Yellow Pages Ltd
TSX:Y
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
8.7
11.92
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Yellow Pages Ltd
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to Yellow Pages Second Quarter 2019 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 statement information, including key assumptions and risks can be found in Yellow Pages management discussion and analysis for the second quarter of 2019. 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. Mr. Eckert, please go ahead.
Thank you. Good morning, everybody. Welcome to our Yellow Pages Second Quarter Analyst Call. We're real glad you're here. We appreciate your time, your interest in our journey here, and what we're accomplishing. As usual on these calls I'd like to make a few introductory remarks myself, and then our Chief Financial Officer, Franco Sciannamblo, will go through some of the details on our reported progress in the second quarter. And then, and perhaps most important, we'll make sure we answer any and all of your questions. We're real happy with our second quarter this year. It's now been 6 or 7 quarters since our team began our work here in Canada, and we feel that we're very much on the right track, and we're pleased with the reported results. That includes our EBITDA, again for the second quarter in a row, is more than 40% as expressed as a percent of revenues. And I believe that is a world-class level performance for a legacy yellow pages company. Second, we plan to make yet another optional repayment on our senior secured debt in the fall this year. So that we expect that by the end of November, that plus the mandatory payments required in November, should get us to a point where that senior secured debt, which was originally around $315 million soon after we started, we have just refinanced it, then we'll be at a level of approximately $10 million with -- so that's in -- after the payment on November 30. Our revenue trends also, perhaps most important, are finally improving, that's the stickiest and trickiest part of the journey here, of course. But we're very gratified that in our reported numbers for the second quarter, this is the second time in a row that the percent change compared to the prior year, what you would call growth, well let's make no mistake, it's still not in the black, it's still negative growth. And eventually that's absolutely not acceptable, but I'll still say growth -- that the growth based -- compared to the prior year for the second period in a row is improved, and that's after a long time of the opposite of that occurring.And I can tell you that our -- what I call our bookings, which is not reported revenue, but the kind of leading indicator or a leading indicator of future reported revenue in this kind of a business. Our bookings are also further strengthening, and we're very gratified about that. So I feel we've made huge strides in generating cash and reducing our debt. Our cost base is in good shape, and now with the shackles having been removed after having spent all last year of working very constructively with our sales people and their unions to have a good, fair, rewarding, modern arrangements; to be able to effectively manage our sales force and reward success and refrain from rewarding lack of success and many other things. We feel that the shackles are off and we're seeing good improvements in the results in bending our revenue curve. So very happy to be with you today. Let me hand the microphone over to Franco to run through some of the details for the second quarter, and then we'll be happy to answer all your questions. Thank you.
Thanks, David. Good morning, everyone. I will take you through our financial results for the second quarter ended June 30, 2019. As you will recall, we now report our operations in into 2 segments.The first segment is the YP segment, which provides small- and medium-sized businesses across Canada, digital and traditional marketing solutions. This segment includes the operations of YP and of 411.ca. The second segment is the Other segment, which includes the operations of businesses we have disposed of or liquidated this year and over 2018. So on revenues, for the second quarter, decreased by $56.4 million or 34.6% year-over-year and amounted to $106.8 million. The decline was due to the divestitures in the Other segment as well as lower digital and print revenues in the YP segment. The YP segment revenues decreased by $22.7 million or 17.6% year-over-year and amounted to $106.6 million.The decrease 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 create pressures on our margins. Total digital revenues for the second quarter decreased by $45.2 million or 37.1% year-over-year and amounted to $76.7 million, mostly due to the divestitures in the Other segment as well as lower revenues in the YP segment. YP digital revenues decreased 16.4% year-over-year, and amounted to $76.5 