On today’s Q3 earnings call, DexOne CEO Alfred Mockett made it clear that bundles are central to Dex’s hopes of arresting its revenue declines.

The company grew its digital bookings by 26 percent in Q3 and expects to end 2012 with a 30 percent increased in online bookings, a feat that Mockett attributes to bundles.

The company reports bundle penetration is double what it was last year, and represented 66 percent of Q3 booking and 55 percent of year to date bookings. Dex CFO Greg Freiberg said a 10 percent increase in bundle penetration (the percentage of customers purchasing a bundle) equates to a 2.5 percent increase in bookings.

Mockett also said that bundles are key to arresting print declines, which continue to accelerate at Dex. The company experienced a 22 percent drop in print bookings in Q3.

“Print is under pressure but it generates the lion’s share of leads and it cannot be underestimated,” Mockett said. “Bundles extend the life of print.”

This may be particularly true of the Dex Guaranteed Ads program, which is a bundle build on a performance guarantee that Dex says has been particularly successful in retaining larger accounts. While DGA provisions both print and digital products (as does all bundles), print leads are critical to the program’s success.

For the first nine months of 2012, DexOne generated net revenues of $998.7 million, down 11.5 percent from 2011. Third quarter net revenues were down 11.2 percent, to $319.7 million.

DexOne also narrowed its guidance for 2012, saying it expected net revenues in the range of $1.275 billion and $1.3 billion, and adjusted EBITDA in the range of $535 million to $565 million.

BIA/Kelsey has forecast the entire U.S. Yellow Pages market will decline by about 14 percent in 2012 to $7.6 billion.

Mockett also discussed Dex’s efforts to transform its sales force (sales transformation is the topic of an upcoming Foundation Paper from The Kelsey Report). He noted that as a result of retraining of the sales force (which has included extensive use of new technology), there has been a 25 percent increase in the frequency of customer interactions.

The company is in the process of rolling out Salesforce.com, with half the sales force now using the CRM tool, and the remaining half expected to adopt the tool by early next year.

The overarching objective, according to Mockett, is to “Shift the selling cycle from an annual event to a year round selling opportunity.”

Mockett also discussed the impending merger between DexOne and SuperMedia.

When asked about “push back” from lenders, Mockett contended that negotiations with lenders to amend credit agreements were going well, but that they are complicated and therefore will take time to complete.

Mockett acknowledged that a managed bankruptcy might be one path to completing the merger, as has been reported. He insisted that “We are confident we will get to a satisfactory conclusion.”

One investor asked Mockett if he would stay on at Dex One should the merger be called off. He said that both sides are working to get the deal done and expected to succeed, but said that he would stay on in the event the merger isn’t completed.

Mockett has agreed to step down once the merger is completed, and SuperMedia CEO Peter McDonald will become the top executive of the new company, which will be called DexMedia, assuming the merger is completed as planned.

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Dex One announced today that it has signed an agreement with Google to serve as a Google AdWords “Certified Partner.” Dex One is making this deal a pillar of its announced goal of reaching 30 percent of revenues from digital by 2012. In 2010, Dex One reported that it generated just 10 percent of revenues from digital sources. Dex One leaders made this pledge at its investor day briefing in New York in February.

Assuming a 20 percent annual decline in print, BIA/Kelsey estimates that Dex One will need to grow digital revenues at somewhere in the range of 50 percent in each of the next two years to approach the 30 percent figure. This deal with Google is certainly an important step in this direction.

Of course a more stable print picture would make achieving the 30 percent level more challenging. In any event, hitting that number will require a significant commitment to new products and partnerships. Dex One may even find itself contemplating whether to actively steer some customers away from print and into more digital products where it makes sense.

