Yellow Pages Ltd
TSX:Y
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Yellow Pages Ltd
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Good morning, ladies and gentlemen. Welcome to Yellow Pages' First Quarter 2020 Earnings Release Call. Today's conference call contains forward-looking information about Yellow Pages' outlook, objectives and strategy. These statements are based on assumptions and are subject to risks and uncertainties. Yellow Pages' actual results could differ materially from expectations discussed. The details of Yellow Pages' caution regarding forward-looking information, including key assumptions and risks, can be found in Yellow Pages' management discussion and analysis for the first quarter 2020.This call is being recorded and webcast, and all of the disclosure documents are available on the company's website and on SEDAR. I would now like to turn the meeting over to Mr. David Eckert, President and Chief Executive Officer. Please go ahead, sir.
Thank you very much. Good morning, everyone, and welcome to our first quarter analyst call. We're glad you're all here. We hope all of you are well. I'd like to start by making a few comments about our progress in the first quarter and our progress since then and some of our announced intentions.The -- first, about the first quarter. We're very pleased with our results for the first quarter. Our EBITDA minus CapEx remained a very strong 35.5% of revenue. Our efforts to bend the revenue curve continued to bear measurable fruit for the fifth quarter in a row, we've accomplished that. Our high-end cash generation continued in the quarter, and it allowed us to drive down our net debt to only $28 million by the end of the quarter, and we finished the quarter with a cash balance of $71 million.We consider this a very strong quarter. We're very pleased with it. Of course, there's a lot that's happened in the world since the first quarter. And so I'd like to make a few comments about that as well.Since the -- late in the first quarter, there's been a lot of anxiety and obviously, social distancing and government lockdowns spreading all across the world. I am extremely pleased with the response of our entire team at the company, every single person.Our top and first priority, of course, was and has been and continues to be the safety of our employees. Second to that, though, our objective is that the show must go on and the show has gone on. I'm very happy to report we extremely quickly got everyone prepared and working from their homes and doing so effectively and productively. We have -- we feel like we have moved forward with -- almost without missing a beat. We have shifted our marketing and sales focus. We've kept a very tight eye all along on our bookings and on our collections.On bookings -- while unsurprisingly, our bookings have taken a bit of a hit, that hit has been not at all the level that we feared. And on collections, our collections, our cash flow has continued, and I would refer to it as quite steady, which we're very pleased about. And I would say that as a result of the actions that we've taken over the last 2 or 3 years, we're in a very good position to weather this global storm.We entered this period with a very high rate of cash generation. We entered with a very low amount of debt and a low amount of debt service. We entered with accelerating momentum on the revenue side, and we entered with a very high cash balance. So far, I would say we are faring extremely well in this COVID-19 storm.As a result of that, our intentions, we will be formally declaring a quarterly cash dividend tomorrow after our Annual General Meeting of Shareholders, as we had announced a few months ago, of $0.11 per common share per quarter, I believe, payable on June 15, although our Chief Financial Officer, Franco Sciannamblo, will follow me in a moment and will provide details on all of this.We also are pleased to announce that we intend to double our monthly contributions to our Defined Benefit Pension Plan beginning in June of 2020 and continuing through the end of next year. We also reconfirm our intention to pay in full at par our remaining interest-bearing debt, which is our exchangeable debentures. And to do so, we continue to expect on or about May 31 of next year, so approximately 1 -- a little bit more than 1 year from now.So we're feeling good. We're -- we don't minimize the real effects on our -- on the world economy of the global pandemic and the shutdowns and so forth that have followed from that, but we feel well positioned to weather that storm. And we think there are even some aspects and some ways in which -- that we can be of even greater service to our customers in our marketplace as a result of that.So I'd like to next shift the microphone over to Franco Sciannamblo, our Chief Financial Officer, who will provide you some additional details, and then we'd be happy to answer your questions. Thanks very much.
