Yellow Pages' (YLWDF) CEO Julien Billot on Q2 2016 Results - Earnings Call Transcript

| About: Yellow Pages (YLWDF)

Yellow Pages Ltd. (OTC:YLWDF) Q2 2016 Earnings Conference Call August 5, 2016 11:00 AM ET

Executives

Julien Billot - President and Chief Executive Officer

Ginette Maillé - Senior Vice President and Chief Financial Officer

Analysts

Aravinda Galappatthige - Canaccord Genuity

Vahan Ajamian - Beacon Securities

Bentley Cross - TD Securities

Operator

Good morning, ladies and gentlemen. Welcome to the Yellow Pages' Second Quarter 2016 Earnings Release Call.

Today's conference call will contain forward-looking information about Yellow Pages' outlook, objective and strategy. These statements are based on assumptions and are subject to important risks and uncertainties. Yellow Pages' actual results could differ materially from expectation discussed. The details of Yellow Pages' caution regarding forward-looking information, including key assumptions and risks can be found in Yellow Pages' Management Discussion and Analysis for the second quarter of 2016.

This call is being recorded and webcast and all the disclosure documents are available on the company's website or on SEDAR.

I would now like to turn the meeting over to Mr. Julien Billot, President and CEO. Please go ahead, Mr. Billot.

Julien Billot

Good morning, everyone, and welcome to Yellow Pages Ltd Second Quarter 2016 Conference Call. Joining me today is Ginette Maillé, Chief Financial Officer of Yellow Pages.

Despite all the changes, in the digital economy, our mission to champion local neighborhoods remained the same. Yellow Pages continues to harness the power of digital to build a strong, growing, and sustainable [indiscernible] marketing solutions company one that is able to connection agents on the local level like never before.

There is no question that internet has rapidly and dramatically changed our way of life and with the internet of things expanding, societies are able to find and ask for information in a quick and efficient manner ultimately enhancing the way they do business.

Digital description is now global phenomena, and new digital technologies in business models are emerging to help brands, merchants and consumers extract retail value from goods and services. With more time being spent online, marketers have a unique opportunity to grow the reach, frequency and quality of interaction made with current and prospective customers.

And with the value of things that are growing, marketers are able to gain the deeper understanding of that customers purchasing behaviors, [indiscernible] to build campaigns targeted at growing consumer awareness and engagement.

The news is that consumers are very respective to these digital changes. People worldwide are excited to use technology if it enriches their lives. Receiving [available] (Ph) information and personalized offers as well as getting the ability to interact and form that development worldwide are features consumers are drawn to.

And while consumers now have everything they need to make an intelligent purchase decision from product and service information to review writings and feedback, and the ability to buy a book online with a click over button they are consistently looking for new technologies and marketplaces to simplify their lives.

As we quickly adopt to these market dynamics, Yellow Pages is a firm believer that Canadians be it a merchant, brand, or consumer should take advantage of all digital opportunities available to them.

In response, we have been the digital company that leverage comprehensive suite of marketing solutions, one of the company largest databases of business and consumer information, proprietary advertising technologies, and the top rising network of media properties all to promote business relationships between Canadians.

On the merchant front, while Canada's most respected Chief Marketing Officer amongst small and medium size businesses. We take word of Chief Marketing Officer very seriously, which is why we have got zero pages into one of Canada's largest food serve digital marketing solution providers.

Today, we utilize an in-house network of sales, system of service, and digital fulfillment professionals to design and increment valuable digital marketing campaigns for small and medium size businesses nationwide. [indiscernible] guide a similar value proposition to much more brands and publishers.

The acquisition of Juice Mobile in Mar 2016, alongside our Mediative operations immediately positioned Yellow Pages as the leading advertising agency for national advertisers. Yellow Pages offers national advertisers access to prototype programmatic technologies, high-intent consumer data and online mobile publisher network crossing over, 15 billion impressions annually.

The company’s we host for our national customers are therefore visible of some of North Americas’ most visited online and mobile properties and leverage key consumers insights to plug at the most relevant consumers at the right time.

Combined Mediative and Juice Mobile service some of North Americas most respected brands including McDonalds, Bell and Procter & Gamble. The same can be said about our publisher network with a national operation representing key properties such as Walmart, Global Mail and weather network.

