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    Y   CA9855721069

YELLOW PAGES LIMITED

(Y)
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Yellow Pages : Management's Discussion and Analysis

05/13/2021 | 07:34am EDT

Management's Discussion and Analysis

Management's Discussion and Analysis

May 12, 2021

This management's discussion and analysis (MD&A) is intended to help the reader understand and assess trends and significant changes in the results of operations and financial condition of Yellow Pages Limited and its subsidiaries for the three-month periods ended March 31, 2021 and 2020 and should be read in conjunction with our Audited Consolidated Financial Statements and accompanying notes for the years ended December 31, 2020 and 2019, as well as our unaudited interim condensed consolidated financial statements for the three-month periods ended March 31, 2021 and 2020. Please also refer to Yellow Pages Limited's press release announcing its results for the first quarter ended March 31, 2021 issued on May 13, 2021. Quarterly reports, the Annual Report, Supplemental Disclosure and the Annual Information Form (AIF) can be found on SEDAR at www.sedar.comand under the "Investor Relations - Reports & Filings" section of our corporate website: https://corporate.yp.ca/en. Press releases are available on SEDAR and under the "News - Press Releases" section of our corporate website.

The unaudited interim condensed consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) and the financial information herein was derived from those statements.

All amounts in this MD&A are in Canadian dollars, unless otherwise specified. Please refer to the section "Definitions Relative to Understanding Our Results" for a list of defined non-IFRS financial measures and key performance indicators.

Our reporting structure reflects how we manage our business and how we classify our operations for planning and for measuring our performance.

In this MD&A, the words "we", "us", "our", the "Company", the "Corporation", "Yellow Pages" and "YP" refer to Yellow Pages Limited and its subsidiaries (including Yellow Pages Digital & Media Solutions Limited, 411 Local Search Corp. (411.ca) (dissolved as of September 30, 2020), YPG (USA) Holdings, Inc. and Yellow Pages Digital & Media Solutions LLC (the latter two collectively YP USA).

Caution Regarding Forward-Looking Information

This MD&A contains assertions about the objectives, strategies, financial condition, and results of operations and businesses of YP (including, without limitation, (a) full repayment of the Company's remaining exchangeable debentures on May 31, 2021, at par, and (b) payment of a cash dividend per share per quarter to its common shareholders). These statements are considered "forward-looking" because they are based on current expectations, as at May 12, 2021, about our business and the markets we operate in, and on various estimates and assumptions.

Forward-looking information and statements are based on several assumptions which may lead to actual results that differ materially from our expectations expressed in, or implied by, such forward-looking information and statements, and that our business strategies, objectives and plans may not be achieved. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Forward-looking information and statements are included in this MD&A for the purpose of assisting investors and others in understanding our business strategies, objectives and plans. Readers are cautioned that such information may not be appropriate for other purposes. In making certain forward-looking statements, we have made the following assumptions:

  • that general economic conditions in Canada will not deteriorate significantly further and will begin to recover later in the year as the COVID-19 pandemic activity restrictions are lifted;
  • that we will be able to attract and retain key personnel in key positions;
  • that we will be able to introduce, sell and provision the products and services that support our customer base and drive improvement in average revenue per customer ("ARPC");
  • that the decline in print revenues will remain at or below 25% per annum;
  • that gross profit margins will not deteriorate materially from current levels;
  • that continuing reductions in spending will mitigate the cash flow impact of revenue declines on cash flows; and
  • that exposure to foreign exchange risk arising from foreign currency transactions will remain insignificant.

Forward-looking information and statements are also based upon the assumption that none of the identified risk factors that could cause actual results to differ materially from the anticipated or expected results described in the forward-looking information and statements will occur.

YELLOW PAGES LIMITED FIRST QUARTER REPORT 2021

1

Management's Discussion and Analysis

When used in this MD&A, such forward-looking statements may be identified by words such as "aim", "anticipate", "believe", "could", "estimate", "expect", "goal", "intend", "objective", "may", "plan", "predict", "seek", "should", "strive", "target", "will", "would" and other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as at the date of this MD&A. The Corporation assumes no obligation to update or revise them to reflect new events or circumstances, except as may be required pursuant to securities laws. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future results or performance, and will not necessarily be accurate indications of whether or not such results or performance will be achieved. A number of factors could cause actual results or performance to differ materially from the results or performance discussed in the forward-looking statements and could have a material adverse effect on the Corporation, its business, results from operations and financial condition, including, but not limited to, the following risk factors discussed under the "Risks and Uncertainties" section of this MD&A, and those described in the "Risk Factors" section of our AIF:

