Mr. David Eckert reports

YELLOW PAGES LIMITED REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL AND OPERATING RESULTS AND ANNOUNCES AN INCREASE IN QUARTERLY CASH DIVIDENDS(1)

Yellow Pages Ltd. has released its operating and financial results today for the quarter and year ended Dec. 31, 2023.

"We are pleased with our fourth quarter and full year results, which reflect continued strong profitability and cash generation, despite headwinds in the global economy and, particularly, the Canadian small business sector, hindering our progress on the revenue front," said David A. Eckert, president and chief executive officer of Yellow Pages.

Mr. Eckert commented on the key developments:

• Strong earnings. "Our adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] for the quarter and full year was 29.1 per cent and 32.1 per cent of revenue, respectively, despite our continued investments in revenue initiatives, including the further expansion of our sales force."
• Cash to shareholders and pension plan. "During the fourth quarter, we completed the previously announced plan of arrangement, distributing $50-million to shareholders through a share buyback and advancing $12-million of voluntary contributions to our defined benefit pension plan's wind-up deficit. In addition, consistent with our deficit-reduction plan announced in May, 2021, we made $1.5-million of voluntary incremental payments in the quarter and $6-million for the full year toward our pension plan's wind-up deficit, bringing the total voluntary contributions to our defined benefit pension plan's wind-up deficit in 2023 to $18-million."
• Healthy cash balance. "Following the disbursements to shareholders and the pension plan, our steady cash generation has grown cash on hand to approximately $27-million at the end of January."
• Continued progress on revenue initiatives. "The headwinds in the global economy and, particularly, the Canadian small business sector, contributed to a challenging quarter for revenue. However, we remain pleased with our progress on underlying metrics, including the size of our sales force, our rate of churn of customers and our rate of gaining new accounts. In particular, our rate of gaining new accounts was 28.5 per cent higher than in the previous year. We believe these fundamentals bode well for our medium- and long-term future."
• Optimistic outlook for revenue curve. "After 2023's four quarters of declining rate of change of revenue versus prior year, we expect in the first quarter of 2024 a resumption of our climb toward revenue stability."
• Increase in quarterly cash dividend. "Our board has modified the dividend policy of paying a quarterly cash dividend to common shareholders by increasing the dividend from 20 cents per share to 25 cents per share."
• Quarterly dividend declared. "Our board has declared a dividend of 25 cents per common share, to be paid on March 15, 2024, to shareholders of record as of Feb. 27, 2024."

Fourth quarter of 2023 results:

• Total revenues decreased 13.4 per cent year-over-year and amounted to $55.9-million for the three-month period ended Dec. 31, 2023, compared with the decrease of 5.9 per cent reported for the same period last year.
• Adjusted EBITDA less capex (capital expenditures) totalled $15.3-million and the EBITDA less capex margin was 27.4 per cent.
• Net income amounted to $12.2-million, or to 71 cents per diluted share.

Financial results for the fourth quarter of 2023

Total revenues for the fourth quarter ended Dec. 31, 2023, decreased by 13.4 per cent to $55.9-million, as compared with $64.6-million for the same period last year. The decrease in revenues is mainly due to the decline of the company's higher-margin digital media and print products and, to a lesser extent, to its lower-margin digital services products, thereby creating pressure on Yellow Pages' gross profit margins.

Total digital revenues decreased 12.1 per cent year-over-year and amounted to $45.3-million for the three-month period ended Dec. 31, 2023, as compared with $51.5-million for the same period last year. The revenue decline is mainly attributable to a decrease in digital customer count, partially offset by a higher spend per customer.

Total print revenues decreased 18.7 per cent year-over-year and amounted to $10.6-million during the fourth quarter of 2023, compared with $13.1-million in the fourth quarter of 2022. The revenue decline was mostly attributable to decreases in the number of print customers and, to a lesser extent, the spend per customer.