On the consumer front, we continues to provide media properties that help Canadians discover, interact and transact within their local neighborhoods. Approximately 425 million visits annually, our network of online and mobile properties is in constant evolution providing Canadians with contextualized content and offers as well as functionalities to have them addressed key data needs.

Consumers are empowered, when they have the right technologies at their disposals, and because it is part of our mission to offer Canadians the tools required to leverage the power of the digital economy, we have developed digital media properties that just do that.

Our entrance into the consumer-to-consumer marketplace is a reflection of our interest in empowering Canadians. Through the acquisition of the ComFree/DuProprio Network in July 2016, we provide Canadians with the expertise and media required to serve at homes in a cross effective manner, allowing them to graduate from a traditional and costly brokerage model.

We have also built some [indiscernible] presence in the dining vertical, our dedicated dining applications, Bookenda and YP Dine are delivering rich experiences to both restaurants owners and diners, offering the platforms and forums required to mange online booking and food ordering. And lastly, our YP application, the flagship of our digital properties, continues to be the high of all that is local, offering users to localized content, and access to one of Canada’s largest and most complete databases merchant information.

Now over two years, both the launch of our recent growth plan, we are progressing well with the implementation of our digital transformation. By introducing and improved value preposition to small and medium size businesses national enterprises o and consumers, our goal is to further the Yellow Pages’ digital presence in Canada and returning to revenue and profitability growth.

Once again, this quarter, while reporting operational message that reflects the progress, we are making on our transformation as well as our ability to strengthen the company’s financial profile. Our customer comp metrics continue to improve. For the twelve months period ended June 30, 2016, the company acquired 38,600 new customers from 24,800 new customers a year ago. Our customer count was [indiscernible] customers as of June 30, 2016 representing a net decline of only 4,000 customers year-over-year as compared to a net decline of 17,000 customers a year ago.

Digital revenues now represents 68% of consolidated revenues from 57% last year. Our digital revenue continue to expand sustainable year-over-year growth at 6% in 2016 on the pro forma basis. Adjusted EBITDA totaled $59 million or 28% of revenue for the second quarter ended June 30, 2016 and we continue to strengthen our capital structure with over $429 million of debt repaid since December 2012.

The growing digital business cannot be supported or maintained without a growing customer base, this is why customers remain at the heart of our return to growth plan. Our focus lies around two key themes, customer acquisition and customer retention. Our ability to acquire customers has dramatically improved from when we first launched the plan.

Recall that Yellow Pages was acquiring only 16,500 new customers annually back in Q1 2014. A significantly lower number when compared to 38,600 new customers acquired annually today. This enhanced performance was made possible post the incrimination of key professional changes within our sales organization.

First off, we improved the sales culture, historically Yellow Pages had a strong focus of protecting and growing the speed of its existing customer base, without necessary being active in replacing customers that had a churned out overtime.

Our sale reps have now transformed from farmers to hunters driven to self prospect and find new leads better than ever before. We support this behavior with various incentives and gratification programs held from all sales tunnels, thereby creating an environment driven to outperform.

Secondly, we launched new sales technologies. The productivity and performance of our sales growth have increased materially, thanks to the introduction of these technologies allowing them to focus on more [indiscernible] and sale.

As mentioned last quarter, we have introduced an automatic dialer across all 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-facing application used by our reps during sales calls and meetings.

Now easy and faster to navigate our customer-facing tools at as the go to application for us to understand the needs of the customer, the market potential, return on investment forecasting metrics and key product and pricing information. These new tools have significantly enriched the sales meeting.

All-in-one meeting, we can now talk, prospect these to customers through a comprehensive discussion of the competitive landscape and their marketing objectives helping us to propose the campaigns designed to meet their budget, while maximizing visibilities and lead generation.

And lastly, we approached and targeting new customer segments. Precisely Yellow Pages was very strong in heading that were principally service related. By entering new verticals and developing digital marketing solutions targeted at all the industries; we have been able to further diversify of customer base and approached new type of merchants.

Our entrance into the restaurant vertical is a strong reflection of this. Facilitated by the acquisition of Bookenda and dine.TO in December 2014, Yellow Pages now operate separate sales team dedicated in approaching restaurant owners.

