Like Idearc Media earlier this week, RH Donnelley received a boost in its share price today after unveiling first quarter results that showed that market conditions are about as bad as expected, but not any worse. The company also unveiled a refinancing plan that will increase interest expense while also extending the maturing of much of its debt, while also gaining more flexible terms. The refinancing seems to have contributed to improved confidence in RHD’s stability.

The company also maintained a strong EBITDA margins in Q1 and announced plans to cut about US$30 million in costs, much of it in headcount and other employee related expenses.

The market seemed to like the results. As of 4:00 pm Eastern Time, RHD shares were up 28.5 percent to 8.20. Idearc shares are up almost 8 percent. Following its Q1 announcement, Idearc shares rose significantly and RHD enjoyed a bump as well. Today, the situation was reversed and RHD returned the favor, so to speak.

While it was a good day for the company’s share price, the outlook for ad sales painted by RHD CEO Dave Swanson was anything but rosy. The publisher reported total first quarter revenue of US$674.7 million, a 2 percent increase over 2007. Ad sales, however, dropped 4.8 percent, which RHD executives pointed out was in line with 2008 guidance of mid single digit declines. The company confirmed its 2008 guidance on today’s call.

In describing the current environment, Swanson was very careful not to raise hopes that a recovery was on the horizon.

Responding to a question from an analyst, Swanson emphasized that he “has not seen anything that would indicate any positive turn to the North” in sales results. Asked specifically about Las Vegas, one of RHD’s key markets, Swanson described it as the worst business environment he has seen in his career. While Florida and Nevada remain the worst markets, the pain of a slowing economy is being felt across all 28 states RHD operates in, according to Swanson.
So RHD is making it clear that while the economy will keep results down for a while (and executives maintain the downturn is cyclical rather than secular), the company has taken measures, cost cutting and refinancing, that will improve the stability of the business. RHD is also working on a new version of DexKnows.com, which will go into beta later this year.

On the eve of today’s announcement, Deutsche Bank upgraded RHD from sell to hold, a boost that reflects a view that RHD is less risky as an investment than it was just a few weeks ago.

Perry Evans has a great post today on the opportunity and threat Yellow Pages publishers face from the verticalization of local search. We thank him for acknowledging TKG’s role in highlighting the emergence of vertical search at our Drilling Down on Local conference last week in Seattle.

In particular, Evans talks about the perilous position IYP operators are in as vertical content proliferates online. He also makes it clear that the publishers have assets to compete in verticals. Evans points out that Avvo may be positioned as a Yellow Pages killer (in the legal category anyway), but online Yellow Pages has the tools at hand to transform itself into an Avvo killer. Whether it does so is another matter.

This whole notion of how Yellow Pages companies can leverage the vertical opportunity will be on the agenda at The Kelsey Group’s Directory Driven Commerce conference, Sept. 15-17, in Atlanta. Check out our preliminary program.

The final day of The Kelsey Group’s Drilling Down on Local conference featured a keynote by Merrill Brown of MMB Media. Brown is an industry guru with a history of developing groundbreaking media strategies and operations. Among other things, he has been editor-in-chief then SVP of MSNBC.com. He also created Court TV along the way.

Brown’s comments served as a fitting capstone for much of the conference – or given his morning time slot, perhaps I should say a prequel to the conclusion.

Brown thinks the various “revolutions” that are shaking up online market-making and marketplaces are in their early stages. Specifically, he believes:

• The newspaper industry is just beginning a period of wrenching restructuring (of its content strategy and business model).
• Verticals will continue to grow apace, to the point where online vertical markets will play a vital part of our quotidian online experience.
• Web 2.0 capabilities (e.g., social networking, video) will become closely woven into online markets.

What was most interesting about his remarks, however, was his overall tone. Brown spoke with the urgency of someone (a guru) who senses we’re in the early stages of a real revolution, and we need to be aware of the magnitude of the changes to come.

Elizabeth Gage of PCM International posted a well thought out blog on the challenges small and medium-sized businesses face when purchasing search engine marketing campaigns, either on their own or through Yellow Page publishers. After reading her thoughts on the subject, I couldn’t help but realize that the focus of current SEM efforts has been on getting the appointment and making the sale. Gage’s post, however, highlights the challenges after the sale is made.  

