Yellow Pages Limited

Julien Billot - President & CEO Ginette Maillé - SVP & CFO

Aravinda Galappatthige - Canaccord Genuity Vahan Ajamian - Beacon Securities Bentley Cross - TD Securities

Thanks, John, and good afternoon, everyone, and welcome to Yellow Pages Ltd First Quarter 2016 Conference Call. Joining me today is Ginette Maillé, Chief Financial Officer of Yellow Pages.

Now two years into the launch of Yellow Pages' Return to Growth Plan, the company has grown into one of Canada's largest digital media and marketing solution providers. Our deep understanding of the local economy remains the called driver of our success.

With a deep history, presence across Canada and access to one of the largest database of merchant information in the country, an extensive national sales force and a highly traffic digital media network, we have grown to understand how Canadians do business. Most importantly, we'll have adopted changes in consumer behavior, particularly the economies become digital.

The vast majority of Canadians are connected online and more than ever before, consumers are leveraging the power of the internet to discover, interact and transact with their favorite brands, retailers and merchants. These market trends haven't got merchants to change the way they do business.

To remain top of the line among shoppers, merchants are now required to build and maintain the comprehensive digital presence. Merchants also require to embrace innovation, particularly as consumers want access to functionalities that simplify and then rate their shopping experience.

We are firm believers that all businesses – whether small or large – should have the opportunity and resources to adapt to these changes and succeed in today's digital economy. With local at the heart of what we do here at Yellow Pages, we strive to create valuable opportunities between the consumers and the neighborhood they live in.

The rating of our $526 million in annualized digital revenues, Yellow Pages has proven to live by its mission and has grown to a notable Chief Marketing Officer for businesses nationwide and there remain further opportunities for growth and development. While we compete with the likes of Facebook, Google, Yelp and ReachLocal, as well as various local marketing agencies across Canada, none of these players have as large of a national presence or as comprehensive of a digital offering as YP.

On the longer front, we provide businesses with affordable solution that meet their marketing goals and budgets – this includes access to online and mobile placement, content syndication, search and doing solutions, website fulfillment, social media campaign management and digital display advertising. Most importantly, we remove the publication that comes with dealing and managing the digital marketing program.

With an in-house sales, customer service and digital fulfillment team in place, Yellow Pages offers its advertisers a 99 [ph] full-serve and hassle-free offering designed to meet their goals and budgets. By outsourcing all of their marketing needs to YP, merchant can focus on what they do best -- run their business.

As evidenced of this, over 244,000 small or medium-sized businesses or 20% of the Canadian market currently trust YP to act as their dedicated Chief Marketing Officer and our offering is as compelling on the national side. Supported by the recent acquisition of Juice Mobile, YP is now equipped with industry-leading proactive advertising platforms.

This platform leverage geo [ph] and behavioral-driven data to connect North American brands and retailers to a network of 15 billion impressions, which measures the number of times a digital ad is displayed on a digital property, allowing them to target a wide range of audiences at the right time, at the right place and with the right message. To further complement our digital marketing portfolio, YP also owes a property network of digital media properties that are front of one-third of online Canadians.

Increasingly specialized in the area of service, real estates, dining and retail, our digital properties are quickly extending be of local search to promote consumer empowerment. For example, on the dining side, we have integrated transactional functionalities at the low consumers to book restaurants and order food directly from their mobile phones and tablets.

And on the real estate front, we have entered the consumer-to-consumer marketplace providing home buyers and sellers with a new way to transact with one another and avoid high commissions traditionally charged by real estate brokers. The media opportunity in front of us also remains significant, particularly at certain such verticals remain under penetration in Canada, ensure consumer media offerings are available today to empower consumers and help them transact with local businesses.

Our ability to effectively grasp and monetize these opportunities is the reason for why the return to growth plan was introduced in the first quarter of 2014. To target the initiative, the plan will first enhance the value proposition offer to merchants ultimately attracting and retaining local businesses for the introduction of a need for customer experience; second, enhance Yellow Pages' digital network and helping become the go-to property for Canadians who discover their neighborhoods and to drive their local shopping needs.

And lastly, focus on our brand promise which serve to strengthen the adaption of our media and marketing solution, as well as underscore commitment to creating local opportunities. Now two years past its launch, we have been successful in the additional Return to Growth plan with the following of rational and financial achievements, bringing us closer to our end goal of returning to revenue and adjusted EBITDA grow by 2018.

Firstly, we continue to see improvements in our customer comp metrics, which remain sure by accelerated customer acquisition. For the 12-month period ending March 31, 2016, the company acquired 24,600 new customers from 23,700 new customers a year ago.

