Yellow Media Limited
TSX : Y

Yellow Media Limited

November 05, 2013 08:30 ET

Yellow Media Limited Reports Third-Quarter 2013 Financial Results

- Q3 2013 digital revenues grow 10% year-over-year to reach $102 million, representing 43% of total revenues

- Company reports Q3 2013 free cash flow of $64.3 million and basic earnings per share of $1.51

- Company reduces debt by $35 million and anticipates making a $92 million principal mandatory redemption on December 2, 2013

MONTREAL, QUEBEC--(Marketwired - Nov. 5, 2013) - Yellow Media Limited (TSX:Y) (the "Company") released its operational and financial results today for the third quarter ended September 30, 2013. The Company continues to invest in its digital transformation, providing advertisers with the right value, products, customer experience and audiences to manage and grow their business.

Third Quarter 2013 Financial Results

Revenues for the third quarter ended September 30, 2013 were $237.4 million compared to $267.7 million last year. The 11.3% decline results from a decline in advertisers, alongside a decrease in spending amongst the Company's larger advertisers as they migrate towards digital products.

Digital revenues for the third quarter of 2013 grew to $101.6 million compared to $92 million for the prior year, representing growth of 10.5%. Growth in digital revenues is due to the execution of the Yellow Pages 360º Solution sales approach across our sales channels, continued migration of print revenues towards digital products and services, and the launch of new mobile and premium digital products in 2012. Digital revenues represented approximately 42.8% of total revenues during the third quarter of 2013, compared to 34.3% for the same period last year. As anticipated, print revenues for the third quarter of 2013 continued to face steady declines, decreasing 22.8% year-over-year to reach $135.8 million.

EBITDA declined to $102.1 million during the third quarter of 2013, as compared to $137.9 million last year. The decrease in EBITDA is due principally to print revenue pressure, alongside a decline in the EBITDA margin. The EBITDA margin fell from 51.5% last year to 43.0% in the third quarter of 2013, a result of a change in product mix and investments required to advance the Company's digital transformation.

"As we further transform the business and grow digital revenues, protecting profitability remains a key priority," said Ginette Maillé, Chief Financial Officer of Yellow Media. "The Company will invest in projects aimed at improving the efficiency of the organization in order to realign the Company's cost structure and optimize digital contribution margins."

Free cash flow for the third quarter of 2013 increased to $64.3 million compared to $39.9 million last year, mainly due to lower utilized restructuring and special charges, lower interest and income taxes paid, and favourable changes in working capital, partly offset by lower EBITDA. The Company continues to generate sufficient free cash flow to service all financial obligations and invest in its digital transformation.

For the quarter ending September 30, 2013, the Company recorded net earnings of $41.8 million and basic earnings per share of $1.51. This compares to $22.2 million of net earnings and $0.59 of basic earnings per share for the same period last year. The increase in net earnings and basic earnings per share is due primarily to a lower depreciation and amortization expense, lower restructuring and special charges, lower financial charges and a loss on settlement of debt recorded in the third quarter of 2012, partly offset by lower EBITDA.

Delivering Value to Advertisers through the Yellow Pages 360° Solution

The Yellow Pages™ 360° Solution remains one of the most comprehensive full-serve digital and traditional media and marketing solutions in Canada. This value proposition is directly aligned with small to medium-sized advertisers' key needs, offering them a single relationship to effectively manage their print and digital marketing programs. Through products and services such as placement on YPG's owned and operated properties, website development, search engine optimization, search engine marketing, and Yellow Pages Analytics, the Yellow Pages 360° Solution helps advertisers generate value via enhanced digital exposure within their local neighborhoods.

As at September 30, 2013, the penetration of the Yellow Pages 360º Solution offering among YPG's advertiser base, which is defined as advertisers who purchase three product categories or more, grew to 24%. This compares to 13.9% at the end of the same period last year.

Mobile priority placement and digital services such as search engine optimization and search engine solutions are currently the fastest growing components of the Yellow Pages 360º Solution. Advertiser penetration of mobile priority placement products increased to 12.2% as at September 30, 2013 compared to 6.8% in 2012. Advertiser penetration of digital services also grew from 5.9% last year to 8.3% as at September 30, 2013.