As more SMBs begin to experiment with online advertising, the problem of supporting and informing them of the progress of their online campaigns increases. Based on my own experience in the back-office side of supporting SEM sales, I can attest that new online advertisers simply require more communication on how their campaign is working, numbers of calls generated, how to effectively improve keyword performance, and how best to update their profile or Web site to generate more leads. New online advertisers are in the experimental mode and are not yet sold on the value of SEM, which requires constant reinforcement of the ongoing value delivered by online advertising.  

While gaining appointments and educating SMBs on the benefits of online advertising is important in selling SEM, continually communicating the value of what is being delivered is what will help maintain SMB online advertisers. Failing to reinforce the value to new SEM advertisers ultimately leads to higher advertiser turnover in the second or third year, meaning the sales force will have to continually replace advertisers with more new advertisers rather than work on developing existing advertiser campaigns. 

At this writing, Idearc Media’s stock was trading higher (up about 28 percent at noon Eastern) after an earnings announcement that shows the company has managed its costs well enough to grow EBITDA, while its revenues continued to slide.

Here are a few highlights from today’s earnings call (we will have a more detailed write-up for clients of The Kelsey Report):

• Acting CEO Frank Gatto squarely blames the soft U.S. economy for continuing softness in ad sales. For the first quarter, “multi-product” ad sales were down 6.2 percent. On a reported basis, total revenues decreased 4.5 percent to US$770 million, with print declining 5.5 percent to US$696 million, and online up 7.4 percent to US$73 million.

• First-quarter EBITDA was up 1.4 percent on a reported basis, though it declined 3.2 percent on an adjusted pro forma basis. The adjusted EBITDA margin grew slightly to 47.7 percent. The company cited tight cost management and lower traffic acquisition costs (some of which were related to the end of its MSN relationship, which wrapped up in mid-December).

• The company blamed a shift from fixed fee to variably priced online advertising for the relatively anemic 7.4 percent first-quarter online growth rate. Idearc said it expects full-year online growth to be more in the 20 percent range. Idearc executives said demand is strong for performance-based advertising.

• The company is rolling out a new packaged search program called Search Marketing Local that will enhance the value proposition Idearc can offer local advertisers.

• Idearc executives adopted a friendlier tone toward the national sales channel on today’s call. Under former CEO Kathy Harless, the national channel was made something of a scapegoat for soft ad sales. Today, Idearc executives said national results had not improved from Q4 to Q1, but they added that the channel was working closely with Idearc and said they hoped to see results of this in the second half of the year.

• Idearc leaders acknowledged that stand-alone local online sales channels like ReachLocal are increasingly a factor, but they were confident they could compete because it offers a broader package that includes print, IYP, SEM and SEO.

Yellowbook has unveiled a new television ad campaign, replacing the kinda cheesy Kung Fu ads (sorry, David Carradine, you did what you could) with a much slicker campaign that focuses on promoting use of Yellowbook’s online directory (which is also sporting a new look and feel, modeled closely after its sister IYP Yell.com).

Yellowbook (a unit of the U.K. firm Yell Group) has also unveiled a more streamlined logo. It makes a lot of sense for the company to bring its overall design sensibilities up a notch if it hopes to remodel itself into a more platform-agnostic image. Its previous logo had seemed dated.

The new ads rely on the tried-and-true practice of setting up a somewhat amusing need for a business found under a common YP heading, then off to Yellowbook.com and the problem is solved, perhaps with a twist of irony. But this campaign marks a great leap forward in production quality from previous Yellowbook efforts. Here are two ads from the new campaign (the first doubles as a cautionary tale on lower back tattoos). Of course, Yellowbook isn’t delivering quite the Tom Cruise “Minority Report” experience that’s shown here. In fairness, the ads are supposed to be depicting the Yellow Pages of the future. 

The ads’ underlying theme of “finding what you are really looking for” is clever, since it underlines a key point of difference between IYP and search (at least for now), which is that Yellow Pages data are targeted and structured and designed to give consumers what they want with no extraneous material.  The ads were produced by Yellowbook’s new agency, Gotham Inc. (replacing Trahan Burden & Charles) and were shot by Vadim Perelman, director of the film “House of Sand and Fog.” I guess there is credibility, and then there is “I’ve directed Sir Ben Kingsley” credibility. 