In fact, our customer 244,000 customers as of March 31, 2016 representing a net decline of only 7,000 customer year-over-year as compared to net decline of 19,000 customers a year ago. Digital revenues now represent 65% of consolidated revenues from 55% last year.

Our digital revenues continue to expand sustainable year-over-year growth at 8% in Q1 2016 on the pro forma basis. Adjusted EBITDA total $62 million of 30% of revenues for the first quarter ended March 31, 2016.

While maintaining on industry-leading adjusted EBITDA margin, our adjusted EBITDA declines are also improving, declining 25% last year to only 13% between Q1 2015 and Q1 2016. And lastly, we'll continue to strengthen our capital structure with approximately $400 million in debt repaid on our senior secure notes since the inception on December 20, 2012, and an additional $100 million in principal mandatory redemption payments expected to be made over the course of 2016.

Our improved financial metrics remain heavily supported by our enhanced focus on our customers prior to establishing the plan in Q1 2014, our organizational center-run protecting its existing customer base. However, with 1.2 million Canadians, small and medium-sized businesses investing and advertising today, and few of our competitors offering us comprehensive and even full circle solution as YP, we soon realized the importance of customer acquisition add to the growth of our organization.

By acting fast of this attractive market opportunity, we changed the dynamics of our sales force and created a team equally focused on customer acquisition as they are on retention. When we first announced the Return to Growth plan in Q1 2014, Yellow Pages was acquiring only 1,600 acquired new customers annually, a light number when compared to 34,600 new customers acquired annually today.

Now supported by a new sales culture, more efficient and productive sales technologies, as well as the introduction of new marketing solutions, I'm confident that we'll be able to maintain this momentum and further accelerate customer acquisition levels going forward. Our sales reps at farmers to hunters driven to sales prospect and find new leads better than ever before.

With the right talent in place, Yellow Pages is making sure it provides its employees with the tools and technologies required to have them excel in their mundies. Our sales team have access to one of Canada's largest databases of merchant information.

In fact, no one in the industry has as much knowledge in Canadian small and medium-sized businesses as Yellow Pages does. This not only comes as a result of increased motivation along our reps to self-prospect, but businesses-to-business marketing campaigns, we continue to host Canada-wide to raise awareness on our digital products and services.

Our relationships with the Canadian Telco's also remain very valuable to us when it comes to merchant lead generation. By gaining exclusive access to merchant information once a new business opens up, YP has a unique opportunity to act as the businesses' dedicated Chief Marketing Officer from the day they opened their doors.

Having access to recent valuable leases turns the culture within our sales organization and our rates remain highly motivated to continue growing their book of new customers. For the right talent, attitude and culture that are in place, we want to make sure our sales team are important and given the tools and technologies required to do their jobs effectively.

Our productivity has increased materially, thanks to the introduction of these technologies, allowing them to focus on what they do best – consult and sell. For example, we have introduced an automatic dialer across our call centers, increasing the speed by which we reach out, qualify and assign our growing base of new customer leads.

In addition, we have made significant progress in enhancing the customer-phasing applications our sales reps use during sales calls and meetings. Now easier to use and navigate, our customer phasing tools leverage competitive intelligence to help our reps build value enhancing digital marketing programs for businesses.

These tools go long way in the sales meeting as it allow our customers to better-understand what their competitors are doing, what their clients are looking for, which markets they should target and what return on investment could look like depending on the evolution of their marketing campaigns. And given that, our sales core and meetings are on a marginal structure than comprehensive, all of these key subject matters can be covered quite quickly by our sales reps, helping to maximize sales conversion rates and the satisfaction of our customers.

Our continued focus on delivering an enhanced end-to-end customer journey from sales, to fulfillment, to customer service in content management is as equally important as customer acquisition in helping us return to customer comp growth. Our matrix speak for themselves with our customer renewal rate over the quarter ended March 31, 2016, remaining gradually stable at 84% as compared to 85% in the same period last year.

As done with the sales organization, we're investing to improve the efficiency and service offered by our customer phasing and digital fulfillment teams. We're going to the structure of both of these teams having hired in area where we're lacking the required level of customer support.

In conjunction, we equipped these employee with better tools which have given them access to more wholesome information on the customer they service, as well as the ability to address customer's needs in less time and with less error and with less errors in response quickly approaching stabilization in the customer count. Our customer count reached 244,000 as of March 31, 2016, relative to 251,000 customers as of March 31, 2015.

And with only 1,000 net customers lost since December 31, 2015, we remain confident in our ability to return to customer count growth by 2017. As mentioned, local is at the heart of everything we do when we strive to create valuable local opportunities between consumers and their neighborhoods.

