Dex Media Management Discusses

Good morning, and welcome to Dex Media's Second Quarter 2013 Conference Call. With me today are Peter McDonald, Chief Executive Officer; and Dee Jones, Chief Financial Officer. The 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 advises you not to place undue reliance on these forward-looking statements and to consider them in light of the risk factors set forth in reports filed by Dex Media and its predecessor companies with the Securities and Exchange Commission.

This was an eventful quarter with the completion of the merger between Dex One and SuperMedia on April 30. The combination of these companies is good for shareholders, third party merchant account, our clients and the future of our employees. I again recognize and thank the Boards of Dex One and SuperMedia, as well as our advisors, lenders and shareholders for your support.

We are now 3 months into integration, and we have accomplished a lot. While the merger was consummated 4 months later than originally planned, all of the planning that had been done prior to the closing date is paying off, and we are seeing the benefits in best practices, strengthened management teams and synergies.

I'm very pleased with how the teams are working together, and I can say we are on track in that regard at this point. We have evaluated nearly all the jobs in the company. We have made some tough decisions and have identified and put in place our top 127 managers in just the first 2 months of integration. It is interesting and significant that our management team consists of nearly an even split of people from both predecessor companies.

I'm very pleased with the talent in the new company. It is important to get leadership team in place so that we can make the decisions necessary to drive the business forward. This has been a distracting time as people needed to get the "me questions" resolved. With nearly 5,000 people now in place in 135 locations, we are anxious to continue to make progress.
The HR and legal teams have done an outstanding job of getting this work completed. In each of the functional departments, we have quality leadership in place and are moving forward each day to improve this business. Marketing team is working on migrating the best products across the entire footprint and leveraging best practices. The bundles Dex One used will be rolled out to the former SuperMedia footprint, and the former SuperMedia digital bundles will be rolled into the former Dex One markets.

Over the second half of 2013 and into 2014, we look forward to rolling out additional products across our entire combined footprint. Getting all the systems ready to accommodate these new products is high on our list of priorities as we migrate our customer base to the digital world. As we get deeper into this combination, it is clear that a lot of quality work was done in each organization prior to the merger.

Today’s consumers are increasingly relying on credit cards and innovative payment methods to make purchases. As leaders in the global payment sector, Visa (NYSE: V) and MasterCard (NYSE: MA) are both poised to continue benefiting from this trend.

In 1958, the first-ever large-scale credit card program was launched by Bank of America in Fresno, Calif. The company sent out plastic “BankAmericards” with $300 credit limits to 60,000 of its customers. Bank of America soon began to license its third party payment gateway system to banks in other U.S. states. In 1970, the various issuers of the cards created an alliance to operate the program, and later renamed the company Visa.

In 2008, Visa went public in what was the highest-valued IPO in history at the time. Visa now operates in more than 200 countries and in virtually every currency. It is the largest retail electronic payments network company in the world, with over $6.5 trillion in total transactions completed last year.

In 1966, in an effort to compete with Visa, a rival credit card was created by a cooperative of California banks under the name “Master Charge: The Interbank Card.” The card had a unique Venn diagram logo, and in 1979, its name was changed to MasterCard.

In 2012, MasterCard processed 34 billion transactions with a value of $3.6 trillion. The company operates in over 210 countries and in 150 different currencies. While Visa has nearly twice as many cards in circulation, MasterCard has been growing its revenue at a faster rate of late.

Both Visa and MasterCard generate revenue primarily by collecting fees from merchants and banks based on the number and dollar value of the transactions that they process. Unlike competitors such as American Express Company (NYSE: AXP) and Discover Financial Services (NYSE: DFS), they do not actually extend credit to their customers. The banks that issue the credit cards take on the credit risk, while Visa and MasterCard act only as middlemen, charging fees for facilitating consumer transactions.

In addition to credit cards, the companies also offer debit cards. While credit cards offer users the ability to borrow money and pay for purchases at a later date, debit card payments are immediately transferred from the cardholder’s bank account to the merchant.
In recent years, both Visa and MasterCard have also been expanding into emerging markets where most transactions have traditionally been completed in cash. As these countries continue to develop, consumer spending should increase, as will the demand for credit.

An increasingly competitive area for both companies is the Internet payment segment, where eBay’s (NASDAQ: EBAY) PayPal unit has been a leading innovator. PayPal’s customers make online payments using any card or bank account of their choice. Both Visa and MasterCard generate additional transaction volumes through PayPal, but the latter is now becoming more of a direct competitor. Last August, PayPal reached an agreement with Discover to give shoppers access to their online accounts in physical retail stores.

Based on Friday’s closing price of $184.00, Visa has a market value of $119 billion. The stock trades at a multiple of 21 times 2014 earnings estimates, while the company is expected to grow profits by 19 per cent over the next five years. MasterCard last traded at $645.57, implying a market value of $78 billion. While the stock also trades at a forward earnings multiple of 21 times, the company is expected to grow at a slightly slower rate. MasterCard’s shares are up 31 per cent this year, while Visa’s stock has gained 21 per cent.