million. The revenues were adversely impacted by decline in the number of digital customers partially offset by fourth consecutive quarter of higher spend per customer. The lower digital customer count is mostly attributable to a lower level of acquisition driven in part by our focus on profitability.Total print revenues for the second quarter decreased by $11.3 million or 27.3% year-over-year and amounted to $30.1 million as a result of lower revenues in the YP segment and the divestitures in the Other segment. YP print revenues decreased by 20.4% year-over-year to $30.1 million from a decline in number of print customers and lower spend per customer.Adjusted EBITDA for the second quarter decreased by $13.8 million, or 24.1% and amounted to $43.4 million. The adjusted EBITDA margin for the second quarter of 2019 was 40.7% compared to 35.1% for the same period last year. The decrease in adjusted EBITDA was the result of revenue pressures in the YP segment as well as the divestitures in the Other segment. Adjusted EBITDA for the YP segment for the second quarter decreased by $9.9 million, or amounted to -- or 18.5% and amounted to $43.4 million as a result of lower overall revenues and pressures from the change in product mix. The adjusted EBITDA margin for the YP segment for the second quarter of 2019 was 40.7% compared to 41.2% for the same period last year. The slight decrease in adjusted EBITDA margin is due to the revenue pressures being mostly offset by increase in -- by increased focus on the profitability of our products and services, and reductions in both our cost of sales and other operating costs. The reductions in cost of sales were mainly due to workforce reductions, primarily in noncustomer facing areas, in the first quarter of 2018, and to call center consolidations, and optimization of our servicing model in the second quarter of 2018. The decrease in other operating costs included reductions in our workforce, associate employee expenses, reductions in the company's office space footprint as well as other spending reductions across the segment. Our total workforce as at June 30, 2019, was 942 active employees, which represent a 48% decrease versus the same date last year. The YP segment represented the whole population of active employees and a 21.6% reduction versus last year. Adjusted EBITDA less CapEx decreased by $16.2 million or 28.5% to $40.6 million during the second quarter of 2019, mainly due to lower adjusted EBITDA partially offset by decreased spending on software development. Adjusted EBITDA less CapEx was further impacted negatively by lease incentives received in 2018. Restructuring and other charges of $1.6 million for the second quarter, consisting mainly of charges relating to workforce reductions. In terms of net earnings, the company recorded net earnings of $14.6 million during the second quarter of 2019 as compared to $16.6 million during the second quarter of 2018. The decrease is mainly due to lower adjusted EBITDA and the increase in restructuring charges as the restructuring charges in 2018 benefited from more favorable lease recoveries than we had anticipated. This is mostly offset by lower depreciation and amortization expense, mainly from lower software development expenditures and by lower interest from a reduced level of indebtedness. During the second quarter of 2019, as previously disclosed, we made the $90 million redemption payment on our secured -- senior secured notes. And as David discussed earlier, in addition to the mandatory redemption payment that will be payable on November 30, 2019, and determined based on the second and third quarter excess cash flows, the company plans to make an additional optional redemption payment of $30 million toward the principal payment of the senior secured notes on November 1, 2019. After these payments, we currently estimate that only, approximately, $10 million will be outstanding. As at June 30, 2019, Yellow Pages had $128.7 million of net debt excluding lease obligations compared to $182.2 million as at December 31, 2018. This concludes our formal remarks. Thank you for taking the time to join us this morning. We'll now take your questions. Over to you, Louise.
[Operator Instructions] Our first question is from Aravinda Galappatthige from Canaccord Genuity.
David, since the changes to the union agreements and the greater flexibility that you've had, can you, maybe, just outline some of the initiatives that you deployed to try and set a veracity or moderate the declines in digital? We see small improvements there, but we're still sort of seeing double-digit decline rates on the digital front. Any sort of initiatives or projects that'll help bring that down as close to 0 as possible. And then secondly, just on the financials, I was wondering if the -- if you can provide any color on what's the -- what the full year cash tax numbers would be -- look like as well as the pension contributions?
