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. Welcome to Yellow Pages' Third Quarter 2018 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.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. Good morning, everyone, and welcome to our third quarter analyst call. We're glad to have all of you here joining us. I'd like to make a few remarks here at the outset, and then our Chief Financial Officer, Franco Sciannamblo, will provide some details and then we'll be happy to answer your questions.We are excited this quarter to announce for the third quarter in a row, what I think are dramatically -- again, dramatically increased EBITDA minus CapEx results this quarter. That measure is up 59% compared to the same quarter a year ago. And as we are now 3 quarters into our efforts to make ourselves a great and highly performing company for all of our constituencies, we're heartened by those results. The most significant driver of those results is that we have continued the process of aligning our spending, both operating expense and capital expenditures with the realities of the industry and our revenue. And in that regard, I would call your attention to the -- our supplemental disclosure, which is available on our website. This is what we've been tracking the last few quarters, and it shows, just real briefly, 2 lines. The top line is consolidated revenue measured every quarter, each quarter looking back 12 months, the trailing 12 months. And of course, that is declining given the decline of our print business, and more recently as we have been going through the process of shedding some unrelated businesses and shedding unprofitable revenues. But then drawing your focus to the other line, which is simply on a consolidated basis as reported, our spending, which is the sum of our operating spending and our capital spending. And the trend in revenue is about what it has been even with the various factors I alluded to a minute ago. But the trend in spending is markedly down and again, as you can see this quarter, markedly down as we do continue the process of aligning that spending with the realities of the revenue and what we need for a good future so we're very heartened by that.We also are nearing the completion of a process that we began several quarters ago of shedding businesses and subsidiaries and revenues that are not synergistic, that don't provide much EBITDA minus CapEx, that don't provide much in the way of growth and that do consume generally, usually, a disproportionate amount of management time and attention. That process has resulted in the liberating of something in the neighborhood of $65 million of cash through divestitures so far. We're expecting maybe another $10 million for up -- to be harvested from some of the activities there. And we're nearing the end of that process, which has been very productive as a result of the sharply increased EBITDA minus CapEx, primarily, and the activities of shedding the unrelated businesses.This year, we will have paid approximately $185 million of cash to our debt holders, that includes principal and interest, at the same time as we've been fixing the business. All of this is leading us to have a business that is much more simple, much more focused on our core business, and we feel like we've made a good progress in writing that business. We are still, however, very much in the process of working on the revenue side. There are 2 things there I'd like to just briefly touch on One is, we do continue the process of shedding unprofitable revenues. I've said, I think every time we've talked, that what we're interested in is profitable growth, not just growth or accounts for the sake of saying we have accounts or saying we have $1 of revenue. And so that process continues rigorously. And the second thing is that we are in the process of resetting the terms of the collective bargaining agreements that cover our salespeople to be consistent with a sales force in the modern era and a sales force that is in a marketplace that is competitive.We have very talented salespeople. I've been here as CEO for around a year now, and I've been very pleased and very impressed with the people and the caliber of the people that are in our sales force, coast-to-coast, throughout the country. We have, however, over the course of years, in the collective bargaining agreements that are in 5 of the provinces in which our sales force operates, agreed to some terms that, taken together, are not really very consistent with allowing that sales force and those talented people to show what they've got. And so those terms tend to reward a lack of success and punish market success. And what we'd prefer to do is strongly reward performance and success and refrain from rewarding lack of success. And so we are involved in constructive discussions. We have, as I think I mentioned, 5 provinces in Canada in which we have collective bargaining agreements that cover our sales force, and we're engaged in constructive discussions there toward that end. You may have noticed that in one of those provinces we declared a lockout and we made a press release about that. So we're content with the progress of all of that, and it's critically important because in this company, for a -- I think for a very long -- at least as long as I'm aware of, there have been these constraints on the ability of our great salespeople to produce the kind of revenue and growth that the marketplace and they deserve, and it would -- it's for the -- it would be for the benefit, first and foremost, of them and our other employees and then more broadly, all the constituents of the company. So all in all, we're looking forward to finalizing that. We are very pleased at the results of the third quarter.And I'd like to hand it over to Franco now to provide a few more details and then get to your questions. Thanks.
