wave of consolidation in the North American directories industry may not yet be over.

In response to a question about any additional consolidation on the horizon, CFO Dee Jones replied, “We have always been an advocate for consolidation….This is a little premature. Right now we are focused on getting this one integrated, but we are always looking at opportunities.”

This statement may fuel speculation that some further combination may eventually be in the offing. In addition to Dex Media, possible players in any future M&A wave might include YP Holdings (majority owned by Cerberus), Yellow Media (Canada), Yellowbook (Hibu’s U.S. operation) and possibly smaller players like Berry.

Dex Media CEO Peter McDonald acknowledged that Q1 results were “below expectations.” The company reported the two predecessor results individually, with ad sales dropping by 17 percent and 16 percent at Super Media and Dex One respectively.

Looking ahead, McDonald sees Dex Media taking advantage of marketplace confusion, where SMBs need help wading through the myriad local media choices they face. Complexity drives outsourcing, McDonald contends, summarizing Dex Media’s opportunity. He added that Dex Media is “agnostic about how we drive leads” which he believes gives the media company credibility with local advertisers.

McDonald emphasized the need for Dex Media to sell more new products to existing customers (retention is much higher among customers buying more than one product), and to do more to bring in new clients. On the latter point, McDonald described three programs aimed at attracting new customers. The first, which he called “Get Started,” involves a team dedicated to converting inbound leads into new business. McDonald also cited “Encore,” the company’s pay per call initiative and text marketing as key drivers of new customer acquisition.

McDonald said 70 percent of Dex Media’s text marketing clients are new customers, all of which are offered additional Dex Media products. The company is in the process of rolling out text marketing in stages.

“We get more from add on products than from text marketing itself,” McDonald said.

During questions and answers, McDonald refused to bite when asked if his print business would still be around in five years. He countered that research (presumably from the Local Search Association) shows print usage is still significant among those 45 and older, suggesting there is longevity remaining in the traditional product.  He also noted the financial incentive to support print.

“Print is still a strong cash-flow machine for us.”

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SuperMedia and Dex One completed their merger today, creating Dex Media, a company with annual revenues of approximately $2.6 billion (based on combined 2012 revenues), with about $500 million in digital revenue. The combined company also has 2,700 sales reps and roughly 665,000 advertisers.

The combined company is the second largest directory publisher in the United States, following YP Holdings, which according to BIA/Kelsey estimates had roughly $2.8 billion in 2012 revenue.

The new company is being led by CEO Peter McDonald, who was CEO of SuperMedia and was previously president of Dex.

“We intend to seize the opportunity to create additional value for existing and new clients, employees and investors. I want to recognize the outstanding performance of Dex One and SuperMedia employees over the past few years to transform the companies and make the merger and creation of Dex Media possible,” McDonald said in a statement announcing the merger’s completion.

By joining forces, SuperMedia and Dex One will have more time to effect a successful business transformation than they would have as separate companies. The combined company will be stronger and better able to weather the storms on the changing local media landscape. The combined company will be both a tougher competitor and arguably more attractive strategic partner based on its expanded footprint and enhanced financial stability.

The merger’s approval coincides with the two companies’ emergence from pre-packaged Chapter 11 bankruptcies. A judge at the U.S. District Court in Delaware approved the two companies’ reorganization plans yesterday, paving the way to finalize the deal.

While the companies are formally merged, much work remains to combine the two organizations and realize the $150 million to $175 million in annual cost synergies the deal is expected to produce.

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