Our marketing offering have therefore evolved to meet the needs of business operating in the restaurant vertical any good sort of solution such as reservation management platform, online reservation and food ordering capabilities, as well as customer loyalty management solutions.

In addition, we entered the new entry level marketing solutions that are better aligned with the digital advertising needs of newly founded smaller businesses, a recent example of this investing introduced during the first quarter of 2016. At the maximum cost of only $50 per month advertisers can get access to a full serve content syndication solution. This offering is very effective for new businesses as it provides an instant boost to their digital presence by ensuring that their profiles are visible across 25 sites and up.

Our customer count was of 244,000 as of June 30, 2016 versus 248.000 customers as of June 30, 2015. We should highlight therefore the first time since the inception of the recent growth plan, Yellow Pages did not lose any customer quarter-over-quarter. While this is still too early to declare that Yellow Pages has officially stabilized the customer counts. This performance provides us with added confidence in our ability to return to customer count growth by 2017.

Alongside accelerated levels of customer acquisition, we are also working to maintain industry leading customer renewal rates. The customer renewal rate over the 12-month period ended June 30, 2016 totaled 83% as compared to 85% as at the same period last year. The customer renewal rate was and will continue to be adversely impacted by accelerated levels of customer acquisition. However, it will not impact our ability to raise the customer account growth by 2017.

Recently acquired customer are generally newly founded businesses that are smaller in size and portrays more digital centric marketing campaign. This profile [indiscernible] to expand higher level of churn varieties to our older customer cohort. Nevertheless, improvement and changes are being implemented across all of our customer-facing teams to promote customer retention.

In addition to enhanced sales tools, we are providing our customer service teams with upgraded dashboards and training to have them better service customers. We are also investing to improve the efficiency of our digital fulfillment operations having now in areas where we were lacking the required level of customer support as well as implementing new tools to promote fulfillment operation.

The second quarter of 2016 was one where YP went full speed on branding and promotion. A regular stream of branding is important for Yellow Pages. It serves to position YP as a credible supplier of digital advertising and marketing solutions, while also improving ground perception to non-Canadians.

As it pertains to business-to-business campaigns, our goal is to educate our target market about two of our biggest assets. One that we have the best digital product and two that we have the right people to help fulfill that. In this slide, we took it upon ourselves to actually open up our own small business in the beach neighborhood of Toronto, called the Lemonade Stand which sold lemonade and lemon based desserts.

Yellow Pages used only its own digital solution and its own people to grow this business from a nonexistent enterprise to a local hot spot. Our online promotion of the Lemonade Stand lasted two weeks prior to opening and it was a comprehensive digital profile, content syndication, digital banner ad placement, a Facebook campaign and a dedicated website. We are also quite impressive with the Lemonade Stand's digital ad generated over 500,000 impressions and its website having attracted 1,700 unique visitors over this two week period.

Now the door is finally open on the [indiscernible], we generated weekly sales over $5,000 and run out of inventory in just under two weeks. The success of the Lemonade Stand will now broadcasted Canada-wide, we have national merchants and guest campaign running into November 2016, these ads will be seen on national television, online video channels, as well as on social media and within digital newspapers.

Campaigns were also held on the business to consumer side, principally to support awareness of our dedicated dining app YP Dine. The campaign is centered around a very common question, we all ask ourselves on a daily basis, which is what do you want to eat today. With the brain, stomach, and heart being three key tools used to come up with the answer of this question, YP Dine campaign places spotlight on these three characters to raise awareness of YP Dine’s ability to help Canadian find and book the best restaurants based on their preferred.

Live since June 28, the YP Dine campaign will principally take place on mobile platforms with our digital banner ad placement as well as the ability of social media, online video channels and within digital newspapers. This campaign is scheduled to run until December 2016 targeting markets in Montreal, Toronto, Vancouver, Calgary, Edmonton and Quebec City.

To conclude, our network of media properties continue to accomplish several number of visits during the second quarter of 2016. Total digital visits during the quarter totaled 106 million as compared to 116 million visits during the same period of last year. Total digital visits measured the number of visits made across the YP, YP Shopwise, YP Dine, RedFlagDeals, Canada411, Bookenda and dine.TO online and mobile properties as well as visits made across the properties of the application syndication partners such as Apple Mac.