And while we empower small and medium-sized businesses to effectively reach an interact with these customers, we strive to accomplish the same for Canada's leading brand and retailers. Yellow Pages, is national sales channel has developed strong relationship with the variety of its clients and will have an extensive story of providing them with desktop services geared at helping them reach qualified audiences.

The needs of national advertisers however are evolving and they are quickly expanding beyond desktop. Mobile is becoming the platform of choice and will soon represent the share of digital advertising spending in Canada.

Mobile is anticipated to represent over 70% of digital advertising spending by 2020 with display advertising being a key growth engine of the spend. Advertisers are also exploring new technologies to maximize returns, main of their mobile display advertising dollars.

2016 will be the first sure when more digital display ads are on board the programmatic channels than non-provocative ones in Canada. This reveals advertisers' desire to leverage advance optimization software to address challenges in making manual decision in their buying.

With the programmatic advertising ecosystem highly fermented and consolidation are growing rapidly among North American Adtech players, it was important for us to move quickly in this space in order to protect and enhance the value proposition offered to our national clients. On March 17, we closed the acquisition of Juice Mobile for total consideration of $35 million.

Juice Mobile are leader in mobile advertising in Canada, utilizing proprietary, direct and real-time bidding platforms to enable advertisers and publishers to buy and sell mobile advertising more efficiently. The acquisition is beneficial to Yellow Pages in many ways, principally providing us with these technologies and relationships as well as valuable synergies.

On the technology front, Juice Mobile programmatic direct platform is Canada's largest mobile marketplace helping advertisers purchase brand-safe and warranty impression from a wide network of premium mobile publishers. The [ph] real-time bidding platform, Juice Mobile also facilitates the purchase of hyper local mobile advertising for advertisers in the real-time environment.

These mobile technologies have played a key role in making Juice Mobile known and respected mobile advertising agency and in response, billing valuable relationship across north America. Today, Juice Mobile services 1,200 companies annually for numerous fortune 500 customers including brands such as McDonalds, Dell, Procter & Gamble, Chrysler and General Motors.

On the synergy front, the acquisition of Juice Mobile accelerated YP's positioning in the mobile advertising market, providing instant size and scale and growing YP into one of Canada's leading digital marketing agencies. Revenue synergies are significant between the two as the transaction complements our existing national relationships.

The acquisition also complements our existing publisher network extending it across North America to garner over 15 billion impressions annually. Most notably however, is that the acquisition will provide us with the capability the require to better monetize mobile on the local front.

By leveraging Juice Mobile's Adtech platforms and extensive North American mobile publisher network, the transaction will have YP gradually transition towards the leads based model, turning the introduction of hyper local mobile advertising to support a medium-sized merchants Canada-wide. Now onto the preference of our media; total digital visits during the first quarter of 2016 reached 100 million as compared to 105 million visits during the same period last year.

Total digital visits made on the number of visits made across the YP, YP supplies, YP Dine, restaurant deal, Canada 411 and [indiscernible] online and mobile properties, as well as visits made across the properties of the company's application syndication partners such as Apple Mac. As seen in late 2015, total digital visits during the first quarter of 2016 remain obviously intact by chance made to the layout of Google's mobile web search results pages.

This chance put organic results for all mobile web publishers including those of our competitors, lower of Google search pages. While we expect this dynamic to impact the performance of the total digital visits metric in 2016, we continue to focus on the variety of initiatives to support traffic.

Our focus on virtualization and cultural empowerment is therefore core. In fact, YP was able to maintain its SEO ranking among Google's organic listings despite a twist on mobile layout change, a strong reflection of the quality of the user base we strive to deliver the Yahoo!

media network. The YP Dine application continued to receive enhancement over the course of the first quarter now offering better content, a larger repertoire of restaurant listings and easier to use search and booking functionalities.

We also introduce an improved YP Dine desktop property, allowing users to optimize their search experience by filtering and booking restaurants by availability. While we currently do not include the traffic from our popular real estate property and our total digital visit metrics, it's important to highlight that this traffic grew to 25 million visits in Q1 2016 at 18% year-over-year.

Concrete [ph] extensive bliss of marketing and came back over the last quarter, focused on increasing adaption of its real estate services among home sellers. The campaign was comprised of television and radio spots as well as out of home billboard and digital advertising to help property sellers gain a more profound understanding of the quality and reliability of the popular offering.

While we continue to actively improve and promote the user experience across our network of properties, over the course of the year, focusing on integrating transactional functionalities that help Canadians make smarter shopping decision and get closer to the transaction. I will now pass the call over to Ginette who will provide you with an overview of Q1 2016 results.

Thank you, Julien. The operational milestones we continue to achieve are now reflected in the performance of our financial matrix.

