Yellow Pages Limited Reports Fourth Quarter 2016 Financial Results

MONTREAL, Feb. 14, 2017 /CNW Telbec/ - Yellow Pages Limited (TSX: Y) (the "Company") released its operational and financial results today for the year and quarter ended December 31, 2016.

Highlights

• Digital revenues in 2016 grew 14% year-over-year to $556 million, representing 68% of total revenues. In the fourth quarter, digital revenues grew 11% over the fourth quarter 2015 to $143 million, representing 71% of total revenues. On a pro forma basis, digital revenues in 2016 increased 5%.
• Yellow Pages acquired 41,100 new customers in 2016, exceeding the 2016 target of 38,000. This compares to 30,800 new customers acquired in 2015. At year-end, the Company's total customer count was over 241,500, compared to 245,000 customers at year-end 2015.
• EBITDA adjusted for restructuring and special charges and impairment of intangible assets ("Adjusted EBITDA") totalled $235 million in 2016, compared to $261 million in 2015. Adjusted EBITDA margin reached 29% in 2016. Adjusted EBITDA for the fourth quarter 2016 was $57 million, compared to $65 million for the same period last year.
• Yellow Pages repaid $97 million on its senior secured notes in 2016, bringing the total repayment to $490 million since their inception on December 20, 2012 and reducing the balance of the Notes outstanding to $309.7 million as at December 31, 2016.
• During the fourth quarter, Yellow Pages recorded an impairment loss of $600 million on certain of its intangible assets, namely, its trademarks and non-competition agreements. This impairment charge is a non-cash item.

As previously communicated, the Company has initiated a review of the business strategy and its management outlook with the purpose of supporting the continued long-term success of a digital-first business. The areas of focus include marketing offers, customer journey, sales structure, operational platforms, and subsequent effects on long-term revenue, Adjusted EBITDA growth and capital allocation policy. The Company anticipates communicating the outcome of this exercise and the accompanying strategy in May 2017.  

Full Year 2016 Financial Results
Revenues in 2016 declined 1.4% year-over-year to total $818 million due to lower print revenues. Included in 2016 revenues were revenues generated by ComFree/DuProprio ("CFDP") and JUICE, acquired on July 1, 2015 and March 17, 2016, respectively. On a pro forma basis, adjusting revenues for the inclusion of both CFDP and JUICE for the full years 2015 and 2016, revenues decreased 6.2% year-over-year in 2016.

Digital revenues grew 14.3% to reach $555.8 million in 2016, representing 67.9% of total revenues, up from 58.6% in 2015.

On a pro forma basis, digital revenues in 2016 increased approximately 5% year-over-year. Yellow Pages' local operations contributed favourably to pro forma digital revenue growth, a result of accelerated customer acquisition and an increase in digital spending among the Company's renewing customer base. Pro forma digital revenue growth was also favourably impacted by CFDP's growing network of home sellers and buyers in Quebec and Ontario, as well as by revenue growth in our national advertising operations (JUICE and Mediative), despite a softer than anticipated performance. For the year ended December 31, 2016, 47% of renewing customers increased their annual spend, as compared to 44% of customers in 2015.

In 2016, digital-only customers grew to 76,800 or 32% of the Company's customer base. This compares to 54,500 digital-only customers, or 22% of the customer base in 2015.

Print revenues in 2016 decreased 23.6% to $262.2 million due to a decline in the number of print customers and a migration of print marketing spending to digital.

Adjusted EBITDA totalled $235.2 million in 2016, as compared to $260.7 million in 2015. The Adjusted EBITDA margin for the year ended December 31, 2016 reached 28.8%, as compared to 31.4% in 2015. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was due to lower print revenues and a change in product mix, partly offset by cost saving initiatives. The decline in the Adjusted EBITDA margin was also impacted by the acquisitions of CFDP and JUICE, which operate at a lower Adjusted EBITDA margin relative to Yellow Pages prior to the acquisitions.

In the context of its annual impairment testing, and as a result of a marked acceleration in an unfavourable change in the product mix during the fourth quarter of 2016, the Company determined that the recoverability of certain of its assets had to be reviewed for impairment purposes. Consequently, the Company recorded an impairment loss of $600 million during the fourth quarter related to certain of its intangible assets, namely its trademarks and non-competition agreements. In addition, the Company recorded a recovery of income taxes of $161 million associated with the impairment charge. The impairment charge and recovery of income taxes are non-cash items and do not affect the Company's debt covenants. In this context, the Company anticipates additional pressure on Adjusted EBITDA in 2017, and as it works to address the mix issue, the Company expects stabilization in Adjusted EBITDA in the short to mid-term, post-2017. However, not at the levels previously anticipated.

