Yellow Media inc.

TSX : YLO


Yellow Media inc.

May 07, 2012 17:25 ET

Yellow Media Inc. Reports First-Quarter 2012 Financial Results

MONTRÉAL, QUÉBEC--(Marketwire - May 7, 2012) - Yellow Media Inc. (TSX:YLO)

  • Yellow Media focused on execution of its 360° Solution strategy with digital revenues now representing 30% of total revenues
  • Company recognizes non-cash impairment charge of $2.9 billion
  • Company reports net earnings before the impairment charge of $58 million
  • Company to adjourn Annual Meeting due to a lack of quorum

Yellow Media Inc. (TSX:YLO) released its financial results today for the first quarter ended March 31, 2012. The Company is focused on and continues to make progress towards its transformation to a digital media and marketing solutions company.

For the quarter ending March 31, 2012, the Company recorded a net loss of $2.9 billion as a result of a goodwill impairment charge net of taxes of $2.9 billion. Net earnings before this impairment charge were $57.5 million compared to net earnings from continuing operations of $70.5 million in 2011 due to lower revenues and increased income taxes.

The impairment charge is a non-cash item and does not affect the Company's operations, its liquidity, its cash flow from operating activities, its bank credit agreement or its note indentures.

During the quarter, we noted changes in our revenue trends affecting our long-term projections and indicating that the Company's assets may be impaired. These included lower revenue performance compared to what had been expected in the review of our operating plans performed during the third quarter of 2011. The development of a new business plan taking into account these revised trends in the context of the review of our capital structure, and a recent third party transaction within our industry caused the Company to perform an impairment test which resulted in the recognition of a goodwill impairment charge net of taxes of $2.9 billion in the three-month period ended March 31, 2012.

Net earnings per share before the goodwill impairment charge (net of taxes) for the first quarter ending March 31, 2012 were $0.10 compared to net earnings per share from continuing operations of $0.13 in 2011. Adjusted earnings per common share for the quarter were $0.13 versus $0.26 of adjusted earnings per common share from continuing operations for the same period last year primarily due to lower revenues and increased cash taxes.

Revenues for the first quarter ended March 31, 2012 were $289.1 million compared to $349.4 million for the first quarter in 2011. The 17.3% decrease is due principally to lower print revenues, the discontinuation of some books published at Canpages, the divestiture of LesPAC on November 14, 2011 and lower revenues associated with the Company's U.S. operations. Online revenues were $85.9 million compared to $83.2 million last year, representing growth of 3.2%. On an organic basis, excluding the impact of the changes to the Canpages business and the LesPAC divestiture, online revenues grew 7.8% during the quarter compared to the first quarter of 2011.

Income from operations before the impairment charge for the quarter was $115.9 million compared to $136.9 million for the same quarter in 2011. EBITDA for the quarter declined from $190.0 million to $146.0 million. The EBITDA margin in the quarter was 50.5% compared to 54.4% last year. The decrease is mainly attributable to print revenue pressure and investments in support of the Company's transformation.

"Our industry continues to evolve as it adapts to a new digital reality. Although the needs of advertisers have not changed, they are seeking support navigating through this complex market." said Marc P. Tellier, President and Chief Executive Officer of Yellow Pages Group. "Through our 360° Solution and dedicated sales force, we offer a compelling value proposition to help Canadian businesses succeed in today's digital world."

Continued Progress on Yellow Pages' Digital Strategy

Launched in 2011, Yellow Pages 360° Solution marked a key milestone in the Company's digital transformation. Its value proposition resides in how customers can access expert support and unprecedented visibility through online, mobile and print media platforms, and access services such as managed website services, customized search engine marketing and search engine optimization, and Yellow Pages Analytics™, all offered through a single point of contact.

Through its 360° Solution YPG is demystifying digital advertising for Canadian SMEs, helping them make the necessary shift to digital. Yellow Pages 360° Solution brings relevancy to Yellow Media's product and service portfolio moving forward, generating growth potential for the Company.

As of March 31, 2012, the advertiser penetration of YPG's 360º Solution (defined as advertisers who subscribe to three product categories or more) was 7.9% compared to 1.9% as at March 31, 2011. In addition, the Company has also sold approximately 13,000 websites for SMEs, making it one of the leading website providers in Canada.

