Yellow Pages Ltd

TSX:Y

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to Yellow Pages Fourth 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 fourth quarter of 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.

[David Alan Eckert, President, CEO & Director]

Thank you very much. Good morning, everyone. Welcome to our Fourth Quarter 2020 Analyst Call. We greatly appreciate your interest in what we're up to. I'd like to start by making some comments and then Franco Sciannamblo, our Chief Financial Officer, will go through some of the details. And then Franco and Sherilyn King, our Senior Vice President of Sales, Marketing and Customer Service, will be happy to take your questions. Today, we report on another, what I think, is very good quarter's results despite the challenges of the COVID pandemic. Some of the highlights. Our cash generation has continued to be very strong. At the end of January, our cash balance was approximately $164 million. Our earnings for the period are good. For the full year 2020, our EBITDA was 39% of revenue, which is almost the same as it was in 2019, who would have expected that with all of COVID. And for the fourth quarter, it was a healthy 36% of revenue. We -- based on all of that, we once again reconfirm that by approximately May 31 of this year, we expect to be debt-free. In fact, we already have ample cash of $164 million, as I mentioned, in excess of the base amount of the exchangeable debentures, which is the remaining interest-bearing debt that we have, and that's around $107 million. The effects of COVID on us, although they're not 0, they continue to be quite modest, perhaps a few percentage points on the various indicators, and we also see some improvement in our bookings trends as we look forward. And we have not, in any way, paused our investment for the future. In fact, we have ramped that up in recent quarters. We have doubled our Telesales force, as we said we would. The purpose of that is to generate higher numbers of new accounts, which is a big investment in the future. And we continue to be executing well on programs to add to our already good portfolio of products.One other thing I'd like to note about the environment, although like everywhere, Canada, of course, has been hit hard by the COVID pandemic in many ways. It is in some important ways, faring better than a number of other countries that we keep our eyes on. And one of the indicators that I think of that, deaths per 100,000 in Canada, although up from what it was months ago, and that's tragic, continues to track markedly lower than a lot of other countries by multiples. So we think that, that -- although it's way above what we would all like it to be, we think that also bodes well for stability and for the future.So we feel very good about the future. We feel good about the present. And we're very happy, frankly, about how well our company has been able to do throughout 2020 and in the fourth quarter. I'd like to pass it to Franco Sciannamblo, our Chief Financial Officer, to provide a bit more detail on that before we very happily will take your questions. Thank you.

[Franco Sciannamblo, Senior VP & CFO]

Thanks, David, and 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 our small- and medium-sized businesses across Canada. The second segment is the other segment, which includes the operations of businesses we have disposed off 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 today. So let me take you through our financial results for the fourth quarter ended December 31, 2020, and then start with revenues. Our revenues for the YP segment decreased year-over-year by $16.8 million or 18% and amounted to $76.7 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 retail 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 16% to $58.9 million due to a decrease in the number of customers. This was partially offset by a tenth consecutive quarter of higher spend per customer despite pressure on spend in the quarter due to the pandemic. YP print revenues decreased by 23.9% to $17.8 million from both a decline in the number of customers and lower spend per customer. On EBITDA, the pressure from lower overall revenue and change in product mix, partially offset by efficiencies and cost reductions impacted adjusted EBITDA and adjusted EBITDA margin for the quarter. 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 $7.1 million or 20.5% to $27.6 million, while EBITDA margin decreased from 37.2% to 36%. Revenue pressures, coupled with increased headcount in our sales force, partially offset by continued optimization will create some pressure on margin in upcoming quarters. On adjusted EBITDA less CapEx, it decreased by $6.6 million or 20.2% to $26.2 million, while adjusted EBITDA less CapEx margin decreased from 35.1% to 34.1%. The decrease is due to lower EBITDA, partially offset by lower year-over-year CapEx expense due to decreased spending on software development. Our workforce as at December 31 had decreased 11% year-over-year to 686 employees. This continues to be one of the key drivers for our reduced spend. Restructuring and other charges for the quarter. We recorded only $0.2 million, consisting mainly of $1 million charge associated with workforce reductions, offset by recovery of $0.8 million related to office closures. Earnings before taxes increased from $13 million in the fourth quarter of 2019 to $19.2 million in 2020 as lower adjusted EBITDA was more than offset by lower restructuring other charges, lower financial charges and lower depreciation and amortization expense. Net earnings for the quarter decreased to $16.8 million from $53.6 million for the same period last year due to a higher recognition of previously unrecognized tax attributes and temporary differences in 2019.As David mentioned earlier, our cash continues to build. As of January 31, our cash on hand is approximately $164 million. This balance significantly exceeds the $107 million principal payment of our exchangeable debentures, which are our only remaining debt excluding lease obligation. As previously announced and as David mentioned again earlier, we intend to fully repay off those exchangeable debentures at par on or around May 31, 2021. Yesterday, the Board of Directors approved a cash dividend of $0.11 per common share to be paid on March 15, 2021, to shareholders of record as at February 26, 2021. Also recall that we entered into a normal course issuer bid commencing on August 10, 2020, to purchase up to $5 million of common shares in the open market for cancellation on or before August 9, 2021. As at December 31, 2020, the company had purchased under this NCIB program, 273,190 common shares for cash of $3.3 million. 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] And we have no questions registered at this time. I'll turn the meeting back over to Mr. Eckert.

[David Alan Eckert, President, CEO & Director]

Very good. Short and sweet. We appreciate your interest, and we look forward to chatting with you here again in 90 days. We thank you very much, and everybody, be safe and healthy. Good day.

[Operator]

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