Yellow Pages Ltd

TSX:Y

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to Yellow Pages' Second 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 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 third quarter of 2018 (sic) [ second quarter of 2020 ].This call is being recorded and webcasted, and all 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.

[David Alan Eckert, President, CEO & Director]

Thank you very much. Good morning, everyone, and thank you for joining us today. We have a lot to tell you about today. We're looking forward to doing that. I'd like to start with some fairly wide-ranging remarks, and then I'll pass it over to Franco Sciannamblo, our Chief Financial Officer, who'll provide some more detail on our second quarter results. And then Franco and Sherilyn King, our Vice President of Sales, Marketing and Customer Service, and I will be happy to answer your questions.First thing I'd like to comment on is we are reporting what I think are outstanding results for our second quarter. Our profitability, our EBITDA minus CapEx posted 45.8% of revenue. I think that's the company's best performance in that measure since somewhere around the year 2012.Second, our revenue, while the COVID crisis did ding our second quarter revenue, it was only by a few percentage points, I think around 2.5%, compared to the prior quarter. And I'm very heartened by this. I think I'm very, very pleased by the response that our entire organization has had to the challenges that every business around the world has been facing. The attitude that permeates our organization about this is that the show must go on. We made the important decision to retain virtually all of our employees. We did not furlough anybody. We had virtually everybody working from home within about a week of when the crisis hit us here in Canada, and I think we've been nimble and aggressive about adopting and deploying sales and marketing approaches that are tailored to the current situation. And I think all of that helped us post what I think are surprisingly good -- surprisingly little effect on our revenue of the COVID crisis in the second quarter.I'm also extremely pleased that as a result of the favorable profitability and tight management and, therefore, continued very good cash generation in the second quarter that we -- as of now, we have more than extinguished our net debt. Our current cash in the bank as of, I think, yesterday was around $110 million. And even the base amount of our remaining interest-bearing debt, which is our exchangeable debentures, is only $107 million, and so we have more cash in the bank than we have debt that we hold. And so in that sense, we are debt-free.As most listeners and participants on this call will know, we are electing to wait until on or around May 31 to fully repay that debt at par simply to avoid an early payment penalty that we would incur if we did not wait until then. But for all intents and purposes, we feel that we're now, for the first time in I don't know how long, probably when I was a child, debt-free in this company. A little joke about when I was a child, I really don't remember when the company -- and don't know in my head when the company was debt-free, but I do know it wasn't very recently.So to us, that's a significant milestone. We very much like being able to operate in that way. Our -- let me also address what we see as the outlook for our revenues based on our bookings to date. We are encouraged about that. While we do expect a very modest additional hit from COVID to our revenue curve for another maybe couple of quarters, our booking trends are already approaching pre-COVID levels. Earlier in the year, frankly, we were concerned that, that might not turn out to be the case. I think everybody in the world has been concerned, and some companies and some industries and some situations we all know sadly have been ravaged by the effects of the COVID pandemic. So we're very heartened and encouraged, not only with the very modest effect on our revenue in the second quarter, but also by what we've seen in our bookings, which as anybody who knows our business knows, is the leading indicator of our reported revenue.Further, as we have analyzed the easing -- the modest effect that has occurred and the weakening that has occurred, such as it has been in our bookings, we -- what we see is that almost all of that is not additional lost customers, either because they've gone out of business or because they just stopped -- for whatever reason, stopped purchasing our services or whatever, but rather simply that some of our customers have elected to ease the amount of their spending with us at the moment. I draw that distinction because we feel that it is significantly more doable to regain that revenue, even such as the loss has been than it would have been if what we were experiencing was significantly more losses of customers or significant numbers of our customers going out of business or things like that. So we are quite confident that we can resume the bending of our revenue curve, as we call it, quite promptly.And I note that we have a couple of important announcements to make about our programs to do that. We are today announcing 2 very important initiatives designed to importantly help us continue to bend that revenue curve. One is we are introducing and phasing over the next 120 days 3 new exciting products, which we can describe in more detail, if you'd like, in our Q&A period. Second and probably even more important, we are, between now and the end of the year, significantly ramping up our capacity and our effort to generate new accounts by at least doubling or perhaps tripling the size of our Telesales operation. The vast majority of our new accounts come through that operation. I believe it runs very well and very scientifically. We feel like we have -- it's a very successful new account-generation capability, but we just need to do more of it. And this is the moment in time -- these new initiatives, we probably, frankly, would have launched a little sooner were it not for COVID, but we wanted to make sure to secure the business and make sure everything is in good shape with respect to COVID before launching these 2 initiatives, but we feel that we're -- we managed the Telesales operation well, and we just need to do more of it and so that's what we're going to do.And finally, 3 important notes regarding our cash. First, our Board of Directors has again declared a quarterly dividend. This is not a surprise. We've led everybody to expect this, I think. But the Board of Directors has formally declared a quarterly dividend, again, of $0.11 a share.Second, just a confirming that we have implemented the voluntary doubling of our currently required contributions to our Defined Benefit Pension Plan for the benefit of our retirees, which we announced previously.And finally, on Monday, we will be launching a normal course issuer bid for shares of our common stock. As I said, that begins on Monday. So we are, I think, bullish and, especially under the circumstances, gratified, very gratified at the performance of the company through this COVID period as evidenced by our results in the second quarter.And at this juncture, I think I'd like to pass the microphone over to Franco Sciannamblo, our Chief Financial Officer, to provide a little more detail and color on our results from the second quarter. Franco?