The first day of the Kelsey Drilling Down on Local conference included a somewhat unusual panel with four entrepreneurs in verticals. They talked about the nuts and bolts of building truly local verticals. These vertical pioneers shared their war stories and loads of practical advice. Some of the commonalities to their experiences:

• They worked hard to get advertisers — against heavy odds, in most cases.
• All are now in a heavy growth mode.
• Their expansion tends to be “node by node” (market by market).
• They each took great pains to understand the business models and requirements of the SMBs in their vertical. Most of them have had to adjust THEIR model, as they’ve learned more about the needs of their SMB advertiser clients.

Their stories reminded us that being an entrepreneur is rarely glitz and glory. Real entrepreneurs have calluses and dirt under their fingernails. You could feel their pain, when they told about pounding the pavement and dragging some of these SMBs, practically kicking and screaming, into online advertising. It’s a long, arduous, time-consuming process (which may be monetized someday in the form of a handsome multiple of revenues paid by an acquirer like, say, Yahoo! — or not).

Summaries of the four presentations:

Mark Britton, CEO, Avvo

Avvo is a legal vertical, used by consumers to find attorneys. (The litigious-minded among us probably already have it bookmarked.)

The legal industry is a $225 billion industry in the U.S. The industry spends about $4.5 B annually on marketing. (In print Yellow Pages alone, attorneys spend about $1.3 billion annually, making this the largest single revenue category in print Yellow Pages.)

Avvo provides profiles and ratings for every lawyer in practice (in the states in which they operate). It obtains basic content from its Web crawlers. It also permits individual attorneys to upload information to embellish what is obtained by crawling.

One of its more clever approaches to obtaining content is this: It poses a typical legal question in the “Avvo Answers” section of the site, and several attorneys will post their answers. Of course, this is a “win-win-win” for Avvo, the responding attorney, and the consumer. Avvo gets free (and quality) content, the attorney gets “free” exposure (quasi-advertising), and the consumer gets his or her question answered.

“We’re tearing a page from Expedia’s playbook,” Britten said.

This is also the same thing that Zillow is doing: Going into a highly inefficient market where there is an inherent “asymmetry” of data between the service provider and the consumer, and creating a more level playing field by providing abundant, empirical data to the consumer.

Steve Cissel, CEO, 10-20 Media

Cissel is the CEO and founder Lawn & Garden Search (LGYP.com), a vertical for everything about lawns, gardening, landscaping, etc. He said LGYP.com is the first effective vertical in this space.

He pointed out that the lawn and garden vertical (which includes 11 categories in print Yellow Pages) is a $200 billion industry (total annual sales of products and services). It’s the only major vertical that hasn’t yet been really “Webified.” A key reason for this is the fragmentation of the lawn and garden industry. (Arguably, this fragmentation is driven by the inherent localization of the “raw material” for this industry – flora.)

Seth Gardenswartz, VP, SpaBoom (of BoomTime)

The day spa industry has about $10 billion in revenues. About one-third of its revenues come from gift certificates. SpaBoom makes it easy for spa owners to offer their own “private-label gift certificates” that they sell from their own Web sites.

Spas, of course, are a luxury, high-end business, with a high level of personal service. Perhaps because of this, spas “don’t give a damn about online.”

Through sheer tenacity and shoe leather (at least major change in its business model) SpaBoom has achieved about 12 percent penetration of day spas in the U.S.

It plans to take its format (gift certificates) to additional verticals as well. Gardenswartz announced that the next vertical it will enter is the restaurant vertical. It will be focusing on higher-end restaurants, where gift certificates are likely to resonate with the clientele. It is partnering with Zagat (which was announced today, at this conference).

Robert Johnsen, Director of Sales and Marketing, Mywedding.com

The wedding industry is about $66 billion this year. Mywedding.com is the No. 3 online wedding site. The company is 6 years old, and now has a total of 54 local wedding guides. Revenues were up 43 percent over last year.

