Thryv Holdings, Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Thrive third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Cameron Lessard, Director of Investor Relations and Capital Markets, you may begin your conference.

Thank you, Operator. Welcome to Thrive Holdings' third quarter 2021 earnings conference call. We issued our press release a short time ago and furnished the related form 8K to the SEC. The press release can be found on the Investor Relations section of our website at investor.thrive.com. With me on the call today is Joe Walsh, Chief Executive Officer and President, Paul Rouse, Executive Vice President and Chief Financial Officer, and Grant Freeman, Chief Customer Officer. 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 about the operations and future results of Thrive. These statements are subjective 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 speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. Reconciliation of these 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, Cameron, and good morning, everyone, and thank you for joining us. As you've already read in our earnings release, our momentum continues as we deliver our best quarter since being a public company with accelerating growth in our SaaS business. And so we will once again raise our guidance. Our CFO, Paul Rouse, will take you through that, raise the guidance in a few minutes. It was just over a year ago this week that we began our journey as a public company with our first earnings call. We introduced the company and we laid out our strategy for helping SMBs harness the cloud, and how we thought we were in pole position to be the category leader here. And this last year has really played that out, I think, for us. And, you know, we brought a new board in, and shortly after we announced additional areas of investment in our business to really scale our SaaS organization, which we felt like we were poised for massive growth. And today, I'm pleased to say that Those decisions have borne out some very promising and exciting results. So let me walk you through the report card for the third quarter. Fast revenue plus 41%, building momentum over the last several quarters. And I want to put that in just a little bit of a context for you. Prior to going public, we came out of a distressed debt setting. And so we were in more of a harvest footing. We weren't really, we were delivering double-digit EBITDA margins out of our business. our charge was to make it make money. And so we weren't really investing and growing it quickly. But over the last year, as we've shifted our emphasis more toward investing in growth, we've gone from Q3 last year where we had 2% growth to in fourth quarter, 8% growth. And then as we turn the corner into the new year, 17% growth. And then in Q2, 32% growth. and now 41% growth. So you can see those investments and that new stance is really kicking in and that we're taking advantage of the rapid adoption happening out there in the marketplace. We're seeing our ARPU rise, $340 is what it's up to, 31% year over year. Our new acquisition channels are growing, now representing 22% of overall sales, double where they were a year ago. When you think about new clients coming into the company, two-thirds of all the new SaaS clients are new, new to the company. And about one-third of them are coming as we continue to mine the base of the marketing services business. We've seen record levels of engagement within the platform, measured by things like time in the app. Really, everything we measure is up significantly. And our retention is at an all-time high. And so I think it would be fitting to have our chief customer officer Grant Freeman speak to you for a few minutes about some of the progress we're seeing in that area. Grant? Thank you, Joe. I'm excited to be here today to share the progress being made as our clients continue to increase and deepen their engagement within our software platform. It is important to start with repeating what was shared during our Q2 earnings call, that our North Star for client success is an engaged client. We are all over engagement, looking at it from every angle. I want to share some data with you today as our underlying trends continue to improve. For example, our daily active users year over year for September is up over 30%. Beneath that, we see the percent of clients using three or more features of our platform is up over 50%. When we look at specific feature usage, we can see continued upward trends. For example, the number of clients with campaign sent is up over 30%, clients sharing documents up over 25%, and the number of clients with payments and using estimates and invoices functionality each are up over 50%. As part of these great results, we have always been measuring churn internally in several different ways. We have our standard churn metric, which we have been reporting for the past year, and we are proud to share that churn was 2.1% for quarter three. Now, while we spend lots of time reviewing churn and dissecting it, our current reported metric is a very conservative measurement. We have also measured churn to look at real adoption. We feel there is a value add to present this now since it's providing additional context for our go-to-market strategy. Small and medium-sized business behavior and stability is different and messier than enterprise behavior. As such, this measure of churn excludes newer clients as they are in the early stages of engaging with the software. For our Thrive software, we have a blueprint of our client journey, and when we look at month-over-month engagement, we quickly to our clients. But for deepened engagement, it is during the months following initial onboarding when we start to see users aggressively integrating the software. We also see those who may not have engaged for a variety of reasons, including issues like their payment being declined or them simply going out of business. The first year allows them the time to learn, to be coached, to engage, and fully integrate the software into their day-to-day business. As a result, we also measure year-over-year engagement and churn of those clients who have been with us at least 366 days, so just over a year. Our churn with these clients is only 1.7%, a metric we are extremely proud of. This is a huge success, as it means those who use the product and engage with more features over time integrate it into the fabric of how they run their business. they are using the software as we intended to allow them to compete more effectively in today's marketplace through modernizing their business. We also know that as engagement deepens, we can begin to monetize. For example, our net dollar retention has moved from 73% to 90% over the past year. And when you consider the one-year-plus clients that we just spoke about, their net dollar retention is 95%. We have also measured NPS for a number of years. For us, it's truly the ultimate measure of where we are headed. Among our Thrive users, we have seen a significant year-over-year improvement again. Now, we all know that small businesses have a much different relationship with software than do enterprise organizations. Engagement early is critical, as is deepening engagement over