The decline rate of revenues increased year-over-year. Total revenue decline of 13.4 per cent this quarter compares with a decline of 5.9 per cent reported for the same period last year. Digital revenue decline of 12.1 per cent this quarter compares with a decline of 4.3 per cent reported for the same period last year. Print revenue decline of 18.7 per cent this quarter compares with a decline of 11.7 per cent reported for the same period last year. The higher decline rates are attributable to a decrease in customer count in both digital and print, and to customer claim rates remaining stable in 2023, while 2022 benefited from a substantial improvement. These pressures, augmented by the economic headwinds, were partially offset by a higher spend per customer in digital, driven in part by increased pricing.

Adjusted EBITDA decreased to $16.2-million, or 29.1 per cent of revenues, in the fourth quarter ended Dec. 31, 2023, relative to $21-million, or 32.5 per cent of revenues, for the same period last year. The decrease in adjusted EBITDA and adjusted EBITDA margin for the three-month period ended Dec. 31, 2023, is the result of revenue pressures, the continuing investments in the company's tele-sales force capacity and higher bad debt expense, partially offset by the impact of the company's share price on cash-settled stock-based compensation expense, price increases, the efficiencies from optimization in cost of sales and reductions in other operating costs, including reductions in the company's work force and associated employee expenses. Revenue pressures, coupled with increased head count in Yellow Pages' sales force, partially offset by continued optimization, will continue to cause some pressure on margins in upcoming quarters.

Adjusted EBITDA less capex decreased by $4.7-million to $15.3-million during the fourth quarter of 2023, compared with $20-million during the same period last year. The decrease in adjusted EBITDA less capex for the three-month period ended Dec. 31, 2023, is mainly due to lower adjusted EBITDA.

Net income for the three-month period ended Dec. 31, 2023, amounted to $12.2-million as compared with net income of $29.4-million for the same period last year. The decrease is mainly attributable to higher recognition of previously unrecognized tax attributes and temporary differences in 2022. Income before taxes decreased from $16.7-million for the fourth quarter of 2022 to $12.4-million for the three-month period ended Dec. 31, 2023, explained principally by the decrease in adjusted EBITDA.

Cash flows from operating activities increased by $7.3-million to $6.7-million for the three-month period ended Dec. 31, 2023. The increase is mainly due to a decrease in financing of postemployment benefits plans, $12.2-million resulting from the difference in financing pursuant to the 2023 arrangement compared with the 2022 arrangement, and an increase of $700,000 from changes in operating assets and liabilities, partially offset by lower adjusted EBITDA of $4.7-million, higher income taxes paid of $600,000, and higher restructuring and other charges paid of $300,000. The change in operating assets and liabilities is mainly due to the timing in the collection of trade receivables and the payment of trade receivables, as well as the impact of the share price on the cash-settled stock-based compensation.

Financial results for the year ended Dec. 31, 2023

Total revenues for the year ended Dec. 31, 2023, decreased by 10.8 per cent to $239.4-million, as compared with $268.3-million for the same period last year. The decrease in revenues is mainly due to the decline of the company's higher margin digital media and print products, and, to a lesser extent, to its lower-margin digital services products, thereby creating pressure on Yellow Pages' gross profit margins.

Total digital revenues decreased 9 per cent year-over-year and amounted to $190.3-million for the year ended Dec. 31, 2023, as compared with $209.1-million for the same period last year. The revenue decline for the period ended Dec. 31, 2023, was mainly attributable to a decrease in digital customer count, partially offset by an increase in average spend per customer.

Total print revenues decreased 17 per cent year-over-year and amounted to $49.1-million for year ended Dec. 31, 2023. The revenue decline is mainly attributable to the decrease in the number of print customers and, to a lesser extent, a decrease in spend per customer.

The decline rate of revenues increased year-over-year. The higher decline rate is attributable, in part, to: (a) the headwinds in the global economy, whereby, customer renewal rates have remained strong but stable, while the improvements in average spend per customer have slowed as customers look to optimize their spend; (b) customer claim rates remaining stable in 2023, while 2022 benefited from a substantial improvement; and (c) a cybersecurity incident which resulted in the company's operations and IT (information technology) systems being suspended for approximately three weeks during the second quarter of 2023.

