Mr. Julien Billot reports

YELLOW PAGES LIMITED REPORTS FULL YEAR AND FOURTH QUARTER 2015 FINANCIAL RESULTS

Yellow Pages Ltd. has released its operational and financial results for the year and fourth quarter ended Dec. 31, 2015, demonstrating timely and successful execution of its return to growth plan.

"We are seeing tangible signs of progress related to the implementation of our return to growth plan," said Julien Billot, president and chief executive officer of Yellow Pages. "We are on track to stabilizing our customer count, a milestone supported by accelerated customer acquisition and a strong customer renewal rate. With over $486-million in digital revenues, Yellow Pages has now grown to become one of Canada's most notable digital advertising companies, developing rich and diversified media and marketing solutions to best connect Canadian consumers and local businesses."

Full-year 2015 financial results

Revenues in 2015 decreased 5.4 per cent year over year to reach $829.8-million, as compared with $877.5-million for the same period last year.

Digital revenues grew 9.8 per cent year over year to total $486.3-million in 2015, as compared with $442.8-million the year prior. For the 12-month period ended Dec. 31, 2015, digital revenues represented 58.6 per cent of total revenues, up from 50.5 per cent in 2014.

Growth in digital revenues remains driven by the accelerated acquisition of digital customers, as well as continued growth in digital spending among the company's renewing customers. Digital-only customers grew to 54,500, or 22 per cent of the customer base, as at Dec. 31, 2015. This compares with 37,000 digital-only customers, or 14 per cent of the customer base, as at the same period last year. Digital revenue growth was also favourably impacted by the acquisition of the ComFree/DuProprio network on July 1, 2015. Excluding the contribution of CFDP, digital revenues in 2015 grew by approximately 6 per cent year over year.

Print revenues decreased 21 per cent year over year to reach $343.4-million in 2015, adversely impacted by a decline in the number of print customers and the migration of customers' print marketing spending to digital. Print revenue decline rates have, however, stabilized, in part supported by content enhancement and pricing initiatives that have helped to protect customers' investment in print advertising.

Adjusted earnings before interest, taxes, depreciation and amortization totalled $260.7-million in 2015, as compared with $316-million the year prior. Adjusted EBITDA in 2015 was principally impacted by revenue pressure and a change in product mix, partly offset by benefits realized from cost saving initiatives and lower employee-related expenses. The adjusted EBITDA margin for the year ended Dec. 31, 2015, reached 31.4 per cent, as compared with 36 per cent in 2014.

Free cash flow for the year ended Dec. 31, 2015, totalled $122.1-million, up from $72.6-million in 2014. The increase in free cash flow was mainly attributable to a favourable change in cash income taxes of $98.2-million, partly offset by lower adjusted EBITDA.

Net debt reached $430.6-million as at Dec. 31, 2015, down from $494.1-million the year prior. The company made $100.3-million in principal mandatory redemption payments on the notes over the course of 2015, reducing the balance of notes outstanding to $406.7-million as at Dec. 31, 2015. Since their inception on Dec. 20, 2012, the company made total principal repayments of $393.3-million on its notes.

Net earnings for the 12-month period ended Dec. 31, 2015, reached $61.1-million. This compares with $188.5-million the year prior, principally impacted by an $84.8-million income tax recovery recorded in 2014 related to the cancellation of certain income tax liabilities following the settlement of past tax assessments. Net earnings in 2015 were also adversely impacted by lower adjusted EBITDA. For the year ended Dec. 31, 2015, the company recorded basic earnings per share of $2.29, as compared with basic earnings per share of $6.95 in 2014.

Fourth quarter 2015 financial results

Revenues for the fourth quarter ended Dec. 31, 2015, decreased 3.2 per cent to $208.5-million, as compared with $215.3-million for the same period last year.

Digital revenues grew to $129.2-million during the fourth quarter of 2015, up 10.5 per cent from $116.9-million last year. For the fourth quarter ended Dec. 31, 2015, digital revenues represented 62 per cent of total revenues, increasing from 54.3 per cent during the same period last year.

