Thryv Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Thrive Holdings' third quarter 2020 earnings call. After the speaker's presentation, there will be a question and answer session. To ask a question during this time, you simply need to press star 1 on your telephone keypad. If at any time you require assistance, please press star 0. I would now like to turn the call over to KJ Christopher. Please go ahead.

Good morning, everyone, and welcome to this recorded management discussion of Thrive's third quarter results. By now, you should have received a copy of the company's third quarter 2020 earnings release and investor supplement, which is also posted on our website at investor.thrive.com. With me today are Joe Walsh, our Chief Executive Officer and President, Paul Rouse, the Chief Financial Officer and Treasurer, and Ryan Cantor, Vice President of Product and Marketing. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Thrive has no obligation to update the information presented on the call. Also, on today's call, our presenters will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the investor relations website at investor.thrive.com. With that introduction, I would like to turn the call over to Joe Walsh. Thank you, KJ.

During today's call, Paul and I will provide details on our Q3 results as well as guidance for Q4 and the full year 2020. We'll also spend time covering our business and market opportunities, as many of you may be new to the Thrive story. For those who are new, let me take a moment and tell you about what we do here and offer some comments about the direct listing we just completed. So Thrive, in the materials we sent out, slide number 10 is a great visual that shows kind of the Thrive product overview. Thrive is an end-to-end client experience. It's basically an operating platform for a small business, where on the device they already own, through the cloud, we deliver this great organizing tool. And it allows the small business to stay organized, to kind of be visible everywhere across the web to get the job, to manage the job, and to get credit for the job. And if you take a look at that visual, you can see some of the different pieces that are involved in Thrive and allow Thrive to operate. And it really lets you do almost everything you need to do to run your business. And the things that it doesn't do, we have an app store or an app marketplace that you can go to and you can, let's say you want to have e-commerce capabilities and you want to sell things on your website, you can just plug in Shopify and use it, no problem. Zoom. If you want to use Zoom, it's right there in the app store. If for your accounting, you want to use QuickBooks in the cloud, you just plug it in and the APIs talk, it shares your sales information. So it updates everything. And what's great about it is it's one login. So all your employees can use it and you're able to keep everybody synced up. It syncs up with the other applications that you use. So it's just amazing in terms of you know, labor saving, getting organized. I've had a lot of the customers tell me it's like an extra employee or two. It does so much work. You know, when you think about trying to get your listings right all over the web because you're changing your service, you're adapting right now to COVID, it's amazing what it's able to do just in terms of adapting your small business to the marketplace, allowing you to keep everybody up to date on your hours and your service offerings and and so forth. So a pretty powerful software tool. We're going to talk some more in a little while about how it helps you get paid. I'll come back to that later on. But ratings and reviews are really important online. Every time you do business with somebody, it thanks them afterwards and asks for a rating and review and helps you post that in all the right places. Social media, it's got basically a dashboard where you can manage it or as a service at Thrive, we'll actually do your social media posting. So pretty complete front end in your pocket all the time on the device you already own. So very powerful piece of software. We are the category leader in this thing. We basically invented this category that we serve. It's an enormous category. It's early. It's growing very, very quickly now. But it's a pretty exciting time to be doing what we're doing right now with Thrive. And there's a visual that I think we have in the deck that we put out that shows cloud adoption. Yeah, it's slide 11. In 2018, the cloud adoption index had only about 30% of small businesses using any kind of cloud-based software tool. That's risen already this year to 37, and it's forecast over the next two years to reach 60% of small businesses. So we're still really... in kind of the second inning of small businesses adopting cloud-based tools. And one of the really interesting things is it doesn't just come out of like a marketing budget. This really comes out of an operating budget. It's really labor-saving. So it really taps into a pretty large financing source there and a big market. Let's talk a little bit about how we go to market. We started from a standing start five years ago and grew in about the first three and a half years to $100 million in revenue and 40,000 subscribers. And that's got to be a record, I think, for how fast one of these SaaS software businesses can grow. And you might wonder, you know, how did we do that? Well, we did it because we had a very big Yellow Pages customer