Our financial profile is strengthening, supported by our focus on customer acquisition and retention, but also by having entered high growth businesses in new verticals and in national Adtech, that's addressing key demands in the Canadian digital economies. Digital reviews for the first quarter ended March 31, 2016 grew 17% year-over-year to total $132 million, representing 65% of total revenue.

Our local operations which serves to meet the local media and marketing needs of Canadian small and medium-sized businesses continue to represent the line share of our digital revenues. Accelerating customer acquisition and perfecting customer retention rate is key to protecting digital revenue growth at our local operation.

The recent acceleration in customer acquisition numbers has had a positive impact on digital revenue performance as newly acquired customers are principally only purchasing digital marketing solutions. As evidence of this, digital-only customers grew to 60,500 or 25% of the customer base as of March 31, 2016, an increase when compared to 40,800 digital-only customers or 16% of the customer base as of the same period last year.

Today, over 68% of our customers are subscribed to our digital solution, a strong reflection of the willingness of our customers to champion digital marketing. In conjunction to customer acquisition, it is also important for us to ensure that their existing customer base renews and renews at higher annual spend levels.

To-date, metrics remain positive. Over the 12-month period ended March 31, 2016, 42% of YP's renewing customer base experienced a year-over-year increase in annual spending as compared to 35% of renewing YP customers over the same period last year.

Maintaining the performance will continue to be important to the financial health of our local operations particularly as we accelerate customer acquisition and newly acquired digital customers join YP at low entry price level. The acquisitions of ComFree/DuPoprio in July 2015 as well as Juice Mobile in March 2016, also had a favorable impact on digital revenue performance.

When excluding the contribution of ComFree/DuPoprio and Juice Mobile, digital revenues during the first quarter of 2016 grew by approximately 4% year-over-year. It should be noted that our YP National Channel, formerly Mediative signed an agreement with Walmart during the first quarter of 2016, making YP responsible for managing the full ad inventory available in their Canadian website.

We expect to see the traditional ad inventory generate positive results over the course of 2016. On a pro forma basis, which adjust digital revenues as ComFree/DuPoprio and Juice Mobile were acquired on January 1, 2015, digital revenues for the three-month period ended March 31, 2016 grew 8% year-over-year reflecting the strong growth profile held by both ComFree/DuPoprio and Juice Mobile.

For the remainder of 2016, we will be reporting year-over-year digital revenue growth on a pro forma basis which for the 2016 fiscal year, we anticipate to land between 9% and 11%. Pro forma digital revenue growth is a metric that is much more aligned with a strategic focus of our organization particularly as we focus on verticalization and extending our expertise to best service the needs of national brands and retailers.

Sustained by content enhancement and pricing initiative that have protected customer's investments in print advertising, prints' revenue decline rates continue to stabilize. Print revenue decreased 23% year-over-year to reach $72 million during the first quarter of 2016.

Coupled with sustained digital revenue growth, consolidated revenues for the first quarter ended March 31, 2016 decreased 1% year-over-year to $204 million. On a pro forma basis, consolidated revenues decreased 5% year-over-year as compared to 8% for the same period last year, bringing us closer to our goal of returning to revenue growth in 2018.

Adjusted EBITDA which measures EBITDA adjusted for restructuring in special charges totaled $62 million as compared to $71 million the year prior. Adjusted EBITDA performance was principally impacted by print revenue pressure and an unfavorable change in product mix as customers evolve their digital marketing portfolios to include lower margin product such as websites and search engine solutions.

This was partly offset by benefits realized from cost-saving initiative. In-line with our revenue performance, adjusted EBITDA declined 13% year-over-year for the first quarter of 2016 as compared to a year-over-year decline of 25% experienced during the first quarter of 2015.

The improvements in decline are a reflection of the successful execution of our digital transformation. With key foundational elements progressively being delivered, an operational efficiency continuing to be gained across key functions, our level of operational expenditures have and will continue to decrease.

On a margin perspective, the adjusted EBITDA margin reached 30% during the first quarter of 2016, relative to 34% the year prior. Going forward, further changes in the product mix and the growing contribution of lower margin digital businesses such as ComFree/DuPoprio and Juice Mobile will have a diluted effect to consolidated adjusted EBITDA margins particularly as they invest to grow their market presence.

However, combined with our ability to continue to decrease operational expenses and realized cost savings across key function, adjusted EBITDA is anticipated to stabilize at industry-leading levels of approximately 28% annually, over the remaining life of the Return to Growth plan. We recognize that this guidance is lower, relative to the previously stated guidance of 30% communicated last quarter.