Here is what Dex One CEO Alfred Mockett says about the deal in today’s news release:

“This powerful combination of technology and customer access leverages the Google AdWords platform and delivers it to local businesses through our network of 1,500 local marketing professionals and brings our ever-increasing suite of digital products to the next level,” said Dex One Chief Executive Officer Alfred Mockett. “Success in today’s marketplace requires a simple, yet highly effective way to navigate increasingly complex and fragmented digital possibilities. We fully expect this partnership will meet and exceed these needs.”

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First-quarter 2011 earnings reports are trickling in across the global Yellow Pages industry, and while the results are still largely negative, there are some signs that the rate of revenue decline is leveling off. This is consistent with what BIA/Kelsey has forecast for the Yellow Pages industry — a leveling off of print declines leading to a return to very modest growth by 2013.

SuperMedia, for example, reported that its advertising sales for the first quarter were down 17.8 percent this year, compared with a 20.4 percent drop in Q1 last year. Operating revenues were also down 17.8 percent, compared with 20.9 percent in Q1 last year. These are not monumental improvements, but they suggest some progress in stemming the flow of red ink.

At Dex One, ad sales declined roughly 17 percent vs. 19 percent a year ago. CFO Steve Blondy noted that were it not for the impact of TMP’s failure to pay money owed the publisher (TMP is currently winding down its operations) the ad sales decline would have been 14.7 percent, a more substantial improvement over Q1 2010.

Similarly, SuperMedia’s CFO Samuel Jones said factoring out the TMP impact would have given the company a Q1 ad sales decline of 15.9 percent, which amounts to a 450 bps improvement over Q1 2010.

AT&T’s results were essentially the same, down 16.6 percent in Q1 vs. 16.7 percent a year earlier. However, online growth continued to slow down, to a 6.8 percent increase vs. 12.9 percent last year. This suggests the rate of decline in print has settled a bit, otherwise the overall revenue decline would have accelerated.

AT&T has been arguably the most aggressive U.S. publisher online, and has recently added a number of new digital products, including reputation management and, most recently, deals. The slowdown in digital growth is likely a combination of the economy and the law of large numbers, since AT&T has roughly a billion in digital revenues. However, the slowdown might also suggest that IYP is maturing and new products are taking on greater importance as sources of new growth.

Across the pond in France, PagesJaunes reports its group revenues declined by just 1 percent for the first quarter, while its print decline was 7.5 percent, an improvement over a 10.2 percent drop in Q1 2010.

Collectively, these results seem to point to stabilization, defined as a leveling off of the rate of decline. This is probably the result of improving economic conditions, which includes steady improvement in bad debt ratios. This is consistent with the view that the decline in print revenues was the result of a combination of economic and transformational factors. The degee to which growth rates improve this year may be a pretty good indication of which portion of the recent declines have been cyclical vs. secular.  

None of these Q1 numbers is going to lead to any champagne being uncorked, but they do suggest that after a couple of very rough years, the worst may be over, at least for now.

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Following a discussion of its 2010 full-year results, Dex One’s leadership team outlined a new strategy today that it says will restore the company to positive revenue growth by the second half of 2012, with print stabilizing to single-digit declines.

One of the key elements will be the Dex Guaranteed Actions, a performance-based model tested beginning last year in Phoenix and recently launched in Seattle and Minneapolis, with a gradual rollout in other markets. The program essentially guarantees advertisers a predetermined number of business leads.

Dex leaders say the program succeeded in changing the sales conversation from price to performance, and is seen as a key element in the company’s efforts to stability print revenue declines from their current high double digits to mid-single digits within two years.

CEO Alfred Mockett and his team outlined a number of key objectives and supporting initiatives, among them:

* The company projects it will move from 10 percent digital to 30 percent digital revenues by 2012.

* DexOne is planning to convert its 2.2 million free business listings into paid. Mockett describes free listings as an “historical anachronism.” Converting to paid will generate revenues and also direct more leads to paid advertisers, Mockett said.

* The company is investing in its sales force, arming it with iPads and launching the Dex One Sales Academy to improve both initial and ongoing sales training.

