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 2021 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 important 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 of 2021. 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, everybody. Thank you for joining us today. Today, we'd like to talk about 2 things, and then we'll be very happy to take all your questions. First, we'd like to talk about our first quarter results. We feel we've had another good quarter. And second, we'd like to talk about some of the plans that we're announcing today to get some cash back to our shareholders and our pension plan. As for the quarter, we had, we think, very good earnings this quarter. Our EBITDA came in at 36% of revenue, very healthy level. We feel that's in spite of our making all appropriate investments in the business for now and into the future. We're happy to report that on the revenue side, we continued for the second quarter in a row since we took a little hit from COVID, favorable bending of the revenue curve. Also -- and on this item, we don't publish statistics, but I can report that we've seen some promising trends in our bookings. And of course, it's the bookings, the actual bookings that we get that are the leading indicator of our reported revenue as they turn into reported revenues in future quarters. We also continue to have an ever-growing balance of cash. At the end of April, our cash balance was approximately $181 million. We -- as we've said repeatedly, we will be debt-free in a few weeks. We have laid the arrangements to completely repay all the rest of our interest-bearing debt. This excludes accounting for lease obligations. And that will occur on the 31st of May, so just a few weeks from now. That's -- it phased them out of $107 million paying that off at par plus some accrued interest. That leaves a goodly amount of cash, and we continue to generate a goodly amount of cash generally every month. I feel that having paid off all the debt in a few weeks, we've really rounded a corner in the company, and we shift our attention -- we maintain our attention fiercely on our operations and on continuing to bend the revenue curve and continuing to generate good profitability at the same time, but that will be generating cash we would expect. And so a part of our attention, our decisions are what to do with that cash. And I'm very happy to report that today, we have some initial steps that we are reporting to get some cash to both our shareholders and to our defined benefit pension plan. First, on the shareholder front, the Board of Directors has enhanced its dividend policy. And this is not a technical declaration of a dividend, that will come in a few weeks. We would expect that our plan, our intention, but the cash dividend, we'll be increasing from $0.11 per share per quarter to $0.15 per share per quarter. Second, I think most all of you know that we have had a modest size, normal course issuer bid for our stock. And when that concludes, which is in the month of August, we plan to launch a larger normal course issuer bid. At that time, that would be to a scale of capped at approximately $16 million. Third, for our defined benefit pension plan, our Board has approved a voluntary incremental $4 million cash contribution into the plan this year in 2021, which would bring our 2021 cash payments toward the plan's wind-up deficit to $6 million. These cash infusions are part of a deficit reduction plan to increase the probability that the plan will be fully funded on a wind-up basis by 2030. Right now, projections are that, that would occur in 2045, but this plan would be projected to fully fund that wind up by the year 2030. This plan includes our intention to make cash payments toward that wind-up deficit of $6 million every year until 2030. And the Board of Directors and we and the company will constantly and regularly review this plan and make whatever modifications the Board deems appropriate. But I think that what we have here is a very prudent and measured program to get cash back to our shareholders, get some voluntary cash payments made into our defined benefit pension plan. I think it reflects our confidence in the business -- in the future of the business and the progress that we've been making in bending the revenue curve and maintaining a profitable company. So I think what we have today is another good quarter. We have milestone of 0 debt in a few weeks. We have rounded a corner where we're still extremely aggressively focusing on our operations and on further bending that revenue curve and generating profit, but also these initial steps announced today in a program to return cash to shareholders and to our defined benefit pension plan. Before we take questions, I'd like to shift the podium here over to our Chief Financial Officer, Franco Sciannamblo, who'll go through a few more of the details of the quarter. Franco?