base and a 2,000-person sales force. And that sales force basically ran out and talked to the small business customers, the Yellow Pages customers, told them about what we were doing, and 40,000 of them signed up post-haste. What we learned as we moved along is that a lot of those small businesses weren't necessarily going to be persistent users of this tool. They were too small. They were one-man businesses, you know, Chuck in a truck, Dan in a van. These were really small businesses. They didn't really have any other employees to communicate with or even that many customers to communicate with. And some of those customers ended up churning out and not being the right fit. So we developed an ideal client profile that allowed us to target a little bit larger companies that have a bigger need for the software and allowed us to move a little bit up market in terms of the average selling price. And so what's really remarkable when you think about Thrive's development is that we currently sell it through about 1,000 salespeople that sell the marketing services products. that Salesforce has shrunk as the marketing services business has shrunk. We've variabilized the cost base. And yet, we still have managed to have very strong SaaS growth. And now we've built new channels. We've got an inbound channel where customers come to us and we service them. We've got a partner channel that we're beginning to build. We've got a multi-location channel. And these are all lighting up now. as well as international. We've turned and are beginning to move international as well. So the growth fuse is definitely relit by all those new channels. This is a very large addressable market. You're talking about small businesses at the moment all across the U.S. There's reportedly somewhere around 30 million small businesses in the country. We feel like this kind of 2 to 20 employee is like this perfect sweet spot for us target there's a visual on slide 13 you can take a look at we really try to avoid the just the one employee businesses and obviously a giant enterprise is not a fit for us but um really up to about 50 employees the thrive tool is a really strong fit for a very very powerful connection so It's a big addressable market about to get bigger as we move out international. And I spend time talking with our customers. Back when I could go in the field, I went in the field and called on them in person. I do a lot of Zoom conversations with them now, try to talk to a couple really every week or every other week anyway, just about what they're using, how they're using it, what they're doing. And you couldn't pry Thrive away from them. It's basically how they do business. It's how they get their appointments. It's how they confirm their appointments so they don't have no-shows. It's how they get paid. It's how they do estimates, invoices, billing, follow-up. They live in their Thrive, and it updates their cloud payroll tool, their cloud bookkeeping tool. It really becomes like a right hand that they run their business on, so pretty powerful. I'm asked a lot about our direct listing you know we i guess we were the fifth direct listing uh to come through and you know i want to just explain why we did the direct listing um you know we didn't need to raise any money uh we have a captive vc in our marketing services business it throws off a tremendous amount of cash that we're using to fund the growth of the sas business and if you think about it Our SaaS business, really, we've never raised any outside capital. The small amount of money that we use to get Thrive started, we've already repaid with profits generated from Thrive. So it really hasn't been a big user of cash. We haven't been just throwing money at growth. We've been very careful about the growth rate. So we really didn't need to raise any money with a direct listing. You know, it's a pretty exciting time for our company. You'll hear some more about some of the announcements that are coming through right now. So we thought it was kind of a great time. This particular approach to getting public was not much of a distraction for management. We didn't have any big roadshows to do. There wasn't a lot of fees that we had to pay. We did not have to offer a giant discount to all the brokerage friends. We just quietly relisted the company. And we feel like that over the next period of time, there will be the price discovery that normally occurs in the run-up to an IPO will happen for us afterwards. And we're patient about that. We're not in any big rush. We've got some supporting shareholders that have been with us for a while that are excited about the company and its future. You know, they're supportive and willing to, you know, work with us and stay with us. So we didn't really have any big shareholders trying to sell. So the direct listing worked out well for us. I'd like to just talk for a minute about our new board as a part of this transition where we really are putting – SAS first and an emphasis on SAS, we reloaded five of our eight board positions. And we brought in real domain expertise, people who've got a lot of SAS software experience, who've walked this path. And it's been incredible. They've been a terrific resource. And there's been a knowledge graft really going on right from the beginning, not just in the formal board meetings, but they've been meeting with teams in different areas of specialty or expertise that they have, sharing ideas, best practices, making introductions. So it really