Yellow Media Limited Reports Third Quarter 2014 Financial Results

MONTREAL, QUEBEC--(Marketwired - Nov. 12, 2014) - Yellow Media Limited (TSX:Y)

• Digital revenues exceeded 50% of consolidated revenues, reaching 52% during the third quarter of 2014. For the three-month period ended
  September 30, 2014, core YP digital revenues experienced an 8.7%
  year-over-year growth.

• The Company acquired 20,200 new customers during the twelve-month period ended September 30, 2014, as compared to 14,800 for the same period in 2013. In addition, YP's customer renewal rate for the twelve-month period ended September 30, 2014 remained stable at 85%.

• Total digital visits across the YP, RedFlagDeals and YP Shopwise desktop and mobile properties grew by 9.7% to reach 110.2 million in the third quarter of 2014. This compares to 100.4 million visits for the same period last year.

• The Company anticipates making a $66 million principal mandatory redemption payment on the 9.25% Senior Secured Notes on
  December 1, 2014, bringing total mandatory redemption payments in 2014 to $139.6 million. Following the December 1, 2014 payment, the Company will have satisfied the minimum mandatory redemption requirement of
  $125 million for 2014 and 2015 combined.

• Yellow Media recorded net earnings of $26.5 million during the third quarter of 2014, which compares to $41.8 million for the same period last year. 

Yellow Media Limited (TSX:Y) (the "Company" or "Yellow Media") released its operational and financial results today for the third quarter ended September 30, 2014. The Company remains active in strengthening its financial profile, gaining traction on the implementation of the Return to Growth Plan (the "Plan") while materially deleveraging its balance sheet.

"The Company continues to make progress on the delivery and execution of the Return to Growth Plan," said Julien Billot, President and Chief Executive Officer of Yellow Media. "We have hit key milestones during the third quarter of 2014, as digital revenues now represent over 50% of consolidated revenues. In addition, we have achieved our 2014 target for customer acquisition, continue to experience steady growth in traffic across our core digital properties, and remain active in optimizing our balance sheet through material debt repayment."

Third Quarter 2014 Financial Results

Revenues for the third quarter of 2014 decreased to $218.4 million, representing an 8% year-over-year decline. Consolidated revenues continue to be negatively impacted by print revenues, which fell 22.8% year-over-year to reach $104.8 million during the three-month period ended September 30, 2014.

Albeit declining, print revenues remain in line with expectations and decline rates have shown signs of stabilization. Over the course of 2014, the Company has launched the Print Product Simplification ("PPS") initiative to support print revenues. By increasing print advertisement sizes at no incremental cost to the customer, PPS protects customer renewal while ultimately preserving content and usage of the print directory. PPS also simplifies the selling process for our Media Account Consultants by reducing the number of print offers available to current and prospective customers.

Total digital revenues reached $113.6 million during the third quarter of 2014, growing 11.9% from the same period last year. For the quarter ended September 30, 2014, digital revenues across the Company's core YP operations, which exclude the impact of Mediative, 411 Local Search Corp., and Wall2Wall, increased by 8.7% year-over-year.

For the three-month period ended September 30, 2014, digital revenues represented 52% of total revenues, up from 42.8% for the same period last year. Facilitated by a comprehensive product suite, digital revenue growth continues to be driven by the migration of print customers towards digital solutions. Digital revenue growth is also supported by customer acquisition, as the majority of new customers principally purchase digital offerings. 

The customer penetration of the YP™ 360º Solution, defined as the percentage of YP customers who purchase three product categories or more, grew from 24% last year to 35% as at September 30, 2014. The Company's high-margin owned and operated digital media solutions remained widely adopted, with customer penetration having reached 63% as at September 30, 2014, up from 61% at the same time last year.

EBITDA decreased to $75.3 million during the third quarter of 2014, as compared to $102.1 million the year prior. EBITDA remains adversely impacted by print revenue pressure and a lower EBITDA margin. The EBITDA margin decreased to 34.5% for the three-month period ended September 30, 2014, relative to 43% for the same period last year. Lower revenues and investments related to the digital transformation were the main contributors to the decrease in the EBITDA margin.