Thanks, David, and good morning, everyone. Let me take you through our financial results for the first quarter ended March 31, 2021. Starting with our revenues. They decreased year-over-year by $14.8 million or 16.8% and amounted to $73.5 million. The decrease for the quarter is due to the decline of our higher-margin digital and print products and to a lesser extent, our lower-margin in digital service and resale products. This change in product mix created pressure on our margins. Our revenues were also negatively impacted by the COVID-19 pandemic, which mostly affected customer spend rather than customer renewal rates. Digital revenues decreased 15.7% to $57 million due to a decrease in the number of customers and, to a lesser extent, lower spend per customer. Our print revenues decreased by 20.2% to $16.5 million from a decline in both the customer count and spend per customer. The pressure from lower overall revenues and change in product mix, partially offset by efficiencies and cost reductions impacted adjusted EBITDA. The efficiencies and cost reductions were from continued optimization in sales and operations and reductions in other operating costs from reductions in our workforce and associated employee expenses, reductions in the company's office space footprint and other spending reductions. As a result, adjusted EBITDA decreased year-over-year by $6 million or 18.4% to $26.6 million, while EBITDA margin was relatively stable at 36.2%. Revenue pressures, coupled with increased headcount in our sales force, partially offset by continued optimization, will continue to create some pressure on margin in upcoming quarters. Adjusted EBITDA less CapEx decreased by $6 million or 19.1% to $25.3 million, while adjusted EBITDA less CapEx margin decreased from 35.5% to 34.5%. This decrease was driven by the decrease in adjusted EBITDA as the CapEx spend was relatively stable year-over-year. As at March 31, our total workforce had decreased 6% year-over-year to 677 employees as increased headcount in telesales was more than offset by continued optimization in other areas of the business. In terms of restructuring and other charges, we recorded $1.1 million, consisting mainly of $1.2 million charge associated with workforce reductions, partially offset by a small recovery of $0.1 million related to office closures. Net earnings was relatively stable year-over-year at $12.1 million compared to $12.4 million for the same period last year as the decrease in adjusted EBITDA was offset by lower depreciation and amortization, lower restructuring and other charges and lower financial charges. Our cash continues to build, as David mentioned earlier. As of April 30, our cash on hand was approximately $181 million, significantly exceeding the $107 million principal amount of our exchangeable debentures, which are our only remaining debt, excluding lease obligations. As announced, we will fully pay off those exchangeable debentures at par on May 31, 2021. Also, as David mentioned, the Board of Directors modified the dividend policy and approved an increase in the quarterly cash dividend from $0.11 to $0.15 per common share, up 36% from previous quarterly dividends. On June 1, following the full repayment of the exchangeable debentures, the Board of Directors intends to formally declare a cash dividend of $0.15 per common share payable on the 30th of June to shareholders of record as of June 9. In terms of our NCIB program, in August 2020, we entered a normal course issuer bid to purchase up to $5 million of common shares in the open market for cancellation on or before August 9, 2021. During the first quarter of 2021, the company purchased 50,960 common shares for cash of $0.6 million under this program. As at March 31, 2021, the company had cumulatively purchased 324,150 common shares for cash of $3.9 million since the start of the NCIB program. As announced today, the company intends to commence a new NCIB on or around August 10, 2021, subject to regulatory approval to purchase up to 5% of the company's outstanding shares for cancellation during a 12-month period. The company intends to limit the aggregate purchases under the new NCIB program to $16 million. And then finally, on pension contributions, the Board approved the voluntary incremental $4.0 million cash contribution to the company's defined benefit pension plans wind-up deficit in 2021 to bring the 2021 cash payments to the plans wind-up deficit to $6 million as part of a deficit reduction plan to increase the probability that the plan will be fully funded on a wind-up basis by 2030. The deficit reduction plan includes the intention to make cash payments to the wind-up deficit of $6 million every year until 2030. The probability of achieving a wind-up ratio of 100% by 2030 is dependent upon other uncontrollable factors, including items such as market returns and discount rates. The Board will review the deficit reduction plan annually. This concludes our formal remarks. Thank you for taking the time to join us, and we'll now take some questions.
[Operator Instructions] The first question is from Drew McReynolds with RBC Capital Markets.
Obviously, congrats on all of this milestone that you've announced. Just one point of clarification from me, I guess, for you, Franco. Just for modeling purposes here on pension funding, obviously, you're doing kind of $6 million annually through to 2030. Just for modeling purposes, is that in addition to kind of regular pension funding? Just want to know kind of exactly what the outlay is here in total?
Sure. Just when you look at our cash flow, our cash flow statement, maybe this will help make -- bring it home, our EBITDA contains already the current service cost of the regular stuff. But on our cash flow, we've been trending at $3 million to $4 million annually. So that $3 million to $4 million will become $7 million to $8 million annually. So it's incremental explore from what you're currently seeing.
Okay. Perfect. That's great. And then just with respect to the pending margin pressure, I know that's something you've alluded to previously, from a government subsidy standpoint, you received a little bit here in Q1 and presuming that will continue until the actual program itself winds down, is that a safe assumption?
Yes, it is. It's more modest now, the amounts that were eligible. It was about [ $700 million ] and change this quarter. And we do expect to receive a little bit more in Q2 and the last items in Q3 when it's supposed to end as it currently is. I know there's talk of whether a possibility of extensions and -- but uncertainty at this point, what the criteria are going to be. So...