Although visits originating from the ComFree/DuProprio Network excluded from these metric, the ComFree/DuProprio Network attracted 24 million visits during the second quarter of 2016. As a consequence last quarter, total digital visits during the second quarter of 2016 were adversely impacted by a change made to the layout of Google’s mobile web search results pages in late 2015, these churns pushed organic results for all mobile web publishers including those of our competitors lower on Google search pages.

Our traffic despite these dynamics remained quite resistant. This is reflective off of two key elements, firstly, we continue to have a strong organic search ranking across key search engines, this a reflective of the relevance and quality of our network of mobile application. Secondly, our application partners support mobile traffic.

Any YP listing is now available in Apple Mac is driving Apple Mac users directly to our applications. This in fact highlights the importance of our partnership we have on the YP [indiscernible] serve as they serve as a powerful vehicle to expand our reach and grow return on investment and raise market awareness.

Lastly, we remain actively improving and promoting the use experience across our network of properties. New versions of the YP mobile application will launch on iOS and Android during the course of the quarter, now offering users the context related home page design to push more relevant and engage in geo localized font.

I will now pass the call over to Ginett, who will provide with an overview of Q2 2016 results.

Ginette Maillé

Thank you Julien. The progress made in our digital transformation is reflected in the performance of our financial metrics. Our financial profile continues to strengthen a result of the delivery of sustainable pro forma digital revenue growth, an improvement in annual adjusted EBITDA declines, growth in free cash flow, and lower net debt.

Digital revenues for the second quarter ended June 30, 2016 grew 22% year-over-year to total 142 million representing 68% of total revenues. Included and digital revenues for the second quarter 2016 were revenue generated by ComFree/DuPoprio and Juice Mobile acquired in July 2015 and March 2016 respectively.

On a pro forma basis, which adjust digital revenues for the full inclusion of ComFree/DuPoprio and Juice Mobile during the second quarter of 2015, digital revenues grew 6% year-over-year. Pro forma digital revenue growth is and will remain supportive by the performance of each of our local real estate and national operations.

Recall that there local operations serves to address the media and marketing needs of small and medium sized businesses Canada-wide. Sustainable pro forma digital revenue growth from our local operations will ultimately be driven by the help of our local customer base. In other words, our ability to accelerate customer acquisition protect retention rates and maintain growth in digital spending among renewing customers.

Today performance of our local operations is contributing favorably to pro forma digital revenue growth. Customers acquisition is accelerating favorably impacting digital revenue at newly applied customers are principally only repurchasing digital marketing solutions. As evidence of this, digital only customers grew to 67,200 or 28% of the customer base as of June 30, 2016 an increase when compared to the 44,400 digital only customers or 18% of the customer base as of the same period last year.

Our renewing customers are also experiencing an increase in digital spending with 43% of renewing local customer base, senior year-over-year increase in annual spending over to 12 months period ended June 20, 2016, as compared to only 32% last year. We remain focused on further promoting customer up-sell in digital spending particularly as we develop more targeted solution, enhance fulfillment, sales and customer service experience and deliver improved ROI on our network of media properties.

On the real estate front, ComFree/DuProprio continue to contribute favorably to pro forma digital revenue growth. Following the ongoing implementation at various marketing initiatives, ComFree/DuPoprio is actively and successfully growing it’s network or home sellers and buyers in both Quebec and Ontario.

Approximately 20% of all real estate transactions in Quebec are now completed through ComFree/DuPoprio. While they continue to focus on further growing market share of home sellers in Quebec, ComFree/DuPoprio is now entering new markets in Ontario, and leveraging targeted advertising campaign to raise public awareness of their offerings.

Similar performance is seen among our national operations, which are composed of our Meditative and Juice Mobile business units. Revenue growth at Mediative and Juice Mobile is being driven by growing advertiser and publisher network.

While revenue growth at Juice Mobile is being supported by national advertisers, hosting larger campaigns via Juice’s programmatic platform in both Canada and the U.S. Growth at Mediative has been favorably impacted by the recent signed Walmart contract, whereby Mediative will manage all of their desktop ad inventories.