In 2012, Yellow Media will expand its product and service offering to meet the needs of larger advertisers through a High Priority Accounts Program. This program is aimed at mitigating revenue risk and optimizing revenue growth of larger advertisers through a differentiated servicing model. A comprehensive advertiser profiling methodology is now in place to guide the evaluation of account needs and opportunities through the review of Yellow Pages Analytics™ results, website audits and competitive rankings, search engine marketing estimates, and social media and search engine reviews.

On April 27, 2012, Yellow Pages received two Gold Excellence Awards for its innovative mobile local search placement product and its MarketProfiler™ online evaluation tool from the Local Search Association. Launched in July 2011, the local search placement product is YPG's first foray into mobile advertising. This product puts local small businesses at the top of the list in mobile searches for their products or services. Six months after its launch, more than 13,000 Canadian SMEs have invested in mobile placement.

Enhancing the User Experience

In an effort to increase traffic across its network of properties and provide additional value to Canadian advertisers, Yellow Media continues to invest in the online and mobile user experience and engagement.

YPG's network of sites currently reaches approximately 8 million unique visitors, representing approximately 33% of Canada's online population. During the first quarter of 2012, we improved the search engine optimization of YellowPages.ca to ensure increased indexation on search engines.

Yellow Media's business transformation also revolves around the continued improvement of its mobile applications which have been downloaded more than 4 million times.

During the first quarter of 2012, Yellow Pages Group launched a redesigned YellowAPI.com website for the company's public application programming interface. Through this initiative the Company's main objective is to generate more business leads for its advertisers.

Since its initial launch in late 2010, YellowAPI.com has gained industry recognition and has enrolled over 1,700 software developers. These developers have created numerous digital applications using YPG's database of 1.5 million business listings, currently the largest in Canada. The expanding list of applications currently leveraging YellowAPI.com listings range from leading consumer brands such as Yahoo! Mobile Canada to innovative creations by local start-ups, such as Reservely, an app that makes online reservations to any restaurant in Canada.

Mediative

Through Mediative, Yellow Media is a leader in national digital advertising. Mediative is one of Canada's largest integrated advertising and digital marketing companies, holding extensive experience in developing innovative and unique marketing solutions for national companies.

In 2011, Mediative was chosen as the top Enterprise SEO Services as well as Integrated Search Company. With over 12 lifestyle and behaviour based vertical networks reaching approximately 15 million unique visitors per month, Mediative matches advertisers with the websites of premium online brands. During the first quarter of 2012, Mediative welcomed three new publishers, making it the leading online media sales partner for national advertisers in the Health and Food sector.

Capital Structure

As at March 31, 2012, the Company had approximately $1.5 billion of net debt, or $2.1 billion including preferred shares, Series 1 and 2, and convertible debt instruments. The net debt to Latest Twelve Month EBITDA ratio as of March 31, 2012 was 2.7 times as compared to 2.5 times as of December 31, 2011. On April 2, 2012 the company made its second quarterly mandatory repayment of $25 million on its non-revolving credit facility.

As of May 7, 2012 $155 million was outstanding on the non-revolving tranche of the credit facility and $239 million drawn on the revolving facility. The Company has approximately $292 million of cash as at May 7, 2012.

Despite recent progress in its business transformation, the Company recognizes the importance of aligning its capital structure with its operational strategy. As a result, Yellow Media has begun evaluating alternatives to refinance maturities in 2012 and beyond. To oversee this process, the Board of Directors has established a Financing Committee with the objective of completing any transactions during the current fiscal year.

Annual Meeting to be Adjourned Due to Lack of Quorum

Due to low participation levels, the amount of shareholder votes received will not be sufficient to reach quorum. As such, the Company's Annual Meeting, scheduled to take place tomorrow at The Montreal Museum of Fine Arts at 11 a.m. (ET), will be adjourned. The Meeting was called consistent with the Company's prior practice and in accordance with applicable laws. The current Board of Directors and Auditors will continue in office until the election or appointment of their successors.

"The adjournment of the Meeting has no impact on the business and operations of the Company; the Board of Directors will continue to oversee the business and affairs of the Company." said Marc L. Reisch, Chairman of the Board. The Company will notify its shareholders of the date and time on which the next meeting will be held.

Investor Conference Call

Yellow Media Inc. will hold an analyst and media call at 9:00 a.m. (Eastern Time) on May 8, 2012 to discuss the first quarter results. The call may be accessed by dialing (416) 340-2216 within the Toronto area, or 1 866 226-1792 outside of Toronto. The call will be simultaneously webcast on the Company's website at http://www.ypg.com/en/investors/financial-reports/2012/quarterly-reports/first-quarter.