Digital revenue growth was favourably impacted by the acquisition of CFDP, accelerated customer acquisition as well as continued growth in digital spending among Yellow Pages' renewing customers. Excluding CFDP, digital revenues for the fourth quarter of 2015 grew by approximately 4 per cent year over year.

Print revenues during the fourth quarter of 2015 decreased 19.4 per cent year over year to reach $79.3-million, exhibiting stable declines.

Adjusted EBITDA remained relatively stable in the fourth quarter of 2015 at $64.5-million, as compared with $64.8-million the year prior. Adjusted EBITDA was favourably impacted by benefits realized from cost saving initiatives and lower employee-related expenses, offset by lower revenues. For the quarter ended Dec. 31, 2015, the adjusted EBITDA margin reached 30.9 per cent, as compared with 30.1 per cent for the same period in 2014.

"Successful execution of our return to growth plan is being demonstrated by the delivery of sustainable growth in digital revenues, a gradual reduction in investment spending and the realization of cost savings across the organization," said Ginette Maille, chief financial officer of Yellow Pages. "These trends will continue in 2016 as year-over-year revenue and adjusted EBITDA declines are anticipated to materially improve relative to 2015."

The company generated $25.2-million of free cash flow during the fourth quarter of 2015, up from $3.9-million of utilized free cash flow during the same period last year. The increase in free cash flow is mainly attributable to lower capital expenditures and a favourable change in cash income taxes of $14.2-million.

Net earnings for the three-month period ended Dec. 31, 2015, reached $5.9-million, as compared with $95.2-million the year prior. The decrease in net earnings was principally impacted by the cancellation of certain income tax liabilities following the settlement of past tax assessments, which led to the recording of an $84.8-million income tax recovery during the fourth quarter of 2014. For the quarter ended Dec. 31, 2015, the company recorded basic earnings per share of 22 cents, as compared with basic earnings per share of $3.53 the year prior.

Operational update

"The value proposition Yellow Pages offers to merchants and consumers is unparalleled in Canada," continued Mr. Billot. "Supported by the introduction of new marketing solutions and improved technologies within our sales, fulfilment and customer service functions, we are building richer relationships with small- and medium-sized businesses Canada wide. In addition, we have enhanced the user experience on our network of mobile applications and introduced digital properties within the dining and real estate verticals to facilitate the way local businesses and consumers interact and transact within today's digital marketplace."

Enhancing its customer value proposition

The company's customer count reached 245,000 customers as at Dec. 31, 2015. This compares with 256,000 customers as at Dec. 31, 2014, and represents a net customer count decline of 11,000 in 2015, down significantly from 20,000 and 33,000 net customers lost in 2014 and 2013, respectively.

Yellow Pages acquired 30,800 new customers during the 12-month period ended Dec. 31, 2015, in line with internal targets and exceeding last year's acquisition of 22,100 new customers. This performance was supported by the introduction of new sales incentive programs and marketing solutions, in addition to a stronger acquisition culture within the sales organization. The company is also enhancing the sales process across its face-to-face and telephony channels by equipping its representatives with technologies that utilize proven, fact-based selling strategies in building value-enhancing digital marketing programs for small- and medium-sized businesses.

The customer renewal rate grew to 85 per cent for the year ended Dec. 31, 2015, up from 84 per cent last year. Yellow Pages' customer renewal rate continues to land ahead of internal expectations, supported by the delivery of processes and technologies that have improved the sales, fulfilment and customer service experience for SMEs.

Strengthening its media assets

Total digital visits grew to 464 million for the year ended Dec. 31, 2015, up 9.4 per cent from 424.1 million visits in 2014. TDV measures the number of visits made across the YP, YP Shopwise, YP Dine, RedFlagDeals, Canada411, Bookenda and dine.TO on-line and mobile properties, as well as visits made across the properties of the company's application syndication partners.