Supported by sustainable revenue growth at our local real-estate and national operation, Yellow Pages reaffirms its guidance for the year ended December 31, 2016 and is expected to deliver year-over-year pro forma digital revenue growth between 9% and 11%.

On a consolidated basis, revenues during the second quarter of 2016 increased 3% year-over-year, to reach $210 million principally impacted by the acquisitions of ComFree/DuProprio and JUICE mobile. On a pro forma basis, consolidated revenue decreased 5% year-over-year, for the three-month period ended June 30, 2016, as digital revenue growth was adversely impacted by decline in print revenue.

Print revenues decreased 23% year-over-year to $68 million during the second quarter of 2016, following a decline in the number of print customers and ongoing migration of customers print advertising spending to digital. Yellow Pages continue to anticipate print revenue decline rates to main relatively stable in 2016.

The pro forma decline experience in consolidated revenue this quarter however continues to compare favorably to year-over-year consolidated revenue declines of 7% last year, providing further indication of our ability to successfully implement our digital transformation and return to revenue growth in 2018.

Adjusted EBITDA, which measures EBITDA adjusted for restructuring and special charges, totaled $59 million during the second quarter of 2016 as compared to $62 million the year prior. The adjusted EBITDA margin for the second quarter of 2016 was 28% as compared to 30% for the second quarter of 2015.

The decrease in adjusted EBITDA and adjusted EBITDA margin was principally impacted by lower print revenues and a change in product mix, partially offset by the ongoing realization of cost optimization. The adjusted EBITDA margin was also impacted by the acquisition of Juice mobile who operate at a lower adjusted EBITDA margin relative to Yellow Pages prior to the acquisition.

Most notably, adjusted EBITDA declined by only 4% year-over-year for the second quarter 2016, as compared to year-over-year decline of 24% during the second quarter of 2015. Our ability to improve annual adjusted EBITDA declines is the strong indicator of the progress we are making in the implementation our return to growth plan.

We work hard since inception of the return to growth plan to improve the value proposition offered to customers and consumers. New tools, processes and technology needed to be developed, helping to fix foundational issues and grow productivity and agility of our media, marketing, and IT teams.

With these projects now implemented or in deployment, our level of operational expenditures have and will continue to decrease ultimately helping to bring us closer to adjusted EBITDA growth. We are therefore reaffirming our guidance of delivering adjusted EBITDA margin of approximately 28% for 2016 and returning adjusted EBITDA to growth in 2018.

Free cash flow for the second quarter ended June 30, 2016 increased to $20 million up from $17 million during the same period last year. The increase in free cash flow was principally due to lower capital expenditures as well as a decrease in the funding of our pension deficit following the adoption of new measures permitted by the financial services commission of Ontario.

This was partly offset by higher restructuring payments as well as an increase in the receivables of our newly acquired businesses. Supported by growth in free cash flow net debt decreased by $40 million to reach 449 million as of June 30 2016 despite 90 million of acquisitions completed over the course of the past year.

The company already made a $36 million principal mandatory redemption payment on its notes on May 31 2016 with principal mandatory redemption payments expected to total approximately $100 million in 2016. In addition we continue to assess ways to further optimize our capital structure and look forward to May 31st 2017 whereby we will gain the flexibility to repay any tenders made under senior secured notes at par. Today we remain confident in our ability to fully deleverage the balance sheet by 2018.

I will now Julien to enter provide his concluding remarks.

Julien Billot

Thank you Ginette, and to conclude we continue to see clear sign of the progress made on our digital transformation, now over two years post launch of our return to growth plan, we have accelerated customer acquisition, maintain industry leading renewal rates and completed valuable acquisitions in the local and national space. This has translated to a strengthening financial profile, one where we are delivering sustainable digital revenue growth and profitability alongside continued debt repayment.

And our job is not yet complete, over the coming years we will continue to focus on the local and national customer and introduce new solution and services to attract and retain them. We will also maintain a focus on our profitable media operation, enhancing our properties and finding valuable partners to extend our reach across Canada. And ultimately, we will ensure our operations are in line with our final objectives with the goal of returning to revenue and EBITDA growth in 2018.