has been a boost to our kind of SAS IQ bringing in this new board. It's been excellent. I'd like to comment quickly on the pandemic. The pandemic has obviously affected small businesses all around the world. For us, we have not had much revenue concentration in travel, in entertainment, dining. These are not big areas for us. We tend to focus more in service areas, home services, personal services, auto services, health services, legal services. These tend to be more our world. So while we certainly have felt the pandemic and there have been effects of it for sure, it by no means has been a direct hit for us. As you can see in our numbers, we've come through kind of like flying colors here. It's gone well for us. And we have given pandemic adjustments and credits to customers who were asked to close their business down for periods of time and so on. So you'll see it in the numbers. But overall, we're delivering plan and cash and EBITDA and having really a very good year. And the pandemic's been a tailwind for our SaaS business. a lot of small businesses that knew they needed to modernize, had it on their list of things to do, have moved it way up the list now. And it's a priority to get their website sorted out, to be able to communicate with their customers, changes in their service offerings, their safety protocols, to be able to get paid electronically and not have to handle cash or a physical check. So, uh, For the SaaS part of the business, the pandemic has actually been a tailwind. And I would say that what it's really done is, rather than temporarily boosting demand, it's really, I think, permanently, structurally accelerated the migration, where to be competitive as a small business, you really need to have this kind of end-to-end client experience platform that Thrive represents. I'd like to, I guess, talk about our ThrivePay. ThrivePay is our own proprietary payment application where we work mostly with service businesses. Think about the tree guy. Think about the plumber. Think about the locksmith, the HVAC guy, the landscaping company, all these service businesses. It's not like using Square is perfect for them, where you're coming in, you're buying newspaper and a pack of gum, and you're swiping your card, and it's a $7 transaction. There's a little tiny fee on it. These guys are often taking payments for $2,000 or $3,000 when they're getting a payment. And so a lot of the payment solutions just, frankly, charge too much and are just too cumbersome. They really don't want to be forced into kind of the credit card world anymore. And so what we've developed with ThrivePay is this low-friction offering that's designed specifically for the service-based small business. And, you know, it's got really attractive rates, so that's going to be the first thing they're going to notice. It's great for scheduled payments like memberships or reoccurring fees or, you know, the guy mows your lawn, you know, a couple times a month and just charges you a reoccurring payment every month. or even installment payments. Because we've got such a big service team behind it, we handle dispute assistance, you know things like card on file where every time you come in for your yoga thing it just charges the card so that you don't have to necessarily you know you deal with the hassle of paying each time so it's a really flexible solution that we developed specifically for our customers and uh signups are coming in fast and furious we just launched it just a week and a half ago or so and it's moving very quickly um people are signing up we're seeing payments coming over the platform And we think that this will be a big part of our growth and development. And if you look at slide eight, you can kind of see the way we think about the marketplace. Thrive Pay is essentially like a freemium offering. It's something that even somebody who hasn't yet bought Thrive can come in on Thrive Pay. And there's a 15 million business addressable market, very big market there. And we make a little something on each transaction. So It's a standalone thing. And then, you know, it introduces them to Thrive as a brand and as a software service. And then we think that, you know, there's a chance to really grow the Thrive customers. And just continue with that slide, the bottom of that slide, you see Hub by Thrive. That's the parent-child relationship we have with a platform that lets you manage many, many Thrives for a multi-location business or for a regional or national franchise. You can use Thrive to operate each of those local businesses, keep track of their revenues, and you can use this hub as a master control panel to keep an eye on and run the whole thing. That's kind of a quick sense of what we're doing there with Thrive and with Thrive Pay. And I just want to say this, that we call the company Thrive. The emphasis, the focus is to grow the SaaS business. Our marketing services business is an amazing business. It's been around for a very long time. It's very cash generative. It's a very predictable with a lot of forward visibility business. And it provides reliable cash flow that we're using to fund and drive the growth of our Thrive business. So it's really a perfect marriage. And we have had, I think, a really great year so far this year. And as we look forward to next year, we see the SaaS business continuing to accelerate. So with that, I'm going to wrap up and I'm going to turn the call over to Paul Rouse, who's going to take you through our financials.