So look, we've been doing -- we have had the shackles on for decades, frankly, in managing the sales force in this company and the results showed it. So -- and now for just a -- frankly, relatively speaking, a scant number of weeks, where we were able to just begin implementing things, maybe in January and February, to try to change something that's -- that always takes a long time to change. We have been making very encouraging improvements in very simple but profound and important things in the managing of a sales force in a competitive industry, rather than one that's more like a monopoly. And in one where there is frequent change and a lot of dynamics. And among those things, and I don't think I have a -- any kind of comprehensive list here anything, but first and foremost, probably foremost, we're able to reward success and withhold rewards where there is not success. And I had all along throughout the entire discussions about our collective bargaining agreements, said and we meant it, we want to pay our great -- our sales people more money not less, it was never about money, it was never about a compensation, we didn't have -- what it was about is to be able to both be flexible and responsive, but more important, to be able to align the financial interest of our great sales people, we do -- and we do have great sales people, but align their financial interest with the financial interests of the company, and its other constituencies. All the other employees in the company, the shareholders and everybody else, and we've been able to do that. And that includes not at the end of every year taking away a bunch of accounts from people who have successfully grown their book of business, and awarding those accounts to people who have not successfully grown their business. It includes being able to give lots more compensation. This is both for telesales and face-to-face sales to salespeople who make their goals and targets, and exceed their goals and targets. And so it's -- it is an alignment of the financial interests. Also, it allows us to provide greater rewards when our sales force sells something that is more profitable. Now I know that doesn't -- it sounds like pretty simple, like putting your left foot in front of your right foot. But previously, we were not allowed to do that. And all of these things are now outside of our collective bargaining agreements. What that means is, management has the prerogative to make and refine and improve those things. Now at every juncture, we want always to do things that make sense for our salespeople. So this has never been about our company versus the salespeople. This has been about us and our salespeople versus a system that just was antiquated. So we can pay people for performance. We can pay differentially for different profitability. We can assign accounts as we see -- as the company sees fit for everyone's best advantage. We can assign, promote or ask people to leave our employ as a result of performance, not as a result, just looking at seniority. These things have a profound effect on the culture and the way people think. Now I've got to admit that having suddenly come into the freedom to do all of this, somewhere about the first or second or third week of January this year. You know it takes a lot to take a decades old system and culture, and be -- and get it to immediately turn around -- so we began putting some of this stuff in place early to mid-first quarter, so am I shocked that we didn't suddenly have growth of digital in the first or second quarter? No, I'm not. Will I be shocked if we don't suddenly have growth in digital in the third and fourth quarter, no I won't. But I have a nifty graph, and I wish I could shove it through the speaker phone here that shows -- and you can get it, it's public data, that shows our revenue growth rate each quarter compared to the prior year. And if you go back -- and go back couple of years, it was -- the revenue growth rate was plunging, and in the last 2 quarters it's turned around. Now look it's still negative, but you can't -- in a real world, hockey sticks don't happen. And what I'm gratified by is, I know that on the ground both in our face-to-face sales force and in our telesales sales force, we have seen -- both in reported results and in our bookings, seen very heartening improvements. In addition to all that, we had some challenges in our customer service area, we had a lot of calls as a result of bunch of the changes that we've made over the last 6 quarters. We weren't treating as customers as well as we should, the wait times on the phone were shockingly high, to tell you the truth. And now -- and we've worked hard on that, we've made -- we've added people, doesn't take all that many people. But you just have to do your job, we have to do our job right, I'm not saying our people weren't doing their job, they absolutely were. We needed some more. Anyway, that's a tremendous success story. We're now very, very, very responsive to all of our customers when they call in and need some help on one thing or another. So they're all kinds of changes, I could talk all morning, but this stuff isn't won by some grand strategy. I assure you, I could regale you with all kinds of talk about strategy. I've spent time in my life in places that are thought to know something about business strategy, and so I -- they're all kinds of nice buzzwords I can use but this kind of stuff is won on the ground, and we're -- in our industry in the world, we are selling organizations, we have to be aggressive and effective. And for the first time ever, here in our company, we have the ability to manage that function, which is really the only -- the most important function of any of these legacy yellow pages companies. We can manage it as if it's the year 2019, and as if it's a competitive environment, and as if we have products who are -- that are in environments that change quickly due to technology and other things. So I think you've had wanted -- you asked a question about taxes or something, Franco could you handle that?
Sure, sure. In terms of cash taxes for the rest of the year, as you've seen in the first half, we will not -- we don't expect to have any cash taxes. And I would say even for next year in 2020, we have sufficient tax planning that we will not be in a tax -- cash taxes position. And the other question was about pension contributions. So let me lump pension contributions and postretirement benefits because that's what you'll see on our cash flow line, so over and above what's in EBITDA already, there is a definite funding and some cash payments that we made for postretirement benefits. So the amount that we expect for the full year is about $4 million, that you should plan.