Thanks, David. Good morning, everyone. Let me now take you through our financial results for the first quarter ended March 31, 2020. As you will recall, we report our operations in 2 segments. The first segment is the YP segment, which provides small and medium-sized businesses across Canada digital and traditional marketing solutions. The second segment is the Other segment, which includes the operations of businesses we have disposed of or liquidated over the last 2 years. We no longer have any operations in the Other segment since the third quarter of 2019, so the results are now made up entirely of the YP segment, and this is where my comments will be focused today.If we start with revenues, the YP segment revenues decreased by $15.4 million or 14.8% year-over-year and amounted to $88.3 million. This marks the fifth consecutive quarter that the year-over-year rate of revenue change has improved. The revenue decrease for the quarter is mainly due to the decline of our higher-margin YP digital media and print products and to a lesser extent, our lower-margin digital services products. This created pressures on our margins.YP digital revenues decreased 13.1% year-over-year and amounted to $67.6 million. The revenues were adversely impacted by a decline in the number of digital customers, partially offset by a seventh consecutive quarter of higher spend per customer. YP print revenues decreased by 20% year-over-year to $20.7 million from a decline in the number of print customers and lower spend per customer.Adjusted EBITDA for the quarter decreased by $12.8 million or 28.2%, and the adjusted EBITDA (sic) [ adjusted EBITDA margin ] decreased from 43.3% (sic) [ 43.5% ] to 36.9%. The decreases were a result of lower overall revenues, pressures from the change in product mix, investments in both customer care and new customer acquisition and an increased bad debt provision related to the COVID-19 pandemic. These impacts were only partially offset by our cost reductions across the YP segment. Additionally, the first quarter of 2019 was favorably impacted by an adjustment to the variable compensation expense due to employee attrition and previous year performances.On adjusted EBITDA less CapEx, a decrease by $11.4 million or 26.7% to $31.3 million, mainly due to our lower adjusted EBITDA, partially offset by decreased spending on software development. Adjusted EBITDA less CapEx margin decreased from 41.2% to 35.5%.Our total workforce is now comprised of YP segment employees only and amounts to 722 active employees as at March 31, 2020. This represents a decrease versus the same time last year of 27% overall and of 25% for the YP segment alone. The company also recorded restructuring and other charges of $3.3 million for the quarter, consisting mainly of charges relating to real estate closures and workforce reductions.Net earnings for the 3-month period ended March 31, 2020, remained relatively stable at $12.4 million as compared to net earnings of $12.7 million for the same period last year as lower adjusted EBITDA was essentially offset by lower depreciation and amortization and lower financial charges.As David had talked about earlier, today, the company announced that its Board of Directors has adopted a dividend policy of paying a quarterly cash dividend to its common shareholders of $0.11 per share. Following the corporation's Annual Meeting of Shareholders, the Board of Directors will formally declare a first quarterly cash dividend of $0.11 per common share payable on June 15, 2020, to shareholders of record as at May 29, 2020. We also intend to increase our current monthly contributions to the company's Defined Benefit Pension Plan beginning in June 2020 and extending through next year.And as we already shared with you in the fourth quarter of 2019, we are reaffirming our intention to fully repay all remaining exchangeable debenture at par or shortly after May 31, 2021. As at March 31, 2020, the company's net debt, excluding lease obligation, was $28.3 million, and its cash position was $70.9 million.This concludes our formal remarks. Thank you for taking the time to join us this morning. We will now take your questions.
[Operator Instructions] Our first question is from Aravinda Galappatthige with Canaccord Genuity.
I hope you're all well. Two from me. One, obviously, relating to COVID-19. David or Franco, I was wondering if you can give a little bit more color on the kind of impact that we can expect in the upcoming quarters. Specifically, you talked about decline in booked revenues. Is this just simply a matter of sort of lower gross sales, which is understandable? Or are you seeing a bit of an uptick in terms of churn and cancellations of contracts, et cetera?And also maybe a little bit more color on potential bad debt given your exposure to the SME sector, which is obviously an area that's feeling some stress. And secondly, on a longer-term basis, I know, David, you've talked in the past about sort of the fact that you're open to sort of expanding the product suite for Yellow Pages to add services and products that could be sold to SMEs. I was wondering if there's any additional updates or any additional thoughts on that front as you look to kind of improve the revenue curve.