Congrats, again.
Thank you.
[Operator Instructions] The next question is from Aravinda Galappatthige with Canaccord Genuity.
I just have a clarification for Franco and then a bigger picture question for David. For Franco, can you maybe update us on the sort of the mix within digital with respect to sort of the reseller piece of the product has over the sort of O&O component. Is there any kind of color you can give us as to where that mix stands today?
Sure, sure. Our print that you could glean pretty much from our financials, it's at 22% of our total revenues. Our high-margin O&O products are approximately 36%, and then the balance of 42% is from services and resale.
That's great color. And for David, I know in this -- I think in prior calls, you've talked about the prospect of potentially expanding the product set that you can -- that you would offer to your SME client base. Is there any update on that front, have you considered perhaps narrowed down what that could be or whether you want to move in that direction at all? I just wanted to hear if there was an update.
Sure. Thanks. First, we have good products, and our customers value those products. And most of the players in the legacy Yellow Pages' space around the globe have been attempted to address the challenges that we all have faced by hoping to land some magical new product. And the siren song of that has been heard very loudly with a lot of money being wasted in that direction. So we are -- we're happy with the products we have. Our customers value them, and we're not going to waste a lot of money trying to out Google/Google or whatever. Our strategy, which is succeeding is different, which is we are modestly looking at a succession of additional products that our customers are and will be and can be excited about. Those efforts are going well. We are adding to further address -- I've alluded to this in the past, to further address bending of the revenue curve, which we had the great trends on right before COVID, and now we're back on track to bending the revenue curve 2 quarters in a row. So we're pleased about that. But to further address that and we think dramatically increase our landing of new accounts, we are making important additions to our telesales capacity, and those efforts are going well. It will take a while for that to start to show up in the results, as you can imagine, but those efforts are going very well. We are also, as I said, we're -- I think we're right spot on in making some modest increases to our product portfolio. Our Senior Vice President of Sales and Marketing and Customer Service, Sherilyn King, is with us today, and perhaps she can add some color to help answer your question.
Thanks, David. So in addition to what David alluded to on the expansion of the telesales team in order to help us acquire new accounts, which will definitely help us bend the revenue curve, we're looking at a couple of other launches that we alluded to it late last year, but I'll touch on those. One is the partnership we have with Canada Post. And we are now having or selling direct mail or targeted publications in our portfolio, which is in addition to what we were already selling. In our existing portfolio, we've added that as a new product. As you can understand with what's happened in the Canadian marketplace with COVID, we also launched e-commerce, which has been a great opportunity for us to help the SMBs when they were unable to, let's say, have the storefronts open. So we've been able to offer that solution to them. And the third one is what I would say, multichannel, and that's a little bit more complex. But to simplify it, it's one single budget from a customer, and that budget is spread across multiple platforms because it is confusing for the SMB to decide where to spend their budget. So we have a solution to help them with that and find the best opportunity to spend the budget across the platform to drive them their potential customers. So those are kind of the updates on the things that we're working on. And as David alluded to, everything that we have in our existing portfolio is already working well, and we're happy with those.
That's helpful. Do you mind slightly expanding on the e-commerce product, what that looks like?
Sure. So basically, we have a solution where we are providing an e-commerce website to our customers, and we have the ability with some of our partners to provide shipping mechanisms or payment mechanisms for the customer as well.
Let me just say, what we think we are and what we will continue to be and what is very -- in a business sense, very defensible, and we think we're the most significant, the best, is the great distribution channel all across Canada for products that are helpful to small and medium-sized enterprises. We have great relationships with our customers. We have a great face-to-face sales force. We have a great telesales force. We know the space. We know what sells and what doesn't sell. We know what tweaks need to be made to products. We know how to promptly deliver -- fulfill and deliver the products into that marketplace, and we will sell whatever those customers need and whatever they will buy that will help their businesses, in particular, in advertising and helping them find new customers. So I think we have a very clear vision, and these pieces are fitting in. And we're not splashy, but I think we're really effective and we're really effective for our customers. And what we sell, what we provide our customers, they value highly. So -- and thank you for the question.
And there are no further questions registered at this time, so I will turn the meeting back over to Mr. Eckert.
Okay. Look, we appreciate very much all of your support. Thank you for joining us today, and we look forward to being with you in another 3 months. Take care. Thanks very much. Be healthy.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.