YELLOW PAGES Stock

Montreal-based Yellow Pages (TSX:YLO) presented at the Echelon Wealth Partners Digital Media and Technology Conference in Toronto this morning, with President and CEO Julien Billot, along with Senior Vice President and CFO Ginette Maillé, making the case for a legacy media company remaining competitive in a new landscape populated by digital disruptors. While most wouldn't hang a reputation for technical innovation on Yellow Pages, given the spin cycle of disruption being waged by young, lean and hungry start-ups, the old company has spent the past few years successfully implementing a plan to turn their fortunes around, to not only stop the flow of customer loss, but to also gain new customers attracted by their innovative solutions. "Actually, we are really a marketplace of transactions at the local level between merchant and consumer," says Billot, a role that Yellow Pages can be said to have played for over 100 years. Only 41.1% of a total 1.2 million small-to-medium Canadian enterprises even have a website, according to the Canadian Internet Registration Authority. Meanwhile, 87% of Canadian households have an internet connection, and the majority of Canadians use the internet to shop. "There's a gap between consumers and merchants, the way they behave around digital," says Billot. This is not even to mention the fact that, websites and social media aside, developing mobile solutions for customer engagement is simply beyond the reach of most SMEs. It's a gap that Yellow Pages is looking to help SMEs close. Billot claims that Yellow Pages has 20% marketshare in the SME field. "We act as if we are their chief marketing officer," he says. "We are their one-stop shop to help them drive their digital advertising." There are two sides of Yellow Pages' business, one dedicated to customers, those being small and medium Canadian businesses, and the other providing digital agency services in the form of commissions to build digital presences for SMEs. On that front, Yellow Pages owns Mediative, a division devoted to digital marketing and performance media services for national-scale agencies and customers. Mediative recently won a contract with Walmart for their Canadian digital spend, beating out a competing agency that continues to have a relationship with Walmart in the U.S. and U.K. Every month, says Billot, 11 million Canadians go to one of Yellow Pages' digital properties, which is a 37% reach. Obviously, the brand recognition of Yellow Pages helps them achieve a certain market penetration, but it's no less their savvy moves into digital marketing that helps to further leverage that reputation. To that end, Yellow Pages now has a suite of apps and websites, some of which they made themselves and others they acquired, including YP.ca, RedFlagDeals.com, Canada411.ca, Bookenda.com, dine.TO, DuProprio.com, ComFree.com and YP NextHome. That covers a lot of verticals, from real estate to deal sourcing to dining. Bookenda.com and dine.TO are direct competition to OpenTable.ca, which Billot says has equal market share. Most excitingly, though, last March Yellow Pages acquired Toronto's JUICE Mobile, a pioneer in the mobile marketing and programmatic advertising space, a move that significantly deepens Yellow Pages' suite of digital solutions, providing access to programmatic advertising and geo-targeting technology necessary to connect businesses with consumers where they live, which is on their mobile devices. At the time of its acquisition, JUICE serviced over 300 Fortune 500 customers across North America, while operating a mobile media publisher network garnering 11 billion impressions annually, with revenues exceeding $25 million in 2015, having grown organically at a CAGR of 110% over the previous three years, a revenue figure that Billot says is expected to more than double in 2016. "The path we have to transformation is very clear," says Billot. "We set a plan back in 2014. We are halfway on our plan, and halfway to our deliveries." Their trajectory involves further growing their customer base, which had been declining for years before the development of their turnaround plan, and seemed set to doom Yellow Pages to the fate of a disrupted legacy company, left behind by change. Increasing their customer base, along with revenue growth and increased profitability, are all part of that plan, with an objective to achieve a debt-free capital structure by 2018 into the bargain. "The customer base currently is 244,000," says CFO Ginette Maillé. "If you look at 2014, it went from 19,000 customers coming in up to 35,000 new customers coming in in Q1 2016, trailing 12-months." "And when I talk about new customers," she adds, "I'm not talking about customers who are migrating from print to digital. These are brand-new customers joining the company." The next most important element in increasing revenue, aside from growing the customer base, is the up-sell. Phase 1 of Yellow Pages' plan is getting new customers in at a low-level entry price, and then up-selling them. The rate of up-sell in Q1 was 42%, with renewing customers upping their level of spend on Yellow Pages' services. The third element of growth is customer renewal rate, which Maillé says was 84% in Q1 of 2016, adding, "We've been on target when we look at the KPIs that we had, as far as customer base is concerned." Digital revenue represents more than $500 million, representing 65% of total revenues for the company. "When we look at the end of 2017," says Maillé, "we expect 80% or our revenues to be driven by the digital product. Maillé says they expect to see digital grow at 9%-11%. The several acquisitions that Yellow Pages has made recently may have slowed their overall growth, but says Maillé, "We are heading in the right direction as far as total revenue is concerned," adding that she expects a return to growth by 2018, by the end of which year Yellow Pages also expects to be debt free, having repaid $400 million since 2014 of a total $800 million debt. The transformation of Yellow Pages will continue to be driven by the migration from print to digital, through which Maillé says the company will see the benefits of the initiatives they've undertaken.

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Yellow Pages presents at Echelon Digital Media & Technology Conference

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