This decrease is simply caused by the acquisition of Juice Mobile which although slightly dilutive to adjusted EBITDA margin remains accreted to nominal adjusted EBITDA. Free cash flow for the first quarter ended March 31, 2016, totaled $9 million as compared to $45 million during the same period last year.

Although affected by a decline in adjusted EBITDA, the decrease in free cash flow was principally impacted by income taxes paid of $2 million during the first quarter of 2016, compared to income taxes received of $26 million during the first quarter of 2015, following a past tax settlement. We recognize that our cash balance has declined year-over-year.

This was principally caused by our acquisitions of ComFree/DuPoprio and Juice Mobile which has allowed us to enter high growth and high potential businesses in key vertical. This in no way impacts our ability or flexibility to invest in our digital transformation or pay down debt.

Over the past years, our cash flow profile has allowed us to pay down a material amount of debt and transfer value to our shareholders and we anticipate this to continue. Mid-debt reached $463 million as of March 31, 2016 as compared to $455 million the year prior, despite $90 million of acquisitions completed over the course of the past year.

With $400 million in senior notes we paid to-date, the company anticipates making a further $36 million, principal mandatory redemption payment on its note on May 31, 2016 with principal mandatory redemption payment expected to total approximately $100 million in 2016. In addition, we continue to assess ways to further optimize our capital structure.

In fact, May 31, 2017 represents a key date for our company as on this date we will have the option to repay the senior notes at par. Ultimately, we remain confident in our ability to fully deleverage the balance sheet in 2018.

I will now allow Julien to provide his concluding remarks.

Thank you, Ginette. To conclude, we continue to work very hard to improve our value proposition to Canadian consumers and businesses.

And our patience to-date has paid off reflecting in our ability to accelerate customer acquisition, protect customer retention rate and in response strengthen our financial profile. Our recent acquisition also speak loudly to our relevance in the Canadian digital economy, the willingness of high-growth companies such as Bukanda [ph], ComFree/Poprio and Juice Mobile to choose YP as their acquirer is a reflection of the opportunity Yellow Pages have in building unique and valuable digital relationships across local neighborhoods in Canada.

We thank you again for taking the time to join us this afternoon. I will now like to pass the call over to John to collect your question.

Good afternoon. Thank you for taking my question.

I wanted to just talk on the print side. We had up until now been seeing the print decline rates ease but we saw a bit of a flip back up towards 22.5% in Q1.

Just wanted to get a sense of what drove that and what the outlook is in terms of the stabilization in the print decline rate?

Yes. Well, basically when we look at the additional print pressure this quarter, it mainly comes from YP NextHome home, which is a print segment in our real estate vertical.

So these are new homes and condo publications, and given that they operate in a very strong market strength, they don't see the same level of advertising. So there were some pressure on print revenues coming from those publications.

When we look at last year, it was approximately -21% for the year and we've always talked about stabilization, so we're still looking at -22%, -23% in terms of print decline. We always have -20%-ish, so it would be between -20%, -23%.

Okay and then just a follow-up on that, Ginette, and just remind us of the level of visibility that you have on the books because I know that unlike digital, you have some forward vision around the trends on the print side. Can you just remind us what kind of visibility that you have on the print side?

How long is it?

Yes. Well, actually, when you look at the core segment, we do have quite a lot of visibility because these are one-year cycles.

But when you're talking about some publications at new home and condos, any publication in the real estate vertical, we don't have the same level of visibility. But all of these being said, I still believe that the print decline is out at the level of stabilization in the neighborhood of -22%, -23% this year.

Okay, great. Thanks.

Just moving on to the customer acquisitions, obviously good number in this quarter as well as in the prior season momentum there – anything that jumps out in terms of the profile of the new customer, Julien, that you dedicated discuss? I know ARPU comes in low to start with, but sectorly speaking in terms of customer profile, what's unique about the new customers coming in?

Well, I think at that stage, we are writing in the same proportion of vertical we had in the past. Slightly more new verticals; I think what's interesting regarding the ARPU on acquisition is since we launched the new net sync product – which is our new syndication product when we launched in March, we see slightly better trends in ARPU on acquisition because this product tend to be slightly more expensive than the previous one.

So we see better traction on the ARPU acquisition, but again, I think the major reason why we see this uplift in acquisition for the first quarter is also that we introduced new technologies, allowing our apps to be more productive and that's really reflecting in the numbers and also the new product launch and systems that will -- and helping us to be more present in some verticals and have better revenue performance also in acquisitions.

Okay. And then just moving on to the cost side, just give us an idea of where you are in your restructuring program.

I know later last year you announced 300 headcount restructuring. Just give us a sense of where you are and with respect to the previous round where you talked about I think $20 million to $25 million in savings.