  • Failure by the Corporation to stabilize or grow its revenues and customer base;
  • The inability of the Corporation to attract, retain and upsell customers;
  • Substantial competition could reduce the market share of the Corporation;
  • A higher than anticipated rate of decline in print revenue resulting from changes in preferences and consumer habits;
  • The inability of the Corporation to successfully enhance and expand its offering of digital marketing and media products;
  • The inability of the Corporation to supply the relationships and technologies required to appropriately service the needs of its customers;
  • A prolonged economic downturn in principal markets of the Corporation;
  • A higher than anticipated proportion of revenues coming from the Corporation's digital products with lower margins, such as services and resale;
  • The Corporation's inability to attract and retain key personnel;
  • The Corporation's business depends on the usage of its online and mobile properties and failure to protect traffic across the Corporation's digital properties could impair its ability to grow revenues and expand its business;
  • Failure by either the Corporation or the Telco Partners to fulfill their obligations set forth in the agreements between the Corporation and the Telco Partners;
  • Successfully prosecuted legal action against the Corporation;
  • Work stoppages and other labour disturbances;
  • Challenge by tax authorities of the Corporation's position on certain income tax matters;
  • The loss of key relationships or changes in the level or service provided by mapping applications and search engines;
  • The failure of the Corporation's computers and communication systems;
  • The inability of the Corporation to generate sufficient funds from operations, debt financings, equity financings or refinancing transactions;
  • Incremental contributions by the Corporation to its pension plans;
  • The impacts of COVID-19 are unpredictable; and
  • An outbreak or escalation of a contagious disease may adversely affect the Corporation's business greater than anticipated.

YELLOW PAGES LIMITED FIRST QUARTER REPORT 2021

2

Management's Discussion and Analysis

Definitions Relative to Understanding Our Results

Income from Operations before Depreciation and Amortization and Restructuring and Other Charges (Adjusted EBITDA and Adjusted EBITDA Margin)

We report on our Income from operations before depreciation and amortization and restructuring and other charges (defined herein as Adjusted EBITDA) as shown in Yellow Pages Limited's interim condensed consolidated statements of income. Adjusted EBITDA and Adjusted EBITDA margin are not performance measures defined under IFRS and are not considered to be an alternative to income from operations or net earnings in the context of measuring Yellow Pages performance. Adjusted EBITDA and Adjusted EBITDA margin do not have a standardized meaning and are therefore not likely to be comparable with similar measures used by other publicly traded companies. Adjusted EBITDA and Adjusted EBITDA margin should not be used as exclusive measures of cash flow since they do not account for the impact of working capital changes, income taxes, interest payments, pension funding, capital expenditures, business acquisitions, debt principal reductions and other sources and uses of cash, which are disclosed on page 13 of this MD&A.

Adjusted EBITDA is derived from revenues less operating costs, as shown in Yellow Pages Limited's interim condensed consolidated statements of income. Adjusted EBITDA margin is defined as the percentage of Adjusted EBITDA to revenues. We use Adjusted EBITDA and Adjusted EBITDA margin to evaluate the performance of our business as these reflect its ongoing profitability. We believe that certain investors and analysts use Adjusted EBITDA and Adjusted EBITDA margin to measure a company's ability to service debt and to meet other payment obligations or as a common measurement to value companies in the media and marketing solutions industry as well as to evaluate the performance of a business.

Adjusted EBITDA less CAPEX

Adjusted EBITDA less CAPEX is a non-IFRS financial measure and does not have any standardized meaning under IFRS. Therefore, it is unlikely to be comparable to similar measures presented by other publicly traded companies. We define Adjusted EBITDA less CAPEX as Adjusted EBITDA, as defined above, less CAPEX, which we define as additions to intangible assets and additions to property and equipment as reported in the Investing Activities section of the Company's interim condensed consolidated statements of cash flows. We use Adjusted EBITDA less CAPEX as the key performance measure for our business as it reflects cash generated from business activities. We believe that certain investors and analysts use Adjusted EBITDA less CAPEX to evaluate the performance of businesses in our industry. Adjusted EBITDA less CAPEX is also one component in the determination of short-term incentive compensation for all management employees.

The most comparable IFRS financial measure to Adjusted EBITDA less Capex is Income from operations before depreciation and amortization and restructuring and other charges (defined above as Adjusted EBITDA) as shown in Yellow Pages Limited's interim condensed consolidated statements of income. Refer to page 8 of this MD&A for a reconciliation of Adjusted EBITDA less CAPEX.

This MD&A is divided into the following sections:

  1. Our Business and Customer Offerings
  2. Results
  3. Liquidity and Capital Resources
  4. Critical Assumptions and Estimates
  5. Risks and Uncertainties
  6. Controls and Procedures

YELLOW PAGES LIMITED FIRST QUARTER REPORT 2021

3

Management's Discussion and Analysis

1. Our Business and Customer Offerings

Our Business

Yellow Pages, a leading digital media and marketing solutions provider in Canada, offers targeted tools to local businesses, national brands and consumers allowing them to interact and transact within today's digital economy.

Customer Offerings

Yellow Pages offers, small and medium-sized enterprises (SMEs) across Canada full-serve access to one of the country's most comprehensive suites of digital and traditional marketing solutions, notably online and mobile priority placement on Yellow Pages digital media properties, content syndication, search engine solutions, website fulfillment, social media campaign management, digital display advertising, video production, e-commerce solutions as well as print advertising. The Company's dedicated sales force and customer care team of approximately 300 professionals offer this full suite of marketing solutions to local businesses across the country, while also supporting the evolving needs of its existing customer base of 119,400 SMEs.