And just one other point for David to -- perhaps if you care to comment, David, about the -- I know that in the past you've talked a little bit about fostering and supporting your sales professionals, now you're in a position to do that more. And on the other hand you have -- you are connected to a couple of hundred thousand SMEs. I know that there was a thought around or there's been this idea floating around it, that these professionals could be used to sell more than what you're selling right now, other services that may be related and relevant to the SME space. Is there any additional commentary around that? Or any additional initiatives in that direction?
Thanks. That's also a great question. There -- And one of the reasons it's a great question is that I believe that the most effective way, as I alluded a couple of minutes ago, to thinking about these legacy yellow pages companies is as a conduit to the small- and medium-sized enterprises in their country. And in this case, our country here in Canada, yes, we have a couple of hundred thousand, roughly, small- and medium-sized enterprises, who are our customers. What a wonder -- and that's a wonderful market, and it's a wonderful market in Canada. And those are businesses that now, and in the future, have legitimate needs for products and services. Now if you're sales force and that's your market, the product line has to be focused and targeted, it can't be a real broad product line. Because you're never -- those people, the small business people, are never going to have enough time to give you, give any of our salespeople tons and tons of hours listening to sales pitches. So our product line has to be clear and focused. So we wouldn't want to kind of willy-nilly add a bunch of products. On the other hand, the right way to think about it is we -- the most valuable things here, in any of these legacy yellow pages companies, is that we are here to service those customers. And how many businesses, and certainly how many businesses of our size, have a couple of hundred thousand-ish accounts, that by and large are healthy stable growing businesses that have needs, and are too busy to do a lot of -- and need help with running their business, and finding new customers themselves and all that. So it absolutely makes sense for us to be thinking about, whether there are other products and services that they need, and that we could sell. And in that thinking, we should not be and here in this company, we are not constrained by any particular unnecessary limitation based on technologies, or only -- we're only this kind of technology company or that kind of tech -- no, that's the wrong way to think about it. So we have had -- we have a new product task force that's been active. We're very actively looking at alternative -- I say -- when I say alternative, I don't mean to imply that we drop it -- we would drop any of our current products. We almost for sure, would not -- will not, that's not on the -- in the offing at all, but are there 1 or 2, say, important significant new products that we could add. And we're very attuned to all of the opportunities that are out there. We're very attuned, I would say, probably as attuned as anybody in the world to what experimentation is gone on by other legacy yellow pages companies around the world, and what kind of failures and what kinds of successes are -- have been experienced and are being experienced. And we're very closely watching and considering and evaluating, whether there is a very focused way that we can take what we have here, which is a wonderful thing. And as you say, add through another product or 2, help gain revenue stability. We want to be careful and measured but as always, we are aggressive. So I've nothing to announce today on that front, specifically but we are very focused on that, and I think what's -- the thinking that's behind your question is spot on.
[Operator Instructions] Next question is from Bentley Cross from TD Securities.
David, you highlighted the progress on the booking front, I wonder if you might be able to quantify that to some degree for us?