Is that now already done in the rear-view mirror at this stage?

Maybe if we go back to the 300 positions that were eliminated, we said that on an annualized basis, it would represent approximately $30 million at savings. We also said that two-third of this savings would appear in 2016.

What I would tell you is that in Q1, actually, we did see 25% of this annual savings that was projected for 2016, so this was as planned. And then relative to further savings, actually we will continue to launch the platform, so we should see further improvement driven by automation.

But the additional or the increased level of improvement, I believe will come in 2017. At this point, we have a good idea and it relates to what have been launched in 2015.

Yes. Through broader perspective, meaning today, what we see is we are looking while streamlining operation in some in our verticals typically Juice amenity [ph] was an opportunity to do some streamlining of cost, same thing between YP NextHome and ComFree/DuPoprio, so that's something we have done and we are continuously doing.

As Ginette explained, we have also some cost savings arriving platform-by-platform typically on fulfillment, on the platform when this platform will arrive, we'll have cost saving initiatives and we're also constantly streamlining our IT operations because we said at the same time that our CapEx level will decrease in 2017 comparing to 2016, obviously you will have a reflection or form some cost-saving link to this CapEx decrease between 2016 and 2017.

Thanks, Julien. Last question for me.

Can you just expand on that Walmart contract? It sounded a little interesting.

I didn't catch the context of the contract. Do you mind just expanding on that a little?

Thank you.

Yes. Well, the Walmart contract is in negotiation.

We'll have Walmart. Basically what we do is we have the digital equivalent of promotion installed, but on Walmart website.

Basically you have a lot of brands who want to promote their products into Walmart website and we do that on behalf of Walmart. Typically, if Walmart is in agreement with Hasbro, let's say for toys, we'll have Hasbro to advertise digitally into Walmart website, or to advertise their Hasbro section in Walmart website, or on third-party website.

So we are really helping Walmart to monetize that digital asset, explaining the relationship with brands. It's obviously very interesting for us in term of our cost of business, but also very interesting because we are building relationship with brands, we can also leverage in other part of our activity.

So this contract is a sign. We have no public announcement yet.

We are going to communicate together with Walmart at some point of time in this contract, but that's the color we can give you on this contract.

On benefits, we should start seeing benefit mid-year this year.

Okay, great. Thank you.

What I could add is that we were competing against worldwide agencies because actually we're almost the only country in the world where Walmart is selected by local players in the UK and the U.S. They are working with global partners who are very proud to have been selected by Walmart as a reflection of the quality of our work in our mid-year 2015.

Yes. That's definitely meaningful.

Thank you, Julien.

Hi. Just a quick clarification on the EBITDA guidance for the year of 28%.

Is that for the rest of the year going forward? Or is that for the year in total?

In which case you'd have to have say, 27% to offset for the stronger Q1 at 30%?

Yes. We're talking about 28% for the year.

If you remember, following the acquisition of Juice, we talked about the dilutive effect of Juice on the number this year and at that time we did talk about approximately 29% for 2016. Interestingly enough, Juice has over-performed, so the level of revenue is higher and therefore, there's an additional level of dilution on the EBITDA margin front.

Yes. I think that's the best thing we can give you, is actually Juice, what we see, of course the value early days, that is really over-performing our expectations.

One, we had acquired Juice [ph], we offset certain expectation. Actually today, they are higher than that for 2016, so that has an impact of percentage of EBITDA obviously from absolute numbers perspective.

That will be good news, but from a positive perspective, that's a slightly more diluted than we expected, but that's for good reasons. Actually, more growth are expected on Juice Mobile phones.

Thank you. And how season was the non-cash working capital?

Do you expect it to be found in Q2 in terms of the source of cash in the next quarter?

I'm sorry. Did you say non-cash?

Yes. That $15 million use of cash -- does that recover to a source of cash in Q2?

The working capital? Yes.

Actually when you look at Q1, we see basically the same thing every year unless there are special elements, but Q1 is always more negative, given that we're paying the variable compensation at the beginning of the year, and then the quarter in which we make payments on debt, we are actually optimizing working capitals in order to maximize that pay down and that subs to following quarter, there's always that negative impact.

Okay, thank you very much.

Thank you very much for taking my phone call. My first question would be on the print side.

Are you seeing the same trends when look across the urban and the rural side?

Well, actually, no. The trends are not exactly the same.

What we saw consistently and that did not turned recently is of course, it's not much more resilient on rural markets. So rural markets trend decline would be depending on the areas between -15% and -20%.

In the urban market's trends, decline between -25% and -30%. Today, rural market will present of 60% of revenues and of course the proportion of revenues coming from rural area is ramping up.