For the year ended December 31, 2016, the Company recorded a net loss of $403.7 million. Net earnings before the impairment charge, net of income taxes, were $34.7 million for the year ended December 31, 2016 compared with net earnings of $61.1 million for 2015. The decrease is principally due to lower Adjusted EBITDA and higher depreciation and amortization, mainly resulting from a higher level of capital expenditures in the context of the Company's digital evolution and amortization of intangible assets related to the acquisition of JUICE. For the year ended December 31, 2016, the Company recorded basic loss per share of $15.23. Basic earnings per share before the impairment charge, net of income taxes, for the year ended December 31, 2016 were $1.31, compared to basic earnings per share of $2.29 for the same period last year.

2016 free cash flow decreased 22% to $94.6 million compared to $122.1 million the year prior due to lower cash flows from operating activities resulting principally from income taxes received in 2015 associated with a tax settlement covering prior years, partially offset by lower capital expenditures in 2016.

Net debt amounted to $384.9 million as at December 31, 2016, down from $430.6 million as at December 31, 2015. The Company made $97.1 million in principal mandatory redemption payments on the Notes in 2016, reducing the balance of the Notes outstanding to $309.7 million as at December 31, 2016. Since their inception on December 20, 2012, the Company has made total principal repayments of $490.3 million.

Fourth Quarter 2016 Financial Results
Revenues declined 2.8% for the fourth quarter of 2016 to $202.7 million, as compared to $208.5 million for the same period last year, due to lower print revenues. Included in revenues for the quarter were revenues generated from JUICE. On a pro forma basis, adjusting for the full inclusion of JUICE during the fourth quarter of 2015, revenues decreased 7.1% year-over-year for the three-month period ended December 31, 2016.

In the fourth quarter, digital revenues grew 10.8% to $143.1 million, representing 70.6% of total revenues. This compares to $129.2 million, or 62% of revenues, during the same period last year. On a pro forma basis, digital revenues for the three-month period ended December 31, 2016 increased approximately 3% year-over-year. Pro forma digital revenue growth was favourably impacted by CFDP's growing network of home sellers and buyers in Quebec and Ontario, as well as by revenue growth in our national advertising operations (JUICE and Mediative), despite a softer performance than anticipated.

Print revenues decreased 24.8% year-over-year and amounted to $59.6 million during the fourth quarter ended December 31, 2016. Print revenues were adversely impacted by a decline in print customer numbers and a migration of print marketing spends to digital.

Adjusted EBITDA totalled $57.4 million during the fourth quarter of 2016, compared to $64.5 million for the same period in 2015. The Adjusted EBITDA margin for the fourth quarter of 2016 was 28.3% as compared to 30.9% for the same period last year. The decrease in Adjusted EBITDA and Adjusted EBITDA margin for the three-month period ended December 31, 2016 was mostly impacted by lower print revenues and a change in product mix, partly offset by cost savings initiatives. The decline in Adjusted EBITDA margin was also impacted by the acquisition of JUICE which operates at a lower margin.

In the context of its annual impairment testing, and as a result of a marked acceleration in an unfavourable change in the product mix during the fourth quarter of 2016, the Company determined that the recoverability of certain of its assets had to be reviewed for impairment purposes. Consequently, the Company recorded an impairment loss of $600 million related to certain of its intangible assets, namely its trademarks and non-competition agreements. In addition, the Company recorded a recovery of income taxes of $161 million associated with the impairment charge. The impairment charge and recovery of income taxes are non-cash items and do not affect the Company's debt covenants. In this context, the Company anticipates additional pressure on Adjusted EBITDA in 2017, and as it works to address the mix issue, the Company expects stabilization in Adjusted EBITDA in the short to mid-term, post-2017. However, not at the levels previously anticipated.

For the quarter ended December 31, 2016, the Company recorded a net loss of $431.6 million. Net earnings before the impairment charge, net of income taxes, were $6.8 million for the fourth quarter ended December 31, 2016 compared with net earnings of $5.9 million for the same period in 2015. The increase is principally due to lower restructuring and special charges and financial charges, offset by lower Adjusted EBITDA and higher depreciation and amortization, mainly resulting from a higher level of capital expenditures in the context of the Company's digital evolution and amortization of intangible assets related to the acquisition of JUICE. For the fourth quarter ended December 31, 2016, the Company recorded basic loss per share of $16.35. Basic earnings per share before the impairment charge, net of income taxes, for the quarter ended December 31, 2016 were $0.26, compared to basic earnings per share of $0.22 for the same period last year.