We thank you again for taking the time to join us this morning. I would now like to pass the call over to Patrick to collect your questions.

Question-and-Answer Session

Operator

Thank you, [Operator Instructions] The first question is from Aravinda Galappatthige from Canaccord Genuity, please go ahead.

Aravinda Galappatthige

Good morning, thanks for taking my question. I will start with a question on the guidance for pro forma digital growth, you are still pointing to 9% to 11% for the full-year, I think year-to-date around 7%. What are the components that you think would kind of creates an acceleration in the second half? And I apologies if I missed that part on the call.

Ginette Maillé

Good morning Aravinda. So basically it's coming from a national account, Mediative and Juice Mobile have seasonality, and in that context the Q4 is really the peak during the year, so these are the holiday season, so we expect Juice and Mediative to be extremely strong in Q4. And if I had to rank the level of activities in these two segments, I would probably say that Q4 is the most active quarter, then Q3 is the second one, then it goes down to Q2 and Q1. So Q1 is the lower level of activity. So it will really come from those national accounts.

Aravinda Galappatthige

Okay great, thanks for that. And just with respect to ComFree though, I know that the second half is a little bit weaker, but I guess you are comping against the second half, so that one have an impact I assume.

Ginette Maillé

Yes, and maybe if I may talk about ComFree actually, ComFree is having pressure from the Alberta markets and really they started feeling that pressure in the third and fourth quarter of last year. So when you look at the first half of this year, may be this year was a little weaker than expected, because the basis of comparison was much higher. In the last half of the year in 2016, they will really compare an Alberta market as weak in 2015 as in 2016.

Aravinda Galappatthige

Okay great thanks for that Ginette. And just with respect to the overall digital performance. Clearly you are doing very well on the customer acquisition count, I was wondering if you can talk more generally about sort of the ARPU levels. I know that you constant to track sort of the digital ARPU, because the new customers coming in are coming at a low base. So it would be the average sort of numbers so to speak. But if you just think about the pre-existing digital customers, what kind of revenue growth or ARPU growth are you seeing from those accounts?

Julien Billot

Well good morning Aravinda, this Julien. Well that’s a very strong question, I think I mean on the existing customer as you saw our numbers of customer renewing while increasing their spend is again growing at 43% comparing to 30% something last year. I think that’s not only new customers that’s also the existing customers. The fact is the least effect today is a bit against us that’s why the average ARPU is going down, because even if we increase the spend for most of our renewals at the same time the new one coming in are at lower ARPU. So the blended ARPU if you may is still decreasing.

At the same, that’s what I say in every call that’s part of our return to growth strategy, because we know that staying on the customers that had in the past a very high ARPU, would lead to declining customer base and finally no hope of really growing again this company. So that’s part of our strategy to acquire new customers obviously, new segments have lower ARPU than existing segments, our restaurants will never pay the same price for lead than a swimming pool builder. But that’s fine, what is important for us is, the way we can grow them after acquisition and that’s why you have different effects in the way APRU is evolving today in our customer base.

Aravinda Galappatthige

Okay and just a follow up one that Julien, I don’t know if you can disclose that, if you just think about the existing customer base on the digital side, are you seeing sort of double-digit or a growth overall as the, new the existing customers kind of ramp up to higher level price?

Julien Billot

Well [indiscernible] upon growth, I will say that, but we can clearly see that the existing customers were able to up-sell them, but the one who were new were able up-sell them, because we complete our fleet of solution typically when NetSync was launched. We have previously no syndication offers, so we variable to add this syndication offer to most of our existing customers and obviously that’s helping to grow the ARPU. So our strategy is always the same, is [sequel] (Ph) I would say up-sell existing base, require no customers, and over time up-sell the newly acquired customers. That’s the way we drive our marketing policy.

Aravinda Galappatthige

Okay thanks, and just moving to the audience and engagement, I was wondering if you would give us an idea of the growth you are seeing on the mobile side and the App usage. I know that you are more recently or may be about a year ago, you sort of suddenly ramped up your advertising campaign on the App side. I was wondering, if you can talk to the movement from desktop to mobile and what proportion of the audience is now in mobile and App. And to that point, is there any change in the recent development with Google, I know that Yelp, Trip Advisor and some of the other have been complaining about their actions and I was just wondering if there is any possibility of the reversal that given somebody can argue that their actions are anticompetitive?