So, no, the profile is relatively different between rural and urban in trend to declines.

But they are consistently different. Correct?

Sorry. They are?

They're consistently different. The gap has not changed?

No, the gap has not changed. In rural markets, you'll print as a media or as generating strong usage.

The reason is you leave in Grande Prairie in Alberta, which we live in Ontario, then print would have a comprehensive vision of what surround you in say 100 kilometers around you. Usually in Toronto, basically you depend books to have the same vision, which is not at all relevant.

In rural markets, print media is much more relevant, so advertisers have willingness to stay in the book, so that's why we see consistently low decline in rural market than in urban markets.

Thank you. If I may follow up with another question, on the sales front, when you talked about moving from a farmer to a hunter approach, can you track the inbound versus the outbound calls for leads?

Yes, definitely. Actually, in the acquisition teams, we have two different sales teams.

One is dedicated to outbound calls, the other one is dedicated to inbound. Typically inbound, we do advertising where we receive calls.

Outbound, we have a leads portfolio and we tackle these leads. The dialer which were introduced at the New Technologies, will lead to target outbound so that helping a lot of -- would be outbound calls.

I would say most of the acquisition is coming from outbound, not inbound, but inbound has increased over time, but the majority of the growth is really linked to the improvement we've made in outbound calls and outbound technologies and lead generation.

Thank you.

Thanks very much, just a couple of remaining questions from my end. Just on a modeling note, the uptake in depreciation and amortization in Q1, presumably that's a run rate going forward, but just unusual to see such a big uptake sequentially.

That's just bringing online a new platform and now it's getting depreciated?

Yes. Actually what happened is that we've delivered a lot of new platforms in the back half of 2015 and as a result – I would call them all in construction when progressed, given we launched quite a few of them in Q4, the level of depreciation has been up significantly in Q1 and will remain actually.

It will continue to be at the higher level than what we've experienced last year.

Okay, thanks, Ginette. That makes sense.

For this quarter – I may have missed it in the MD&A – but could you give us the contribution of acquisitions revenue-wise in the quarter?

Well, what we're saying is that the pro forma is 8% growth, versus organic that would be 4% growth. That would probably give you the data points that would allow you to come up with the numbers.

Okay. That 4% organic obviously, digital revenue growth?

4% of that?

I'm sorry. Absolutely, but the acquisitions were only digital.

Yes, okay. I certainly understand that and then with respect to equipping the sales force, Julian, you commented on just how more effective they're becoming with what you've equipped, obviously going from farmers to hunters.

I think you characterized it. When you look at the sales force incentives, I just want to get a sense of the type of new customers coming in the door and somewhat of the quality control around that.

Just what you have in place in what kind of customers you actually want to attract versus perhaps the ones you don't want to attract, knowing down the line there's going to be greater return?

Well, first of all, that's the outcome of the Return to Growth plan. What we said is of course we have very good customer in the past, high operation rate, but then customers are at the limit, it's like business class customers from Air Canada or Porto [ph], there is limited number of business customer you can get and we have most of them.

So if you want to grow, basically you need to accept to have lower quality customers, but much more of them so at the end you'll have more revenues than you had in the past. Yes, we're accepting to have less quality customers in the sense, also considering that having these customers coming in the customer base, then we'll have the opportunity to upsell them.

What we see since we have increased dramatically acquisition numbers is, yes, churn rate has improved slightly, but as you saw consistently over the last two years, our churn rate was almost stable of all, coming from 85% to 84%. Actually if you look at the first digit, it will be 84% something going to 84% something, so were very, very close.

So what we saw is yes, there's new customers that have slightly higher trend, but not so much comparing to the average churn we have relatively to our customers. They have all for lower OpEx [ph] entering in, but were also able to upsell them as we saw in the MD&A, 42% of our customer base – we're selling upsell for 42% of our customers of the year-to-year expense, which is really improving comparing to last year the same time.

So that's our financial structure, is allowing us to do that which is really fighting to increase our customer base, with customers entering at lower level and then obviously sell drop to make them stay in the organization and upsell and to reach higher OpEx. On the sales side, what I would say is of course that acquisition for us is just the customer basically pays us with a contract.

So we wait to have a contract as discussed with the customer to count that as a new acquired customers and from a sales perspective, obviously we'll not pay the sale if it's not proven as a real customer. We have very, very sure leakage on that and it's really real customers and you can see that in the figures.

Okay, Julien. That's great.

Last question for me, on the down-take in traffic clearly related to the Google revamping obviously their web search, just wondering what your expectation is for aggregate traffic for the rest of the year on a year-over-year basis. Presumably we would see the same down-take not withstanding seasonality.