In the fourth quarter, free cash flow was $7.8 million, compared to $25.2 million in the same period last year. The decrease is primarily due to a tax settlement covering prior periods received during the fourth quarter of 2015 as well as lower cash Adjusted EBITDA, partially offset by lower pension funding.

"Over the first half of our Return to Growth plan, we have successfully built and developed our ability to acquire new digital customers, expanded our digital product offering and media properties as well as paid down debt. These accomplishments have been possible through a diversification of our business that has allowed us to continue to generate cash and deliver strong top line revenues," said Julien Billot, President and Chief Executive Officer at Yellow Pages. "However, at this stage in our plan, we are now seeing that changes in our product mix will be putting additional pressures on our bottom line in the future. Resolving this will be our core area of focus as we continue to evolve the business."

Operational Update

Enhancing Customer Value Proposition

• The Company's customer count was 241,500 customers as at December 31, 2016, as compared to 245,000 customers as at December 31, 2015. This represents a net customer count decline of 3,500 year-over-year, a significant improvement when compared to 11,000 net customers lost during the same period last year; 
• Yellow Pages successfully increased customer acquisition with 41,100 new customers acquired during the year ended December 31, 2016, as compared to 30,800 new customers acquired during the same period last year, representing a 33 percent increase year-over-year. In 2016, the Company focused on promoting lead generation and optimizing conversion rates within the Company's sales force to grow customer acquisition and stabilize the customer count. In conjunction, various initiatives and tools were implemented throughout the year, including the introduction of a dialer across Yellow Pages' call centers to automate the qualification and assignment of incoming customer leads. The dialer, which also acts as a leads management system, enabled the sales force to target leads by segment, launch meaningful campaigns at the optimal times of the year, and ultimately contributed to overall improvements in the conversion rate.
• The customer renewal rate was of 82% for the year ended December 31, 2016, as compared to a renewal rate of 85% during the same period last year. While this continues to represent strong customer loyalty for the industry, the customer renewal rate remains under pressure due to accelerated levels of customer acquisition as new customer cohorts churn at higher rates than older customer cohorts. In an effort to protect customer renewal rates, Yellow Pages continues to grow specialized onboarding teams and increase retention efforts across sales and customer care channels.

Strengthening its Media Assets

• Total digital visits (TDV) totalled 464.7 million for the year ended December 31, 2016, as compared to 464 million visits in 2015. TDV measures the number of visits made across the YP, YP Shopwise, YP Dine, RedFlagDeals, Canada411, Bookenda, dine.TO online and mobile properties as well as the visits derived from the Company's application syndication partners.
• TDV for 2016 was stable year-over-year with a 26% increase in traffic in the fourth quarter of 2016 compared to the same period the year prior. This increase is attributable to the Company's strong partnership network, syndicating Yellow Pages listings and content.

Extending its Brand Promise

• Yellow Pages launched a campaign comprised of digital mobile and online advertising to promote the Company's NetSync product, successfully generating quality leads for sales that ultimately contributed to the customer acquisition target achievement and underscored the need among Canadian small and medium-sized businesses
• On the consumer front, Yellow Pages ran a digital advertising campaign for YP Dine that can be viewed at the Company's dedicated YP Dine Facebook page: https://www.facebook.com/ypdine/videos. The company also specifically targeted ethnic markets in Toronto and Vancouver in this campaign to positive results, demonstrating an interest in YP Dine products and services across demographics.

Conference Call
Yellow Pages Limited will hold an analyst call at 8:00 a.m. (Eastern Time) on February 14, 2017 to discuss full year and fourth quarter 2016 results. The call may be accessed by dialing [phone] within the Toronto area, or 1 866-225-0198 outside of Toronto.

The call will be simultaneously webcast on the Company's website at https://corporate.yp.ca/en/yellow-pages-news/events/release-q4-2016-financial-and-operational-results/

The conference call will be archived in the Investors section of the site at https://corporate.yp.ca/en/investors/financial-events-presentations/

A playback of the call can also be accessed from February 14 to March 17, 2017 by dialing [phone] within the Toronto area, or 1 800 408-3053 outside of Toronto.

The conference passcode is 9388914.