"The strategy to deliver Yellow Media's transformation is working and we are pleased with the progress," said Robert MacLellan, Chairman of the Board of Directors of Yellow Media. "Although print revenues remain challenged by negative trends, investments in the digital transformation have led to better experiences for our advertisers and users, growing advertiser adoption of digital solutions, and digital revenue growth."

Promoting Revenue Growth by Attracting Valuable Advertisers and Enhancing the Customer Experience

The Company had 283,000 advertisers as at September 30, 2013. This compares to 319,000 advertisers at the same period last year. Over the last twelve months, the advertiser renewal rate fell slightly from 86% last year to 85% for the period ending September 30, 2013. Advertiser acquisition declined from approximately 18,300 last year to 11,900 for the twelve month period ending September 30, 2013.

Deployed during the second quarter of 2013, the Company's acquisition strategy is aimed at increasing advertiser leads and conversions through the creation of specialized inbound and outbound call centers and a face-to-face network of over 100 sales advisors. In conjunction with this initiative, the Company launched two new entry-level product packages (Business Builder Bundle and Booster Packs) designed exclusively to help new, prospective advertisers gain a digital media presence at entry-level pricing.

The PriorityPlus program provides high-spend advertisers with priority treatment and service, regular meetings with sales advisors, and increased attention, analysis and advice to ensure effective execution of their marketing strategy. In conjunction with PriorityPlus, the Company also offers customizable premium digital products, and access to dedicated professionals and creative services specializing in search engine optimization, search engine marketing and website development.

Attracting and retaining valuable advertisers remains key in promoting long-term revenue growth. In response, the Company will continue investing in increasing the efficiency of its sales channels, improving customer service and product fulfillment, evolving its digital product offerings, and further growing digital audiences.

Promoting Return on Investment for Advertisers

Attracting valuable local audiences towards YPG's digital network of properties is key in generating ROI for advertisers. The Company's online properties reached 8.4 million unduplicated unique visitors during the third quarter of 2013, representing 30% of Canada's online population. Cumulative mobile downloads increased to 6.2 million by the end of the third quarter of 2013, as compared to 4.7 million at the same period last year.

In an effort to improve the mobile user experience through enhanced tools and content, the Company recently launched a real time gas pricing and comparison feature on its Yellow Pages mobile application. This feature is available across Canada, and provides a comparison of stations' real time gas prices, service station information, directions and mapping, as well as detailed pricing for various grades of gas.

The YellowAPI continues to promote advertiser ROI by making advertisers' business information visible outside YPG's network of owned and operated properties. During the third quarter of 2013, YPG extended an existing collaboration with CBC/Radio-Canada to allow CBC.ca users to access YPG's local business listings via the YellowAPI. Leading properties such as Yahoo! Canada, Google, Poynt, AOL, and Bell Sympatico also use the YellowAPI to power local business searches across their platforms.

To promote the important role of local businesses in driving sustainable communities as well as to encourage local shopping, YPG has launched the Shop The Neighbourhood initiative within the Greater Toronto Area. As part of Shop The Neighbourhood, merchants will be able to promote their business and attract local consumers by posting deals across YPG's digital network of properties. The event will take place on Saturday, November 30, 2013, during a weekend when Canadians shop in the U.S. for Black Friday or online for Cyber Monday deals. The initiative will build further awareness around the Yellow Pages brand and its relevancy in advocating for small business growth and connecting local consumers with valuable shopping information.

CEO Appointment

On October 21, 2013, Julien Billot was appointed President and CEO of Yellow Media effective January 1, 2014. The appointment results from a global search executed by the search committee of the Board of Directors.

"Mr. Billot is the ideal candidate to lead Yellow Media's digital transformation," continued MacLellan. "Julien is a seasoned executive with proven success in spearheading digital product growth, development and profitability across some of Europe's largest media companies."

Mr. Billot brings over 20 years of experience in executive level positions within the global media industry, including Executive Vice-President and Head of Media at Solocal Group (formerly PagesJaunes Groupe) and CEO of the digital and new business group of Lagardère Active. Under his tenure at Solocal Group and Lagardère Active, Mr. Billot led various initiatives which resulted in the development and launch of mass market digital products and services, growth of digital audiences, digital revenue growth and enhanced digital product profitability.