Is that a fair target from your perspective?

What I can say is Q1 is on budget. I will say we're expecting to have that kind of decline.

For the total year, we give an indication that we would expect, but it's also very dependent on Q3 and Q4 results, but it could be relatively the same level of traffic between 2015 and 2016. So kind of small recovery for the end of the year.

The major reason being that when Google changed its algorithm, it was in August. So after August, we should be in much more comparable basis, so all the efforts we're doing right now are not totally showing in the figures because of the changes that occurred in the beginning of August, but after August obviously we'll be more apples to apples so we expect more back half growth in digital traffic and overall relatively stable, stable traffic between 2016 and 2015.

That's great. Thank you very much.

Good afternoon. First I wanted to thank you for the guidance both on the margin side and for pro forma digital revenues.

And related to that, I just want to make sure I'm on the right page here. Is 540 an approximate ballpark for what I should be using for pro forma for 2015?

I'm sorry. For some reason I couldn't hear you well.

Bentley you are very far away, actually.

You're very far away. Sorry about this.

I wanted to ask on the pro forma guidance for digital revenue. Is fair base somewhere in the ballpark of 540 about right?

Well, what we basically do is give you guidance percentage-wise. So what we're saying is it will be between 9% and 11%.

Unfortunately, we're not really getting the numbers themselves.

No, I understand that you can provide 9% and 11%, but I just need you to tell the base to work off of that. I'm just trying to confirm that 540 is a decent base.

Well, we need to take the base of last year. Hold on.

We need to get back to you on this one.

Okay.

If you want the pro forma number for 2015, that would allow you to have the better picture, we can give it to you offline.

What we can tell you is of course Juice Mobile was $25 million in 2015 and ComFree/DuPoprio, what we say we've done profile on the low-teens growth -- high single digit growth between 2016 and 2015.

Okay.

But we'll give you the figures for 2015.

We can give you the number of 2015 pro forma.

Okay and somewhat related to that, on the margin guidance, is there any fear that as Juice continues to grow, is that long term going to be able to get up to what has been YP's core margins? Or is there fear that mark keeps trending a little bit lower?

In this industry in programmatic, you would never find the level of profitability that we find in our core business. So what we believe is that in the mature business in that industry, the margins that can be expected are in the 10% to 15% EBITDA margin while ours is more the 30% level.

And then one more on margin. You guys have done a great job of being all the go-there-and-get-new-customers.

I assume there are some sort of payback time frame? Is there any fear that with added customer acquisition, that that payback comes in more than a year so then we could see margins trend below that 28% number?

Well, that's not what we see today. Of course our job is also to acquire customers with the right set of products.

Typically what I can say is it belongs to the new syndication offer, so Net Sync are replacing clearance pool [ph] and we actually increase prices at the lower level of that offer, so that's helping us to increase the offer level for acquisition. No, I don't see that.

We expect the payback time to be around the same time for new customers. The reason being that first of all while improving our conversion rates or the cost of sale decreasing in one side, on the other side is also that we better serve new customers, we learn how to serve them well, upsell them faster because we know that the customer would eventually level off retention at higher rates because they're satisfied with the return investment.

So if we upsell them faster then, they are more satisfied. So now all the action we are taking are made to maintain as a level or the payback on acquired customers in the same area.

Okay, that's helpful, and then one more for me. Previously you guys have disclosed YP 360 or previously prior to that, you disclosed RGUs.

With such an emphasis on upsell, why is that no longer such a factor you're willing to disclose or maybe there are some other metric that might be better at...

Okay, yes. That's a good question.

YP 360 basically was really indicated to measure our print to digital migration because YP 360 is an indicator, what's the number of products sold per customer? So historically meaning the guy had one print product, so when you are adding digital product, it will need to go to three or four and so then we come into YP 360.

With all the acquisition that we're doing, the mechanism in the customer base is not exactly the same. We are not relying anymore only on migration – we are relying a lot on acquisition also and retention, and in acquisition, people tend to have one or two products, which is not exactly the way we were measuring YP 360 because it will fill more products.

That's why we stopped giving an indication of that because it was just reflective of one part of our business model and definitely not a total part of our business model. That's also we are getting the MD&A, the number of up sellers in our customer base.

So 42% of our base last year upsold comparing to the previous year. That means they spend over time on the year 1% or 5% more than the previous years.

Of course, up sellers 1% is people who spend more than 5% the following year compared to the previous way and that's the way to follow how we are progressing in our ability upsell customers.

That's great color. Thank you.

Okay. Thank you all for your attendance.

We look forward to speaking again in August as we report on our Q2 2016 results. Have a great afternoon.

Thank you.