Thank you for those questions. Let me start and then -- and let me start with your second question. First, our strategy remains unchanged. We don't have anything to announce today. But there's nothing that's occurred since we spoke, including this COVID-19, that changes our strategy at all.We are, first and foremost, a great sales force and a great distribution channel and a great entity that services our customers all across Canada. And we are -- we remain completely open to thinking about what are the very best products and services we can make available to that vast marketplace. We have been actively looking at and considering what pieces we might add to our suite of products. We don't have anything to announce on that today, but that absolutely remains our strategy.As for the question about COVID-19, look, there's nobody in the world who can, with complete certainty or accuracy, predict the economic consequences anywhere of that because the shutdowns as a result -- that have resulted in most countries and in most jurisdictions from that are both unpredictable and out of the control of anyone except the respective governments. And of course, there's a raging debate, including political debate in many jurisdictions about exactly what should be and will be the nature of the release of the lockdowns. So nobody has a crystal ball that can tell with certainty. However, what I can say about us is that we have been pleasantly surprised by the 2 things that are, in my view, the indicators of how well that's faring for us. The most important in any business, of course, and what is causing, I think, so many businesses around the world to be in deep trouble and to fail is they run out of cash. And entering this, so many businesses were in tight spots or are in industries that are just devastated, and we don't need to go into the specifics of those on this call. But we all can think of many examples of industries that there are logical reasons why they're devastated or companies that were already debt-laden and already had very problematic strategies.We are -- we consider ourselves to be radically different from that and even more than what we probably anticipated on our end. Our -- I mentioned that, yes, our bookings have taken somewhat of a hit that will be reflected somewhat in future quarters. We don't have a quantification for you on that. But it's -- in the scheme of things, I would characterize it as modest.Look, anything can happen. The world can go into a deep depression and then everybody is going to have a problem, everybody. But barring worse things than what we see, we think the hit on the bookings will be a hit, but we'll be extremely, extremely survivable.And on the -- the biggest surprise to me, frankly, is on our cash collections. Our cash collections have continued virtually unabated, which to me is an extremely significant sign of the strength of the sector and the market that we serve and the expected, anticipated health of that sector. Again, there's no guarantees. We don't make a guarantee, but I expected there to be large and noticeable declines in our receipts of revenue -- receipts of cash from our customers. And if there is any effect, it's imperceptible, actually.So we're feeling cautiously comfortable about that. While at the same time, of course, we're very concerned about the loss of human life and the disruption of the economies around the world. So we're feeling pretty good for all that. And we'll -- when there are concrete effects, we'll let you know, be surprised if it's 0 effect, but we're feeling pretty unfussed about it.Franco, is there any additional detail you'd care to add to that?
The only thing I would add is to be prudent, and there are some impacts, as David mentioned, from this. So in the quarter, what we have done is we've increased our bad debt expense by about $1.5 million to reflect the fact that there are certain headings that are harder hit, and we may see some defaults there more than usual. So we have increased -- and that's included in our regular EBITDA number. So I think that's -- but that's still mild. Overall, I think the -- David's point of the -- we've been very pleased with the steadiness of the cash which we monitor daily.
[Operator Instructions] There are no further questions registered at this time. I would like to turn the meeting back over to you, Mr. Eckert.
Okay. Well, thank you all for your continued support and interest. We look forward to speaking with you here, again, in 90 days. And we wish every one of you the best of health and reasonable prosperity through this very difficult time around the world. But we're pleased at where we are, and we wish you all the best. Thanks so much. Bye now.
Thank you, everyone. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.