* The company is investing in its product. It will soon kick off an advertising campaign aimed at consumers urging them to “Dex it” whenever they need a local business.

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Pretty big news from Dex One today. The company announced this morning that it has a deal with rival SuperMedia that allows advertisers from each site to have their business profiles appear on the other publisher’s online directory. The obvious benefit to advertisers is an immediate boost in their business’ exposure online.

Each company would continue to sell its own inventory as before, and the deal does not extend SuperGuarantee status to Dex advertisers.

This deal would appear to be a direct challenge to the two companies’ chief rivals in the local YP space, yp.com and Yellowbook.

From the press release:

“Our partnership with Superpages enhances our position as the single source provider of local marketing solutions to small and medium sized businesses,” said Sean Greene, senior vice president of interactive, Dex One. “This agreement improves DexKnows’ consumer experience by providing additional content to help them find the local businesses that provide the products and services they seek.”

“Clients think of our Superpages Network as their one stop shop for providing quality leads,” said Sandra Crawford Williamson, chief marketing officer, SuperMedia. “They benefit from our award-winning SuperGuarantee program and the increased reach their advertisements receive through our agreements with companies like Dex One.”

While advertisers now have the opportunity to be cross-distributed on both sites, SuperMedia and Dex One will each continue to sell their respective advertising products directly.  Dex One advertisers will not be covered under the SuperGuarantee program.

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Dex One and Yahoo have extended and expanded their long-term partnership to roughly double the geographic coverage of the existing distribution partnership. The arrangement essentially involves business profile pages sold by Dex being served up in Yahoo Local search results, now in all 28 states where Dex One operates. The original partnership, formed in 2007, covered only the 14 western states that made up the old Quest Dex operating territory.

In today’s announcement of the deal expansion, the two companies say the success of the initial agreement led to the decision to expand it across all of Dex One territory. What isn’t clear is why this decision has taken three years.

Dex and R.H. Donnelley merged in 2005, forming a publishing company covering 28 states. RHD was renamed Dex One early this year following its emergence from bankruptcy protection.

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One reason for the somewhat lower full-year guidance is that some of the company’s largest and most troubled markets close in the second half, most notably Las Vegas, which is sold in the third quarter.

Other items of note from today’s earnings call:

— The company is in the process of searching for a new CEO, following longtime CEO Dave Swanson’s retirement earlier this year. W. Kirk Liddell, who leads a three-person interim executive team, said the company has identified several strong candidates for the job, but will “take as much time as necessary” to find the right replacement for Swanson.
— Second-quarter ad sales were 910 basis points better than Q2 2009, and 550 bps better than Q1 2010. Still, the company expects some weakening in the third quarter and has guided lower for the full year.
— The company has seen substantial improvement in bad debt as a percentage of revenues, the result of strict credit policies as well as attrition of weaker operators from the advertiser ranks, leaving a higher share of credit worthy customers.
— Renewal rates are at 70 percent and increase is at 12 percent. The company pointed to this metric as evidence that the company really needs to focus on new customer acquisition in order to get back to top-line growth. During 2Q, new business added 5 percent to net results.
— The company shared that large accounts are retaining at a higher rate, but reducing spending, while smaller accounts are churning at a higher rate, but those that remain are more likely to increase spend.
— The company revealed that its largest markets are expected to perform 5 percentage points worse than the company overall, while its smallest markets will beat overall results by 5 percentage points.

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Most critically, DexOne leaders tried to sell the story line that it has emerged from bankruptcy as a stronger, healthier company that is well-positioned to succeed in the local marketplace. Along with other leading publishers, DexOne is offering its take on the “one stop” model where SMBs can go for a simplified solution that delivers leads from multiple channels, including a mix of proprietary and third-party sources. DexOne CEO Dave Swanson doesn’t even like to refer to the business as a Yellow Pages company, even though the core product remains the primary, if diminishing, source of revenues and leads.