Oh, I wish I could, but I don't think I can. Look, we look at every indicator we can, and you know how this business works that -- especially on some of our products, we look at renewals and extensions and growth by each account, and we compare that literally by week this year, and we compare it to where we were in the same week last year, and it is those trends that I am referring to. And I literally -- we literally meet every week, and we look every week at that indicator and a couple of -- several indicators that are basically like that. And we're kind of not in a position to start publishing that data real time or otherwise, but I wouldn't say it if it weren't the case. And I'm encouraged by it, and there is a lot of up and down every week. A lot of noise on any trend, but the trends are clear, the trends are good, and they're very encouraging. And I think I said, maybe 6 months ago or something that given how restrictive the collective bargaining agreement shackles were for so long, part of me, frankly, I was surprised the company was still in the business at the time. And that if only we could only get those off, I'd eat my hat. If simply by doing that and by managing effectively, even if you didn't have any new products, even if you didn't have any -- nothing -- no other change, If we couldn't -- just by doing AB -- the ABCs of managing a good talented sales force, which is what we have, have better performance. And it takes a while because you've got to change -- people -- our wonderful salespeople, they're concerned about the changes, you change somebody's comp plan, you change the criteria for how people get ahead, and how people don't get ahead. You say one thing and people wonder, whether you really mean it, they're all -- you've got a lot of things on the ground level, and doing them, it takes a while for -- after -- because when you've got decades of direction of 1 type that you have to move in a different direction, but, frankly, where we're sitting here in August, and we would -- we just began, we just had the shackles off in January or started in January or February. So we're looking literally every week kind of examining all the grains of sand and the trends. So what I'm referring to is not an anecdote that, "Oh, we have an account, we got an account, it went really well on that account." that doesn't mean anything, there are always accounts that go really well, and there are always territories that go really well, and then there are quite some, maybe, that don't. But looking at trends, quantitatively looking, is, well, the reported numbers, as I said, if you look at the reported numbers, I tried to outline the graph that I wished I could push through the microphone here, it's public now, you can graph that if -- when you do it, it doesn't look the way I said, ring us up, and I'll e-mail you a copy of the graph. And -- but that's reported, but on the bookings front the bookings are looking just as good, I can't -- we shouldn't go down the road of publishing that, so we probably won't.
Okay, but just following on with that. The slight change in trajectory, presumably, those would have come through bookings that would've been when that shackles were still on, so to speak, is that a fair characterization? So things can only improve from here, if bookings are trending better, is that a fair way of thinking about things?
Partly, yes. And partly -- some of our revenue is more current, in other words what you see, to some extent, revenue that you see in a quarter, in this case, let's say, the second quarter, is a result of stuff -- bookings and stuff that happened maybe last November, December, October, whatever -- in the past. And to some extent, it's as a result of stuff that literally happened in the second quarter. It's a mix because of the different product mix we have, and how we account for things, and I know Franco is on the edge of his chair, and in a minute he's going to fill in the blanks here for me. But yes, it's -- and you said that things can only get better from here, I certainly wouldn't bet that's an absolute statement, anything could happen in the future. And for the record, I need to say that but, yes, if you've got the trends -- and I encourage you look at the graph, it's been plunging -- the rate of change has been plunging downward for a good period of time, and now the reported rate of change has been moving up for 2 quarters in a row, and if we look at the leading indicators of the bookings, that they're looking good. Franco, do you have -- do you want to add something?
I was just going add that, keep in mind that in terms of the print revenues which are about a quarter percentage of the revenue that we have now, those -- the time frame between the leading indicators that we have, which is when it's sold, and when you see it recorded, is much shorter, right? since we've moved to do the new accounting where we recorded as we deliver the books so on a published basis. It's more the digital that takes a while, that we amortize over the 12 months, but I think with the -- even on that front, as David indicated, there is whatever you're selling are able to deliver -- a portion of that is amortized within the quarter as well, but the rest takes time before it floats to the results.
And frankly, look I don't mean to imply that it was only January 15, 2019, or something, that was the first time our team started to thinking about trying to fix the revenue curve, of course not, but it's the first time that we've had the shackles off, and we could do things that are large -- what we believe to be large, significant, meaningful in a large way, things that we were eager to do for a long, long time, and to me, it simply are the ABCs of running a modern effective sales force with highly talented salespeople. So look I'm not surprised that we've got -- we've had -- I wouldn't have been surprised if we've been able to have some improvement even without the shackles off but the -- there'd be a big limit on the upside for that because it was just impossible to do basic things like rewarding people for success, like when you do have -- when you do ask somebody to leave, asking the people who are -- have not enjoyed success to be the ones to leave, instead of the people who don't happen to have seniority, be the ones to leave. These are just basic things that any sales force of a company that I think can survive, has to have.
So Mr. Eckert, we have no further questions at this time. And I would turn the meeting back over to you.
Okay, look, everybody, we appreciate your support, we appreciate your attention, we are happy to answer your questions, we are excited about our trajectory here, we have been hoping for -- to be in this spot where we are today for a long time, we feel energized and somewhat liberated, and somewhat vindicated. And we look forward to talking with you in about 90 days. And hopefully, with another batch of good news. So thanks very much.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.