Capital Structure

As at September 30, 2013, Yellow Media had reduced net debt to approximately $601 million. This compares to $782 million of net debt as at December 31, 2012.

The net debt to latest twelve month EBITDA ratio as at September 30, 2013 was 1.3 times compared to 1.4 times as at December 31, 2012. The Company had approximately $260 million of cash and cash equivalents as at November 4, 2013.

On October 29, 2013, Yellow Media exercised its option to redeem $27 million aggregate principal amount of its 9.25% Senior Secured Notes (the "Notes"). The Company also completed an $8 million principal open market purchase on the Notes on September 25, 2013.

Pursuant to the indenture governing the Notes, the Company is required to use an amount equivalent to 75% of its consolidated Excess Cash Flow for the immediately preceding six-month period ending March 31 or September 30 to redeem the Notes at par.

The Company anticipates making a $92.3 million mandatory redemption payment on December 2, 2013. The mandatory redemption payments for 2013 will total $118.4 million, surpassing the minimum requirement of $100 million.

Upon completion of the December 2, 2013 mandatory redemption payment, $646.6 million principal amount of Notes will remain outstanding. This compares to $800 million principal amount of Notes outstanding as at December 31, 2012.

Investor Conference Call

Yellow Media Limited will hold an analyst and media call at 1:00 p.m. (Eastern Time) on November 5, 2013 to discuss the third quarter 2013 results. The call may be accessed by dialing (416) 340-8427 within the Toronto area, or 1 866 225-6564 outside of Toronto.

The call will be simultaneously webcast on the Company's website at
http://www.ypg.com/en/investors/financial-reports/2013/quarterly-reports/third-quarter-webcast

The conference call will be archived in the Investors section of the site at www.ypg.com.

A playback of the call can also be accessed from November 5 to November 12, 2013 by dialing (905) 694-9451 within the Toronto area, or 1 800 408-3053 outside Toronto.

The conference passcode is 1536381.

About Yellow Media Limited

Yellow Media Limited (TSX:Y) is a leading media and marketing solutions company in Canada. The Company owns and operates some of Canada's leading properties and publications including YellowPages.ca™, Canada411.ca and RedFlagDeals.com™, the Yellow Pages, ShopWise and RedFlagDeals mobile applications and Yellow Pages™ print directories. Its online destinations reach 8.4 million unique visitors monthly and its mobile applications for finding local businesses and deals have been downloaded 6.2 million times. Yellow Media Limited is also a leader in national digital advertising through Mediative, a division of Yellow Pages Group devoted to digital marketing and performance media services for 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 November 5, 2013, 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 November 5, 2013 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 September 30, For the nine-month periods ended September 30,
Yellow Media Limited 2013 2012 2013 2012
Revenues $237,350 $267,711 $733,810 $843,268
Income (loss) from operations $82,547 $84,481 $270,597 ($2,647,854 )
Net earnings (loss) $41,775 $22,236 $145,566 ($2,783,904 )
Basic earnings (loss) per share attributable to common shareholders $1.51 $0.59 $5.22 ($100.19 )
Cash flow from operating activities $79,191 $49,640 $252,236 $176,824
EBITDA1 $102,147 $137,890 $324,859 $427,703
EBITDA margin1 43.0 % 51.5 % 44.3 % 50.7 %
Weighted average number of common shares outstanding2 27,745,677 27,955,077 27,857,092 27,955,077

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 restructuring and special charges. Management believes this measure is reflective of ongoing operations. This term is not a performance measure defined under IFRS. EBITDA does not have any standardized meaning and are therefore not likely to be comparable to similar measures used by other publicly traded companies. Management believes EBITDA to be an important measure.

2Pursuant to the closing of the recapitalization transaction on December 20, 2012, the common shares of Yellow Media Inc. were exchanged for new common shares of Yellow Media Limited. As a result, the weighted average number of common shares outstanding for prior periods has been adjusted to reflect the recapitalization transaction.

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