For the third quarter ended September 30, 2014, the Company recorded net earnings of $26.5 million and basic earnings per share of $0.98. This compares to net earnings of $41.8 million and basic earnings per share of $1.51 for the same period last year. The decrease is mainly attributed to lower EBITDA.

Free cash flow during the third quarter of 2014 totaled $37.6 million, as compared to $64.3 million during the same period last year. This decline results mainly from lower EBITDA and higher income taxes paid in 2014, as the Company was not required to pay income tax installments in 2013, partially offset by favourable timing in the payment of certain accounts payable.

Net debt totaled $478.4 million as at September 30, 2014, down from $533.1 million as at December 31, 2013. The Company anticipates making a $66 million principal mandatory redemption payment on the 9.25% Senior Secured Notes on
 December 1, 2014. Following this payment, 2014 mandatory redemption payments will total $139.6 million, which surpasses the minimum requirement of $125 million for 2014 and 2015 combined.

"As evidenced by the repayment of $140 million in debt in 2014, the Company continues to actively optimize its balance sheet," said Ginette Maillé, Chief Financial Officer of Yellow Media. "The Return to Growth Plan remains a fully funded plan, and we will continue to generate the cash flow required to invest in our digital transformation and repay our Senior Secured Notes."

Operational Update

"Growing the customer base is fundamental to returning Yellow Media to revenue and EBITDA growth," said Billot. "We have accelerated customer acquisition throughout 2014, and are investing to maintain this momentum in 2015 by reinforcing our digital perception in the marketplace, growing traffic and leads across our digital media properties, and delivering small and medium enterprises an improved sales and customer service experience." 

Extending our Brand Promise

• The Company successfully wrapped up the Local Market Attack, a multimedia campaign aimed at promoting awareness and usage of the YP mobile application. Comprised of digital pre-rolls, outdoor billboards and event promotions within the Toronto, Montreal, Calgary and Vancouver markets, the campaign resulted in strong brand recollection, material uplift in key brand perception metrics, as well as growth in the number of downloads of the YP mobile application.

• Radio and digital advertising campaigns were launched in Vancouver to introduce current and prospective customers to YP's website and Facebook offerings. To further promote customer acquisition, content marketing initiatives continue to be rolled out nationally to educate small and medium enterprises on YP's digital suite of solutions and the latest trends in digital marketing.

• In order to support a consolidation of the Yellow Pages signature brand across all companies and properties, Yellow Media Limited will be renamed Yellow Pages Limited effective December 31, 2014.

Strengthening our Media Assets

• Total digital visits, which measures the number of visits made across the YP, RedFlagDeals and YP Shopwise desktop and mobile properties, grew by 9.7% year-over-year to reach 110.2 million in the third quarter of 2014. This compares to 100.4 million visits for the same period last year. 

• The Company continued to improve the completeness and relevance of all content available on its digital platforms. As at September 30, 2014, 215,000 new merchant profiles were created for publication on YP's digital properties, up from 74,000 as at June 30, 2014. New editorial content such as articles and playlists were also published on YP.ca to improve engagement and better assist users in making educated shopping decisions.

• An enhanced version of the Shopwise mobile application was launched on iOS and Android in October 2014. Rebranded YP Shopwise and featured as "Best New App" on the App Store in Canada, the mobile application now contains a redesigned homepage, easier-to-navigate functionalities and flyers from over 50 national retailers. 

Enhancing our Go-to-Market Strategy

a) Promoting Customer Acquisition

• The Company's customer count totaled 260,000 as at September 30, 2014, compared to 283,000 as at the same time last year. The rate of customer acquisition continued to improve, having reached 20,200 for the twelve-month period ended September 30, 2014, up from 14,800 during the same period last year and 18,400 for the twelve-month period ended June 30, 2014.