Julien Billot

Well that last points, I strongly incentivize you to talk, to the competition bureau in China, it will be an interesting discussion. Globally on the audience, actually what we see there is, now we see what’s find a kind of balance between and it seems that from all the market between desktop audience and mobile audience. It seems that we are close to 50/50, 60/40 favored mobile, but most likely was going to 80% mobile 20% desktop in the coming years.

The [indiscernible] transition between mobile and desktop, not only for us, for the industries and stay around the 60/40, 50/50 round spots, it’s a bit different than we were expecting some years ago. So that we could see, obviously our growth in mobile was affected by the decline we had in mobile SEO lean to Google changes, because that effected primarily mobile both the desktop.

Overall, we have communicated heavily on the app in Q3 and Q4 2016 we did not communicate anything on Q1, Q2. When you look at our figures, base traffic is one of the big explanation of the gap between Q1, Q2 2015 and Q1, Q2 2016 along side with Google changes. So because we wanted to rebuild the apps and to improve the customer experience before we advertising on them.

So the lack of paid campaign is also an explanation of the gap between Q1, Q2 2015 versus Q1, Q2 2016 and that’s why we think in 2016 the gap would narrow, but at the end of the year, we always expected to have a profit in 2016 around the same in 2015 or slightly lower. That was our expectation.

So in our internal plan, we are globally on-track with our internal plan on traffic. Regarding the different issues we had with Google, we know [indiscernible] European Commission, sending letters to Google on different practices; Google is doing on the market. Historically, the Canadian authorities and American authorities have been more less aggressive to Google. We will see how it's moving in the coming years or months.

Aravinda Galappatthige

Thanks and my last question on the pension side, Ginette can you just expand on the decline from the 26 to the 19, you referred to some regulatory or some financial changes there. And also just remind us of the deficit at this point? Thanks.

Ginette Maillé

Yes, so basically there were some Ontario release measures that will released. And what we have done at the end of 2015 as of December 31, we performed a new actuarial to evaluation. So I told you that in the past it was approximately $100 million, it went down by approximately $10 million, but the reduction in the funding of this business mainly come from the fact that the Ontario release measures or such that they allow you to extend the period of amortization.

So we have started amortizing two years ago that this has [indiscernible] certain promises and it was supposed to be amortized over or funded over a five year period. Two years later, they allow us to extend that remaining two years to another five years. And this is basically why the funding on yearly basis goes on.

Aravinda Galappatthige

Okay that’s great. Thank you I'll pass the line.

Operator

Thank you, the next question is from Vahan Ajamian from Beacon Securities. Please go ahead.

Vahan Ajamian

Hi guys. Congratulations on a good quarter, a couple of questions here, change in operating assets and liabilities as represent the use of cash of the last three quarters. Can you talk little bit about the dynamics driving this, does this reverse next quarter or is there structural investments in working capital that need to be made as digital keeps growing.

Ginette Maillé

Yes, Vahan actually yes it does. Basically what you see I would say in the first half of the year first of all is the payment of variable compensation. So normally there is a negative impact in the first six months of the year. And the second element that you will see this quarter is related to the fact that the AR at Juice mobiles specifically it contributes as few as well are really ramping up given that their growth is very significant. So we have an unfavorable variance on that front as well.

So the boneless piece will obviously shrink overtime up to the end of the year, and the unfavorable and AR though hopefully will keep on going up, because this means that Juice is very successful in growing their business at a rapid pace.

Vahan Ajamian

Okay so should we be you forecasting about the $3 million our use of cash every quarter then as part of that AR phenomenon going forward?

Ginette Maillé

Well could be a little higher than that.

Vahan Ajamian

Okay, but it's not going to reverse anytime soon?

Ginette Maillé

Well if everything equal it should not, but it could be reverse partly. So I would really mean looking to the details but generally speaking this is the dynamic that you would see overtime in a year period.

Vahan Ajamian

Got it, okay and I also used to the supplemental disclosure, the cash flows from taxes this year are now projected to be in flow of $16 million or as last quarter's projected to be in out flows $2 million any context as to what happened and when those cash flows may arrive in Q3 or Q4?