Media Properties

The Company's media properties, primarily desktop, mobile and print, continue to serve as effective marketplaces for Canadian local merchants, brands and consumers. The Company's network of media properties enables Canadians to discover businesses in their neighbourhoods across the services and retail verticals. Descriptions of the Company's digital media properties are found below:

  • YP™ - Available both online at YP.ca and as a mobile application, YP allows users to discover and transact within their local neighbourhoods through comprehensive merchant profiles, relevant editorial content, reviews and booking functionalities;
  • Canada411 (C411) - One of Canada's most frequented and trusted online and mobile destinations for personal and local business information;
  • The Corporation is the official directory publisher for Bell, Telus, Bell Aliant, MTS Allstream, and a number of other incumbent telephone companies; and
  • 411.ca - A digital directory service to help users find and connect with people and local businesses.

Key Analytics

The success of our business is dependent upon continuing to improve operating profitability and capital spending efficiency. Longer-term improvements in profitability are dependent upon growth in digital revenues and retaining and growing our customer base. Key analytics for the three-month period ended March 31, 2021 include:

  • Adjusted EBITDA - Adjusted EBITDA declined to $26.6 million or 36.2% of revenues for the three-month period ended March 31, 2021, relative to $32.6 million or 36.9% of revenues for the same period last year.
  • Adjusted EBITDA less CAPEX - Adjusted EBITDA less CAPEX decreased to $25.3 million or 34.5% of revenues for the three-month period ended March 31, 2021 compared to $31.3 million or 35.5% of revenues for the three-month period ended March 31, 2020.
  • Digital Revenues - YP digital revenues decreased 15.7% year-over-year and amounted to $57.0 million for the three-month period ended March 31, 2021.
  • Customer Count1 and ARPC2 - YP's customer count decreased to 119,400 customers for the twelve-month period ended March 31, 2021, as compared to 145,700 customers for same period last year. The customer count reduction of 26,300 in the twelve months ended March 31, 2021 compares to a decline of 33,100 in the comparable period of the previous year. YP's ARPC in the twelve-month period ended March 31, 2021 was $2,544 as compared to $2,571 for the twelve-month period ended March 31, 2020 representing a decline of 1.0%, mainly driven by the lower print spend per customer.
  • Headcount3 - Headcount decreased to 677 employees as at March 31, 2021 compared to 722 employees at March 31, 2020.
  1. Customer Count is defined as the number of customers advertising through one of our products as at the end of the reporting period on a trailing twelve-month basis excluding 411.ca customers.
  2. ARPC is defined as the YP average contracted revenue per customer on a trailing twelve-month basis excluding 411.ca.
  3. The Company defines headcount as total employees excluding employees on short term and long-term disability leave, and on maternity leave.

YELLOW PAGES LIMITED FIRST QUARTER REPORT 2021

4

Management's Discussion and Analysis

2. Results

This section provides an overview of our financial performance during the first quarter of 2021 compared to the same period of 2020. We present several metrics to help investors better understand our performance, including certain metrics which are not measures recognized by IFRS. Definitions of these non-IFRS financial metrics are provided on page 3 of this MD&A and are important aspects which should be considered when analyzing our performance.

Highlights

(In thousands of Canadian dollars, except per share and percentage information)

For the three-month periods ended March 31,

2021

2020

Revenues

$

73,514

$

88,308

Income from operations before depreciation and amortization, and restructuring and other charges (Adjusted EBITDA)

$

26,583

$

32,563

Adjusted EBITDA margin

36.2%

36.9%

Net earnings

$

12,135

$

12,403

Basic earnings per share

$

0.46

$

0.47

CAPEX

$

1,240

$

1,231

Adjusted EBITDA less CAPEX

$

25,343

$

31,332

Adjusted EBITDA less CAPEX margin

34.5%

35.5%

Cash flows from operating activities

$

22,556

$

27,148

YELLOW PAGES LIMITED FIRST QUARTER REPORT 2021

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Yellow Pages Ltd. published this content on 13 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2021 11:33:00 UTC.


© Publicnow 2021
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Financials
Sales 2021 283 M 223 M 223 M
Net income 2021 - - -
Net cash 2021 52,0 M 41,1 M 41,1 M
P/E ratio 2021 -
Yield 2021 3,97%
Capitalization 390 M 308 M 308 M
EV / Sales 2021 1,20x
EV / Sales 2022 1,22x
Nbr of Employees 671
Free-Float 100,0%
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Mean consensus HOLD
Number of Analysts 3
Last Close Price 14,09 CAD
Average target price 13,33 CAD
Spread / Average Target -5,37%
Managers and Directors
David Alan Eckert President, Chief Executive Officer & Director
Franco Sciannamblo Chief Financial Officer & Senior Vice President
Susan Kudzman Chairman
Craig I. Forman Independent Non-Executive Director
Robert Kenneth Hall Independent Non-Executive Director
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