[Franco Sciannamblo, Senior VP & CFO]

Thanks, David. Good morning, everyone. As you will recall, we report our operations in 2 segments, the first of which is the YP segment, which provides digital and traditional marketing solutions to small and medium-sized businesses across Canada. The second segment is the Other segment, which includes the operations of businesses we have disposed of or liquidated over the last 2 years. Since the third quarter of 2019, we haven't had any operations in the Other segment, so our results are now entirely made up of the YP segment and this is where my comments will be focused.I'll now take you through our financial results for the second quarter ended June 30, 2020. Our revenues for the YP segment decreased year-over-year by $18.3 million or 17.2% and amounted to $88.3 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 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. YP digital revenues decreased 15.8% to $64.4 million due to a decrease in the number of customers. This was partially offset by an eighth consecutive quarter of higher spend per customer despite pressure on spend in this quarter due to the pandemic.YP print revenues decreased by 20.8% to $23.8 million from both a decline in the number of customers and lower spend per customer. The pressure from lower overall revenue and change in product mix negatively impacted adjusted EBITDA for the quarter, which was partially offset by cost reductions across the company and by a $4.8 million emergency wage subsidy as well as positive spending related to the COVID-19 pandemic. As a result, adjusted EBITDA decreased year-over-year by $1.5 million or 3.4% to $41.9 million, while EBITDA margin increased from 40.7% to 47.5%.Additionally, our CapEx was lower due to a decreased spending on software development, resulting in a consolidated adjusted EBITDA less CapEx that was virtually flat year-over-year. It decreased by only $0.2 million or 0.6% to $40.4 million, while adjusted EBITDA less CapEx margin increased from 38.1% to 45.8%. We do expect some pressure on margin in upcoming quarters from a modest additional revenue impact relating to the COVID-19 pandemic and from our investments in our Telesales capacity as David referred to earlier.As at June 30, our total workforce had decreased 29% year-over-year to 672 employees. This was a key driver for our reduced spend. For the quarter, we recorded restructuring and other charges of $0.1 million, consisting mainly of a $0.9 million charge associated with workforce reductions partially offset by $0.5 million recovery for office closures, mainly related to revised estimates.Net earnings for the quarter increased to $22.0 million from $14.6 million for the same period last year, improvement in profitability of $7.4 million is mainly due to reduced financial charges, reduced depreciation and amortization expenses and reduced restructuring and other charges partially offset by lower adjusted EBITDA. And as -- also as David mentioned earlier, as at June 30, 2020, our net debt, excluding lease obligations, was only $2.1 million with a cash balance of $97.7 million, and as of August 5, 2020, our cash balance was $109.7 million, making the company debt-free on this basis.Given the strong cash position, the Board of Directors approved a dividend of $0.11 per common share to be paid on September 15, 2020, to shareholders of record as at August 28, 2020, and also approved a normal course issuer bid to repurchase up to $5 million in common shares.This concludes our formal remarks. Thank you for taking the time to join us this morning. We will now take your questions.

[Operator]

[Operator Instructions] There are no questions registered at this time. I would like to turn the meeting over back to Mr. Eckert.

[David Alan Eckert, President, CEO & Director]

Well, we thank you all very much for joining our call today. We have a lot of work to do. We're looking very much forward to the future, and we look forward to speaking with you again next quarter. Thank you for joining us. Have a good day.

[Operator]

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.