It serves a variety of local SMBs related to weddings (florists, photographers, bakers, wedding planners, etc.). It took Mywedding.com about 3 years to build its current base of advertisers. On average, its advertisers spend about $600 on the site annually.

For couples typing the knot (let’s hope it isn’t a Gordian one), Mywedding.com provides a free wedding Web site to handle those oh-so-important details of the modern wedding.

In an executive interview today with the “Father of IYP,” Pat Marshall, Yellow Book’s chief new media officer talked about his re-entrance to the IYP space and what Yellow Book is looking for new business partners.

In all fairness, Marshall, who was previously head of Idearc’s (the former Verizon) Superpages.com, said he didn’t want to return to the IYP space, but rather wanted to get back into local search. Marshall characterized Yellowbook.com’s current position as more in the IYP business but said the trajectory is gradually moving toward local search.

Yellowbook.com is looking for partners right now primarily in three categories: infrastructure, traffic and inventory. Marshall gave some pretty specific direction on what Yellowbook.com will and will not consider in terms of potential partners and literally offered his e-mail address for the attendees looking to work with one of the fastest growing IYPs in the U.S. today.

More specifically, this is what he said:

1) Infrastructure - A potential partner must bring Yellowbook.com a business plan and provide a compelling argument as to how it can increase revenue, lower costs or provide a more competitive offering in the market.

2) Inventory - Marshall very directly said a potential partner must be willing to “put some skin in the game.” Why will the inventory be good for Yellowbook.com’s customers?

3) Traffic - A potential partner must bring a qualified audience to provide meaningful users to Yellow Book’s customers.

Marshall joined Yellow Book in July 2007 and while he can’t be given full credit for helping the Yellow Book Network grow its unique visitors (per comScore data) 137 percent from Q4 2006 to Q4 2007 and increase its share of IYP searches from 4 percent to 8.6 percent for the same period, he certainly can share in some of the credit. Going forward new advertising campaigns that will debut in the coming weeks will focus specifically on the various digital components of the Yellow Book business and future online growth will be credited to Marshall and his team.

Alibaba, is China’s answer to Google and Yahoo!. The online site is 39 percent owned by Yahoo and recently entered a strategic partnership with Infomedia, the second-largest Yellow Pages publisher in India.

The agreement with Infomedia provides Alibaba access to the second-largest population in Asia. The deal with Infomedia opens the opportunity to sell online advertising to its more than 750,000 advertisers and leverages Infomedia’s sales force of 650 that can immediately begin to access a wider array of India’s SMB base.

According to The Wall Street Journal, “[Alibaba’s] move into India is part of its strategy to grow globally, as a large chunk of its revenue comes from domestic trade listings within China.”

As Google, Yahoo! and MSN continue to struggle in Asia and China in particular, homegrown Alibaba and Baidu continue to prosper in Asia. By tapping into population-dense countries, both Alibaba and Baidu have set themselves up for tremendous growth as both China and India’s middle class grows at exponential rates followed closely by the rapid adoption of broadband, mobile Web access and more stable business environments.  

The Nordic directory publisher Eniro announced somewhat disappointing results for the first quarter, with weaker than expected print results not fully offset by online revenues. Eniro President and CEO Tomas Franzén noted that the first quarter is seasonally weak for its online business.

In 2007, Eniro generated 54 percent of its revenues from online. This year, Franzén says the business will generate a majority of its revenues from non-print sources.

Group wide, Eniro posted first-quarter revenues of SEK1.38 billion, a 2 percent decline over Q1 2007. Online grew 13 percent, while print was down 14 percent (that’s organically), led by an alarming 24 percent organic print decline in Norway, largely due to the publication of the Oslo Yellow Pages.

And some of the weak print results were made weaker by the publication of big city Yellow Pages directories (such as Gothenburg in Sweden and Oslo in Norway) and fewer of the better performing local directories. Online results in Denmark were made weaker as well by glitches in integrating the Kraks online directory operation acquired last year. Generally, the company expects print to decline at a lower rate and online to grow at a faster rate for the full year 2008, with online growth more than offsetting print declines.

One interesting revelation from the call was that in 2009, Eniro will switch to a smaller format print Yellow Pages directory in both Norway and Sweden as part of a broader program to try to stabilize declines in print Yellow Pages.