Ginette Maillé

Yes so this is related to sales tax, this few that we have and we finally settled it, so this was and maybe we are not on Board, but a year ago I did talk about the tax that we still had one significant tax dispute going on so it has been settled. This is the last tax dispute that we had. We have been successful on that front so we expect to be paid in Q3 for the $17 million.

Vahan Ajamian

Got you, okay, and you gave some color on comp free and how it's going obviously the weakness in Alberta, I think big picture was about $40 million revenue run rate when you announced the acquisition. Can you give some colors as to where, what revenue levels are now annually more or less.

Julien Billot

Once we completed [indiscernible] we of course that was an issue for technologies and help so all that is now declining business, it used to be a fast growing business so that has some impact on the growth the implied growth of the total company business. But Quebec has grown very nicely in Q1, Q2 despite already strong Q1 and Q2 2015. We expect also growth in Quebec in Q3 and Q4, Ontario is now growing, MLS we had some trouble with MLS because MLS changed some listing systems with less presence for ComFree, so the ComFree team had to readjust to find growth on their website and the acquisition and they were able to do it. So Ontario is back on growth the double digit growth so which is good. So overall ComFree was growing as almost as forecasted, if you construct our data as forecasted with Alberta little less than forecasted.

Vahan Ajamian

Perfect, thank you.

Operator

Thank you. The next question is from Bentley Cross from TD Securities, please go ahead.

Bentley Cross

Hello.

Julien Billot

Yes, good morning.

Bentley Cross

Good morning, I wanted to just expand a little bit on Aravinda's questions. Maybe it would help if you guys were willing to parse out what the core local business did, on an organic basis in the quarter.

Julien Billot

Well the core organic basis, obviously that's you know all the proposal, our return to growth plan is to regrow faster the core business, that was the intent. What we said in the return to growth plan was that because of client migration. If we did nothing the YP core business assets will ultimately decline. So that's all within the plan, of course customer acquisition is helping, but we are still losing or being stable in terms of customers.

So we have slowed the decline, we have less growth and that was helped by the growth in our customers acquisition, but the customer account growth has not helped yet that is going to help later, so hopefully before the end of 2016, but before 2017 that's going to help. The second aspect is we know we have plenty of things to do to work on our YP core assets. We have a lot of program going on, on customer experience, sell segmentation, marketing offers, pricing and promotions and so that's why we know that this will be the longer, the most difficult fix in the return to growth plan. That's why we say customer growth should come in 2017 and revenue growth in 2018.

So today what you see is basically YP is contributing but obviously most of the contribution now on our pro forma growth is coming from Juice, Mediative, ComFree and others. Of course, over time in 2017, 2018 we expect the YP core accelerating its growth and contributing more to the pro forma growth later today.

Bentley Cross

Okay, just to put some numbers around that, is it fair to assume that digital core growth was kind of flat up 1% and some are in that ball park.

Julien Billot

We don't comment on that, but it was a bit higher than that.

Bentley Cross

Okay, and then just to expand on the re-acceleration that you guys are expecting in the back half, I understand that there's some seasonality in this business, but when that seasonality has played out last year as well if we are looking at a pro forma basis?

Julien Billot

What I’ll say is yes and no, Mediative had quite a good quarter, but we see that we have much better trajectory now than they were last year. And Juice has the same similarity but down as down so would be growth that got so big in terms of numbers that’s how we have created the gaps.

So yes, they had the similarity, but we extend that into a most doubled revenues between Q3, Q4 when it exceed in Q3, Q4 2016. So even if I had seasonality, when you double your revenue that’s creating a very significant gap and operate to Yellow Pages activity that’s going to create a significant gap also in our pro forma growth, because of the underlying tendency of Juice Mobile growth.

Bentley Cross

Okay that’s helpful. And that’s all from me. Thank you.

Julien Billot

Thank you.

Operator

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Mr. Billot.

Julien Billot

Well thank you all for your attendance. We look forward to speaking again in November as we report on our Q3 2016 results. Bye-bye. Have a great weekend.

Operator

Thank you. The conference has now ended. Please disconnect your line at this time and we thank you for your participation.

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