The conference call will be archived in the Investor Center of the site at www.ypg.com. A playback of the call can also be accessed from May 8 to May 16, 2012 by dialing (905) 694-9451 from within the Toronto area, or 1 800 408-3053 outside Toronto. The conference passcode is 1677943.

About Yellow Media Inc.

Yellow Media Inc. (TSX:YLO) is a leading digital company in Canada. The Company owns and operates some of Canada's leading properties and publications including Yellow Pages™ print directories, YellowPages.ca™, Canada411.ca and RedFlagDeals.com™. Its online destinations reach approximately 8 million unique visitors monthly and its mobile applications for finding local businesses and deals have been downloaded more than 4 million times. Yellow Media Inc. is also a leader in national digital advertising through Mediative, a digital advertising and marketing solutions provider to national agencies and advertisers. For more information, visit www.ypg.com.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements about the objectives, strategies, financial conditions, results of operations and businesses of the Company.

These statements are forward-looking as they are based on our current expectations, as at May 7, 2012, about our business and the markets we operate in, and on various estimates and assumptions. Our actual results could materially differ from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, there is no assurance that any forward-looking statements will materialize. Risks that could cause our results to differ materially from our current expectations are discussed in section 6 of our February 9, 2012 Management's Discussion and Analysis. We disclaim any intention or obligation to update any forward-looking statements, except as required by law, even if new information becomes available, as a result of future events or for any other reason.

Financial Highlights
(in thousands of Canadian dollars - except share information)
For the three-month periods ended March 31,
Yellow Media Inc.2012 2011
Revenues$289,073 $349,372
(Loss) income from operations($2,851,911)$136,864
Net (loss) earnings from continuing operations($2,869,252)$70,453
Basic (loss) earnings per share from continuing operations attributable to common shareholders
($5.61

)

$0.13
Cash flows from operating activities from continuing operations$22,407 $111,701
EBITDA1$146,017 $190,035
EBITDA margin150.5%54.4%
Adjusted earnings from continuing operations1$67,272 $133,653
Weighted average number of common shares outstanding512,595,314 510,404,617
Adjusted earnings per common share from continuing operations$0.13 $0.26
Dividends on common shares- $83,464
Dividends declared per common share- $0.16
Payout ratio- 62%

Non-IFRS Measures1

In order to provide a better understanding of the results, the Company uses the term EBITDA, defined as income from operations before depreciation and amortization, impairment of goodwill and intangible assets, acquisition-related costs and restructuring and special charges. Management believes this measure is reflective of ongoing operations. The Company also uses the term Adjusted earnings from continuing operations, defined as net (loss) earnings from continuing operations available to common shareholders excluding amortization of intangible assets attributable to shareholders, non-cash financial charges, income taxes and non-recurring items such as acquisition-related costs, impairment of goodwill and gain on investment. These terms are not performance measures defined under IFRS, they do not have any standardized meaning and are therefore not likely to be comparable with similar measures used by other publicly traded companies. Management believes EBITDA and Adjusted earnings from continuing operations to be important measures. The table below is a reconciliation of Adjusted earnings from continuing operations to the most comparable IFRS financial measures:

Adjusted earnings from continuing operations
(in thousands of Canadian dollars - except share information)
For the three-month periods ended March 31,
2012 2011
Net (loss) earnings from continuing operations($2,869,252)$70,453
Attributable to non-controlling interest13 167
Dividends to preferred shareholders(5,584)(5,710)
Net (loss) earnings from continuing operations available to common shareholders of Yellow Media Inc.
($2,874,823)$64,910
Amortization of intangible assets124,707 56,218
Impairment of goodwill2,967,847 -
Acquisition-related costs2- 803
Financial charges32,125 47,142
Interest paid(32,936)(41,807)
Gain on investment (net of income taxes of $0.1 million)(2,090)-
Income taxes(47,558)6,387
Adjusted earnings from continuing operations$67,272 $133,653
Weighted average number of common shares outstanding512,595,314 510,404,617
Adjusted earnings per common share from continuing operations$0.13 $0.26
Dividends on common shares- $83,464
Dividends declared per common share- $0.16
Payout ratio- 62%
1Represents amortization of intangible assets attributable to shareholders.
2Acquisition-related costs are excluded from the calculation as they do not reflect the ongoing operations of the business.

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