About Yellow Pages Limited
Yellow Pages Limited (TSX: Y) is a Canadian digital media and marketing solutions company that supports local economies by helping businesses reach new customers and foster stronger relationships with existing clients through its various media and products. Yellow Pages holds some of Canada's leading local online properties including YP.ca™, RedFlagDeals.com™, Canada411.ca, 411.ca, Bookenda.com, dine.TO, DuProprio.com, ComFree.com and YP NextHome. The Company also holds the YP, YP Shopwise, YP Dine, RedFlagDeals, Canada411, 411, Bookenda, DuProprio, ComFree and YP NextHome mobile applications and Yellow Pages™ print directories. Through Mediative, Yellow Pages is a leader in national advertising through its various channels and services devoted to North American businesses. The Company also owns JUICE Mobile, a mobile advertising technology company whose proprietary programmatic platforms facilitate the automatic buying and selling of mobile advertising between brands and publishers. For more information visit www.corporate.yp.ca.

Caution Concerning Forward-Looking Statements
This press release contains forward-looking statements about the objectives, strategies, financial conditions, results of operations and businesses of the Company. These statements are forward-looking as they are based on our current expectations, as at February 14, 2017, about our business and the markets we operate in, and on various estimates and assumptions. Our actual results could materially differ from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, there is no assurance that any forward-looking statements will materialize. Risks that could cause our results to differ materially from our current expectations are discussed in section 6 of our February 14, 2017 Management's Discussion and Analysis. We disclaim any intention or obligation to update any forward-looking statements, except as required by law, even if new information becomes available, as a result of future events or for any other reason.

Financial Highlights
(in thousands of Canadian dollars - except percentage and per share information)
							For the three-month periods ended December 31,			For the years ended December 31,
Yellow Pages Limited							2016		2015	2016		2015
Revenues							$202,723		$208,505	$817,979		$829,771
Adjusted EBITDA^1							$57,418		$64,498	$235,191		$260,687
Adjusted EBITDA margin^1							28.3%		30.9%	28.8%		31.4%
Impairment of intangible assets							$600,000		-	$600,000		-
Net (loss) earnings							$(431,583)		$5,866	$(403,705)		$61,055
Basic (loss) earnings per share							$(16.35)		$0.22	$(15.23)		$2.29
Cash flow from operating activities							$27,874		$42,417	$158,113		$197,566
Free cash flow^1							$7,838		$25,249	$94,607		$122,145

Non-IFRS Measures¹
In order to provide a better understanding of the results, the Company uses the term Adjusted EBITDA, defined as income from operations before depreciation and amortization, impairment of intangible assets and restructuring and special charges. Adjusted EBITDA is not a performance measure defined under IFRS and is not considered an alternative to (loss) income from operations or net (loss) earnings in the context of measuring Yellow Pages' performance. Adjusted EBITDA does not have a standardized meaning and is therefore not likely to be comparable to similar measures used by other publicly traded companies. Management uses Adjusted EBITDA to evaluate the performance of its business as it reflects its ongoing profitability. Management believes that certain investors and analysts use Adjusted EBITDA to measure a company's ability to service debt and to meet other payment obligations or to value companies in the media and marketing solutions industry as well as to evaluate the performance of a business.

As well, free cash flow is a non-IFRS measure generally used as an indicator of financial performance. It should not be seen as a substitute for cash flow from operating activities. Free cash flow is defined as cash flow from operating activities, as reported in accordance with IFRS, less an adjustment for capital expenditures. Free cash flow is not a standardized measure and is not comparable with that of other public companies. Management considers free cash flow to be an important indicator of the performance of its business as it shows how much cash is available to repay debt and to make sound investment decisions. Management believes that certain investors and analysts use free cash flow to value a business and its underlying assets as well as to evaluate a company's performance.

Net debt is a non-IFRS measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to comparable to similar measures presented by other publicly traded companies. Net debt is defined as current portion of long-term debt plus long-term debt and exchangeable debentures, less cash. Management considers net debt to be an important indicator of its financial leverage as it represents the amount of debt that is not covered by available cash. Management believes that certain investors and analysts use net debt to determine a company's financial leverage.

SOURCE Yellow Pages Limited

Media, Fiona Story, Director, Public Relations & Corporate Communications, Tel.: [phone], [email protected]; Investor Relations, Kevin Chan, Senior Manager, Corporate Planning & Investor Relations, Tel.: [phone], [email protected]

Related Links

corporate.yp.ca