Thanks, David. Good morning, everyone. I will now take you through our financial results for the third quarter ended September 30, 2018.On revenues, total revenues for the quarter of 2018 of $130.2 million represented a decrease of 25.9% year-over-year or $45.5 million of which $14.7 million is attributable to divested businesses with the remainder due to decline in both digital and print across all segments. Total digital revenues amounted to $100.7 million during the third quarter, representing a decrease of 23.9% year-over-year or $31.7 million of which $10.5 million is attributable to the divested businesses. Other than the impact from the divestitures, the decrease was mainly attributable to a $14.6 million or 14.5% decline in YP segment digital revenues, mostly in our higher-margin YP digital media products, therefore, creating pressure on gross margin. Digital revenue was further impacted by the closure of certain U.S. operations in the Agency segment to improve profitability.Total print revenues of $29.5 million represented 22.6% of revenues and declined 32% year-over-year or $13.8 million of which $4.2 million was attributable to divested businesses. Other than the impact from the divestitures, the print decline is attributable to a $9.6 million or 24.9% decline in the YP segment where results were adversely impacted by a decline in the number of print customers and lower spend per customer.Gross profit decreased to $78 million or 60% of total revenues for the third quarter of 2018 compared to $92.3 million or 52.5% of total revenues for the same period last year, mainly due to the decline in revenues in the YP segment, the company's most profitable segment. The increase in gross profit margin from 52.5% last year to 60% is due to the company's cost-reduction measures and focus on profitability of products and services offsetting the pressure from reduced revenues and change in product mix.The company's other operating costs were reduced by $14.6 million or 31.5% to $31.8 million in the third quarter of 2018 versus $46.3 million for the same period last year, mainly as a result of our cost-reduction measures. Despite an overall $45.5 million decrease in revenues and pressures on margins, adjusted EBITDA increased by $0.3 million to $46.3 million during the third quarter of 2018 compared to $45.9 million for the same period last year.Our adjusted EBITDA margin for the third quarter of 2018 was 35.5% compared to 26.1% last year. The increase in adjusted EBITDA and adjusted EBITDA margin for the third quarter was mainly the result of our focus on profitability of our products and services, reductions in our cost structure, including restrictions in our workforce and associated employee costs, reduction in the company's office-based footprint and other spending reductions across the company. The company's workforce as at September 30, 2018, totaled 1,240 employees, which represents a 57% decrease versus the same date last year.Adjusted EBITDA less CapEx increased by $16.4 million or 59.2% to $44.1 million during the quarter of 2018 compared to $27.7 million during the third quarter of 2017. The increase in adjusted EBITDA less CapEx for the 3 months period ended September 30, 2018, was mainly impacted by the result of higher adjusted EBITDA and $16.1 million decreased spending on software development, office and computer equipment, and leasehold improvements associated with office relocations. YP segment accounted for 99% of the company's adjusted EBITDA and EBITDA less CapEx in the third quarter of 2018.The company recorded a restructuring and other charges of $5.2 million in the quarter of 2018 as compared to $6.7 million for the same period last year, consisting of restructuring charges of $2.5 million mainly due to workforce reductions as well as impairment of right-of-use assets and future operating costs, provision for lease contracts for office closures in the amount of $2.7 million.The company recorded net earnings of $27.1 million during the third quarter of 2018 as compared to a net loss of $7.2 million during the third quarter of 2017. The improvement in net earnings is mainly due to a higher adjusted EBITDA, decreased depreciation and amortization expenses, a gain on the sale of assets related to the operations of RedFlagDeals and a reversal of income tax provisions of $18.3 million recorded with respect to previous taxation years.The company generated cash of $87.1 million in the third quarter of 2018 to close the period with $152.1 million in cash, which was mainly due to $54.8 million in net proceeds received from the divestitures and $35.9 million in cash flows from operating activities. The company will make a redemption payment of $115.4 million, including accrued and unpaid interest of $0.9 million on its 10% secured -- senior secured notes on November 30, 2018, which includes the net proceeds received related to the sales of CFDP and RedFlagDeals. As at September 30, 2018, Yellow Pages had $299.8 million of debt net of cash and restricted cash compared to $442.7 million as at December 31, 2017.This concludes our formal remarks. Thank you for taking the time to join us this morning. We will now take your questions.