• Supported by the growth in customer acquisition, digital-only customers grew to 32,700 as at September 30, 2014, up from 21,300 as at the same period last year. Digital-only customers represented 13% of YP's customer base as at September 30, 2014, an increase from 8% as at the same time last year.

• Yellow Media's acceleration in customer acquisition continues to be fuelled by an expanding sales team, the introduction of new sales incentive programs and the launch of entry-level digital product offerings. A new
  Customer Relationship Management platform is also being implemented across the Company's sales channels to further optimize customer lead assignment and management. 

b) Promoting Customer Retention

• Relative to the same period last year, YP's customer renewal rate for the twelve-month period ended September 30, 2014 remained stable at 85%.

• Yellow Media is investing across all elements of the customer journey to improve customer satisfaction and renewal rates. Tools are presently being implemented within the Company's sales, fulfillment and customer service departments to deliver SMEs an improved sales experience, timely and quality delivery of digital solutions, and quicker resolution of inquiries.

Improving Business Efficiencies

• Yellow Media is deploying projects to promote cost savings and efficiencies across the organization. The Company is streamlining its print operations by consolidating its legacy print publishing systems, better aligning directory distribution with demand, and insourcing a portion of its distribution efforts. Legacy information and technology platforms are also being decommissioned, while initiatives geared at generating process improvements within the sales, digital fulfillment and customer service functions are currently being executed.

Board of Directors

On October 15, 2014, Susan Kudzman was appointed to the board of Yellow Media, increasing the number of board members to eleven directors, three of whom are women.

Ms. Kudzman brings forth extensive expertise in human resources and risk management within the financial, media, and communications industries. Ms. Kudzman is currently Senior Vice President, Human Resources at Laurentian Bank. Prior to that, Ms. Kudzman was a partner at Mercer Canada and held executive positions at Caisse de dépôt et placement du Québec and BCE Emergis Inc.

Investor Conference Call

Yellow Media Limited will hold an analyst and media call at 1:00 p.m. (Eastern Time) on November 12, 2014 to discuss third quarter 2014 results. The call may be accessed by dialing (416) 340-2218 within the Toronto area, or 1 866 225-2055 outside of Toronto.

The call will be simultaneously webcast on the Company's website at
www.corporate.yp.ca/en/investors/financial-reports/2014/quarterly-reports/third-quarter-webcast

The conference call will be archived in the Investors section of the site at www.corporate.yp.ca.

A playback of the call can also be accessed from November 12 to November 19, 2014 by dialing (905) 694-9451 within the Toronto area, or 1 800 408-3053 outside Toronto.

The conference passcode is 6198865.

About Yellow Media Limited

Yellow Media Limited (TSX:Y) is a Canadian digital and print media company, offering businesses comprehensive media solutions to meet their key marketing objectives and providing consumers with platforms to access reliable local business information. By helping local businesses foster stronger relationships with their consumers through its various media, the Company encourages the growth of thriving neighbourhood economies. Yellow Media holds some of Canada's leading local online search properties including YP.ca™, RedFlagDeals.com™ and Canada411.ca, the YP, YP Shopwise, RedFlagDeals and Canada411 mobile applications and Yellow Pages™ print directories. Yellow Media 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-scale agencies and customers. For more information, visit www.corporate.yp.ca.

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 12, 2014, 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 12, 2014 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	2014		2013		2014		2013
Revenues	$218,427		$237,350		$662,209		$733,810
Income from operations	$52,793		$82,547		$182,426		$270,597
Net earnings	$26,542		$41,775		$93,315		$145,566
Basic earnings per share attributable to common shareholders	$0.98		$1.51		$3.43		$5.22
Cash flow from operating activities	$57,208		$79,191		$125,941		$252,236
EBITDA1	$75,262		$102,147		$251,144		$324,859
EBITDA margin1	34.5	%	43.0	%	37.9	%	44.3	%
Weighted average number of common shares outstanding	26,955,327		27,745,677		27,185,781		27,857,092

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 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 is therefore not likely to be comparable to similar measures used by other publicly traded companies. Management believes EBITDA to be an important measure.