“We have evolved far beyond our Yellow Pages roots,” Swanson said. “Yellow Pages is only one of seven platforms we are using today to drive leads for our customers and revenues for the company.”

For the full year 2009, DexOne posted net revenues of US$2.2 billion, down from US$2.6 billion in 2008, a 16 percent drop. Ad sales reflect the value of ads sold for books published during the year, while net revenues account for dollars amortized during the year, since directory revenues are recorded over a 12-month period to reflect the lifespan of a directory. Ad sales are generally considered a better indicator of how the business is performing.

DexOne CFO Steve Blondy, echoing other industry leaders, described the third and fourth quarters of 2009 as the “bottom” in terms of ad sales declines. Ad sales were down 21.9 percent in Q4 2009.

He added that the company is being cautious in its 2010 guidance because the small-business advertiser is not bouncing back as quickly as larger and national advertisers. And that recovery will continue to lag. “Small businesses are not participating in the recovery consistent with [advertisers in] major media.”

Some other earnings call highlights:

• Swanson described the company as following a “merchant centric strategy.” Essentially this means it is all about aggregating the kind of traffic that drives quality leads to advertisers.
• DexOne reported losing 110,000 advertisers in 2009. Blondy said about two-thirds of the loss was the result of companies going under or being locked out for credit reasons.
• Swanson reiterated the recent announcement that DexOne is aggregating Yelp reviews into its DexKnows platform. BIA/Kelsey originally reported this on the Local Media Blog on Feb. 1.
• There was some back and forth on EBITDA margins. DexOne reported a 52 percent 2009 margin, and margins are expected to decline further in 2010. Pressed on this, Blondy shot back that it is a “business decision” to invest in the customer value proposition. “We are getting a diminishing return from cost savings,” Blondy said. “We can’t save our way to success. Our focus is on growing the top line.”

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We spoke with DexOne CEO Dave Swanson this morning about the name change, the company’s going forward strategy and the outlook for the small-business economy in 2010.

Right out of the gate the new company is making changes. Besides a new name and a new board of directors, it is also forming new partnerships. Swanson told us DexOne has inked a deal with Yelp to incorporate Yelp reviews into the DexKnows.com IYP.

Swanson told us the name change had several purposes. The first was that the name R.H. Donnelley, for all its history, is too closely tied with the print Yellow Pages business. And Swanson made it clear that, “Strategically our business is no longer Yellow Pages. It is marketing services.”

He added that because the company is the product of so many acquisitions (Sprint, Quest Dex, Business.com), it made sense to get the whole company behind a single name. And finally, the “One” in DexOne is meant to invoke the idea that DexOne is a one-stop solution for small-business advertisers.

The DexOne vision for a sustainable future is similar to what other companies are trying to execute — provide local advertisers with a mixture of advertising and service products that help them drive and manage new business leads.

This means selling everything from print Yellow Pages to its own IYP to others’ IYPs (Yellowpages.com and SuperMedia) to voice, online video, SEM and so on. Then, DexOne takes the complex melange of lead sources and boils it down into simple packages, or “matrixed pricing.” Swanson compares this approach to how cars are sold — there is a base model, a mid-range model and luxury model.

Given the obvious effort to distance his company from the traditional Yellow Pages label, we asked Swanson where traditional Yellow Pages fits into DexOne’s long term plans. He says print YP remains the predominant source of leads for most top categories, but each year, that becomes slightly less so.

“If all a company does is sell Yellow Pages, it will be difficult to grow over the next 10 to 15 years,” Swanson said. “The product is in slow secular decline. But that doesn’t mean our business has to be in slow secular decline.” Still, while conceding a secular decline, Swanson says he believes print will be relevant for at least another 20 years.

As for the cyclical element, Swanson see only modest improvement in 2010 over 2009.

“The local business economy is not recovering at the rate that financial services and some other segments are recovering,” he says. “And as goes the local business economy, so goes our business.”

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