[Operator Instructions] We do have our first question from Aravinda Galappatthige from Canaccord Genuity.
David, so looking at the digital revenue trends, I mean, I understand that you're sort of reconfiguring the customer base a little bit as you focus on profitability. But can you, at this point, sort of articulate some of your strategies to try and sort of ease this decline rate? Or would a more fuller sort of reassessment of the digital strategy have to sort of await your -- the current negotiations with the unions at this point?
Well, we're not waiting for anything. What I can say is we are intent on to -- look, are the digital revenue trends what they need to be? Absolutely not. Are we satisfied? We are strongly not satisfied, and we are going to tackle that with as much rigor and vigor as we have been tackling the spending in the company. And first things first, that spending needed to be tackled first and the cash characteristics needed to be tackled first. With respect to the digital revenue, yes, what you mentioned is true that we have -- whether it's digital revenue, print revenue or any kind of revenue, and I'm talking about in our core business now, we have a great -- we have a collection -- a great collection of great salespeople, but for a very long time, there have been the handcuffs placed on their and our company's ability to harness the full potential there, and we are addressing that. At the same time, we're laying the groundwork for having a simple and effective digital presence. We have good products. We have good salespeople. The marketplace here in Canada of small- and medium-sized enterprises is good, there's nothing wrong with it. We have good relationships with a couple hundred thousand accounts. And while it's exceedingly competitive and not a walk in the park, there's nothing at all wrong with the business, and it's is not unlike, and perhaps even better than, analogous situations in other countries around the world, where other legacy yellow pages companies just like us have met with good levels of success. And we are not -- we're not being at all embarrassed or ashamed or reluctant to steal the best ideas of our peers around the world in how to approach that and are actively working on that. I don't have anything to announce today, a lot of it is about blocking and tackling. And yes, one of the necessary and key pieces does relate to the organizing and managing and deploying of our sales forces. It's not the only piece, but it is one of the necessary pieces.
Okay. And just one more for me. I think you mentioned approximately another $10 million from asset sales, if I heard you correctly. At that point, is it safe to assume that the processes of sort of noncore sales will be concluded? Or would that be sort of an ongoing process? Because you still have a number of subsidiaries that you -- that the company has acquired over the years which can have valuations that, at least, arguably could be more than $10 million. So I just wanted to get some clarity on that.
Well, we're nearing the end of shedding the businesses that are unrelated, and the cash generated from that process will have been this -- it's kind of sum of 2 things: one, literally proceeds from the sale of businesses as business units; and the other is proceeds from any liquidating we do of things that are not profitable and not promising and not marketable, and so it's really the sum of those. And I think once we kind of complete that over the next few months, we will be, in all material respects, at the end of that road, where what will remain will either be virtually immaterial in its scale or something that we're going to keep and something that's synergistic with our core business and therefore, we would plan to keep. So that -- it's 2 things. Does that address your question?
[Operator Instructions] It appears we have no further questions over the phone at this point, sir.
Okay. Awesome. Well, thank you all for joining us. Thank you for your continued interest in our journey here. We are bullish about our journey, probably even more than we've been in past quarters. And we appreciate your interest and your support. And as always, we're happy to provide you with the information you guys need to do your jobs. Thanks very much.
This does conclude today's call. Thank you for your participation. You may now disconnect.