TDV totalled 118.2 million for the fourth quarter ended Dec. 31, 2015, up from 117.4 million during the same period last year. TDV during the fourth quarter of 2015 was impacted by a change to the layout of Google's mobile Web search results pages, which pushed organic results for all mobile Web publishers lower on Google's search pages. The ranking of Yellow Pages' listings on Google's mobile Web search results pages remained relatively unchanged despite this layout change, a reflection of the relevancy and quality of the company's listings.

The company will continue to improve the quality, completeness and relevance of the user experience across its network of digital media properties. Yellow Pages aims to differentiate itself from other local digital search properties by integrating functionalities that empower consumers and allow them to quickly and easily transact within their local neighbourhoods. Launched nationally in June, 2015, YP Dine was the company's first mobile application to incorporate these features, leveraging Bookenda's technologies to help users search for, discover and book a restaurant directly from their mobile devices. Recognizing the property's unique value proposition, YP Dine was selected by Apple as one of 2015's best new mobile applications.

Gaining efficiencies

Yellow Pages has finalized a comprehensive organizational review during the fourth quarter of 2015, which resulted in the elimination of 300 positions. The corporate realignment follows suit to the progress Yellow Pages has made in the execution of its return to growth plan, particularly as a result of interdependencies built between the company's information technology, strategy and marketing functions, as well as the decommissioning of legacy systems, platforms and processes. The corporate realignment principally affected roles that have been integrated within other functions or that are no longer aligned with the company's digital reality.

Extending its brand promise

In further support of local shopping and the growth of local economies, Yellow Pages hosted its third annual shop the neighbourhood event on Saturday, Nov. 28, 2015. Held during a weekend when many Canadians shop at U.S. retailers to take advantage of Black Friday and Cyber Monday deals, STN garnered the participation of over 12,500 local Canadian merchants offering 6,300 deals exclusive to the YP Shopwise mobile application. For the first time in the event's history, STN introduced Beacon technologies in various neighbourhoods, allowing participating merchants to push deal-related notifications to YP Shopwise users while they shopped on location.

2016 financial outlook

The company reaffirms its long-term financial outlook relative to the return to growth plan, targeting a return to revenue and adjusted EBITDA growth by 2018. For the year ended Dec. 31, 2016, Yellow Pages anticipates delivering:

• Year-over-year organic digital revenue growth in the high single digits;
• Adjusted EBITDA margins of 30 per cent;
• Capital expenditures, net of related lease incentives, of $60-million;
• Principal mandatory redemption payments of approximately $100-million on its notes.

Conference call

Yellow Pages will hold an analyst and media call at 2 p.m. Eastern Time on Feb. 11, 2016, to discuss full-year and fourth quarter 2015 results. The call may be accessed by dialling 416-340-2219 within the Toronto area, or 1-866-225-2055 outside of Toronto.

The call will be simultaneously webcast on the company's website.

The conference call will be archived in the investors section of the site.

A playback of the call can also be accessed from Feb. 11 to March 11, 2016, by dialling 905-694-9451 within the Toronto area, or 1-800-408-3053 outside of Toronto.

The conference pass code is 4111167.

                                   FINANCIAL HIGHLIGHTS
          (in thousands of dollars, except percentage and per-share information)
  
                                For the three-month periods             For the years ended
                                             ended Dec. 31,                        Dec. 31,
                                       2015            2014            2015            2014

Revenues                           $208,505        $215,319        $829,771        $877,528
Adjusted EBITDA                     $64,498         $64,832        $260,687        $315,976
Adjusted EBITDA margin                30.9%           30.1%           31.4%           36.0%
Net earnings                         $5,866         $95,225         $61,055        $188,540
Basic earnings per share              $0.22           $3.53           $2.29           $6.95
Cash flow from operating
activities                          $42,417         $30,566        $197,566        $156,507
Free cash flow (loss)               $25,249        ($3,869)        $122,145         $72,557

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