For the year ended Dec. 31, 2023, adjusted EBITDA decreased by $19.7-million, or 20.7 per cent, to $76.9-million, compared with $96.6-million for the same period last year. The adjusted EBITDA margin decreased during the year ended Dec. 31, 2023, to 32.1 per cent, compared with 36 per cent for the same period last year. The decrease in adjusted EBITDA and adjusted EBITDA margin for the year ended Dec. 31, 2023, is the result of revenue pressures and the continuing investments in the company's tele-sales force capacity, partially offset by the efficiencies from optimization in cost of sales and reductions in other operating costs, including reductions in the company's work force and associated employee expenses, lower variable compensation expense, and the impact of the company's share price on cash-settled stock-based compensation expense. Furthermore, the company received a total of $1.1-million of emergency wage subsidies for the year ended Dec. 31, 2022. Revenue pressures, coupled with increased head count in Yellow Pages' sales force, partially offset by continued optimization, will continue to cause pressure on margins in future quarters.

For the year ended Dec. 31, 2023, adjusted EBITDA less capex decreased by $18.7-million, or 20.4 per cent, to $72.9-million, compared with $91.6-million for the same period last year. The adjusted EBITDA less capex margin decreased during the year ended Dec. 31, 2023, to 30.4 per cent, compared with 34.1 per cent for the same period last year. The decrease in adjusted EBITDA less capex and adjusted EBITDA less capex margin for the year ended Dec. 31, 2023, is driven by the decrease in adjusted EBITDA, partially offset by the decrease in capex spend. The decrease in capex spend is partly due to the nature of information technology spend, whereby more of the spend was classified as operating versus capital in nature. Furthermore, the capex spend during the year ended Dec. 31, 2022, was impacted by the integration of new products.

Net income decreased to $47.4-million for the year ended Dec. 31, 2023, compared with net income of $73.4-million for the same period last year. The decrease in net income for the year ended Dec. 31, 2023, is mainly due to lower adjusted EBITDA and higher income tax expense, partially offset by the decrease in depreciation and amortization, restructuring and other charges, and financial charges.

Cash flows from operating activities decreased by $2.7-million to $46.8-million for the year ended Dec. 31, 2023, from $49.5-million last year. The decrease is mainly due to lower adjusted EBITDA of $19.7-million, a decrease of $2.1-million from changes in operating assets and liabilities, partially offset by a decrease in financing of postemployment benefit plans of $12-million resulting from the difference in financing pursuant to the 2023 arrangement compared with the 2022 arrangement, the decrease in stock-based compensation cash settlements of $1.3-million, lower income taxes paid of $4.8-million, and lower restructuring and other charges paid of $1.6-million. The change in operating assets and liabilities is mainly due to the timing in the collection of trade receivables and the payment of trade receivables, as well as the impact of the share price on the cash-settled stock-based compensation expense. The first quarter of 2022 benefited from the cancellation of the forward contracts, resulting in a decrease in other receivables of $3.1-million.

As at Dec. 31, 2023, the company had $23.2-million of cash.

Conference call and webcast

Yellow Pages will hold an analyst and media call, and simultaneous webcast, at 8:30 a.m. (ET) on Feb. 14, 2024, to discuss fourth quarter 2023 results. The call may be accessed by dialling 416-695-6725 within the Toronto area, or 1-866-696-5910 outside of Toronto, passcode 6613383 followed by the pound key. Please be prepared to join the conference at least five minutes prior to the conference start time.

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

The conference call will be archived in the investors section of the company's website.

About Yellow Pages Ltd.

Yellow Pages is a Canadian digital media and marketing company that creates opportunities for buyers and sellers to interact and transact in the local economy. Yellow Pages holds some of Canada's leading local on-line properties, including YP.ca, Canada411 and 411.ca. The company also holds the YP, Canada411 and 411 mobile applications and Yellow Pages print directories.

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