time. You know, it's much like a gym membership that we will all be buying or renewing this coming January. You may have the desire to be healthier, and you may go for the first few weeks, but unless you go and learn how to use all the equipment, create true discipline around exercise for the long term, there will be no outcome of better health. Software is similar. Small businesses need to engage with software, engage with us, practice it, giving them time to learn and truly adopt the software, and then the results that they seek will happen. To help clients who buy become engaged with the software, here are just a few of the things that we have done. We've almost completed our evolution to a team selling motion. In this model, we have a software sales specialist partner with a local salesperson for all Thrive sales, which yields higher engagement and low churn. It ensures our platform is a fit for the needs of the small business. We're also focused on delivering a best-in-class time-to-first value. During onboarding, we ensure that we understand the main problem the client is trying to solve, and then we solve it within the first 10 days. Post-onboarding, we work to deepen engagement over time at a pace that is consumable for the small business. Our team of client success managers strategize with and coach our clients to continue to use our platform to solve more problems for the business. Catered TechTouch aimed at enticing clients to use more of the software is also critical to expanding usage and spend over the course of the first 12 months. As a result, we see higher and deeper engagement, lower churn, regardless of how we measure, and we have higher net dollar retention along with the higher net promoter score. So with that, Joe, I'll turn it back to you. Thank you, Grant. Grant is our chief customer officer, and under his leadership, we have methodically worked to reduce churn in our customer base and really drive up engagement. So thanks to Grant and his excellent team for the victory they've delivered in that area. I'd like to turn now to Australia. You know, we made the census acquisition beginning of March. And we've made tremendous progress since. We've localized the software, trained the teams, gotten the product into the marketplace. We've got many customers on the software and using it already. We're experiencing really strong engagement and usage. I must say the organization in Australia has done a great job of bringing our ideal client profile in. We've been beginning to get some referrals now for people that are already using it. So it's early days, but we're off to a terrific start. We also have rebranded Census to Thrive Australia. There's a media campaign underway as we speak in Australia announcing that, which has been really well received. It's driven a lot of traffic to our website. we've been getting a lot of software demos out of it people expressing interest in it so i think we've got uh australia ideally positioned that as we turn the corner into 22 we're beginning with a lot of momentum really nothing to do to kind of get organized but we're just going and um i continue to have really high expectations about our ability to penetrate that customer base over the course of the first couple of years i think it's going to be a terrific opportunity for us and the marketing services piece of the business is performing just like it always has in a very steady and predictable way. Really happy with that. I'd like to turn now to a recent innovation in the SaaS software product, the centralized inbox. This allows SMBs to communicate with their customers and prospects wherever they are in whichever format they prefer. So this is, you know, web chat, email, text messages, Facebook, Instagram Messenger apps, Google My Business, Virtually any way you could come at that small business, it all shows up in the centralized drive inbox, which really saves our small business a lot of time having to check multiple inboxes and maybe having a message been sitting for a couple of days if they forgot to check. It brings it all into that one place, and it stores it right into the CRM contact card. So it's all there, and it begins to build a database. begins to build a lead base so that they can do marketing, lookalike marketing, follow-up marketing, nurture email. They can do all those things, an actionable CRM record, which is like a breakthrough for most small businesses. So they can really respond in real time. They've got a centralized dashboard. They don't have to juggle back and forth between multiple apps or conversation threads. Everything is pulled together in one place. And I'll say this. Consumers' expectation when they contact the business just seem to continue to rise as more and more companies are deploying more and more technology. People's expectations rise. They kind of want instant gratification. And a lot of mom and pop small businesses only have a couple of employees or a few employees. So having a powerful tool like this is always in their pocket. It's going to make a really big difference for them. I'd like to now talk about ThrivePay. We recently passed the $50 million in total payments volume mark, which we're really pleased about. I want to say this. ThrivePay for us is a big engagement driver. It allows a lot of our small businesses to get paid in a more efficient way, which really helps them, and I think makes them that much more loyal to the software, which is a big deal to us. We're continuing to see higher attachment rates on our newer clients, and teams have just really started going back to existing clients we convert them over to ThrivePay. About a third of our clients use payments, and our target is to see that grow to more like half over the next year or two. Since the launch of ThrivePay, all the clients who activate payments, more than half chose ThrivePay, which is pretty big. And we're pleased with this number, and we think that it will grow over time as SMBs who connect payment accounts may initially kind of bring their own whether it's Stripe or Square or PayPal. But we are convinced that our competitive offering will bring them over over time. We're seeing a steady migration where more of them are switching to make LivePay their primary tool. So LivePay has been a really big deal. It's really helped us a lot. So I'd like to turn now to the financial part of the presentation and bring Paul Rouse in and let him tell us about our third quarter results.

Paul? Paul Rouse Thank you, Joe. I will now cover our U.S. business segments, starting with SaaS. Third quarter 2021 SaaS revenue was $44.8 million, an increase of 41% year-over-year. Growth was driven by a steady increase in clients, a bigger uptick in average revenue per unit, or RP, and favorable sales allowances when compared to the prior year. Of the 41% increase in revenue, 600 basis points relates to improvements in sales allowances when compared to the prior year. SaaS ARPU was $340, up 31% year-over-year when compared to the prior year. We attribute the growth in ARPU to several factors. Action we took in 2019 going upmarket with continuous change in the subscription index with ads coming in at higher values. upsell to higher price tiers within our install base, cross-sell from our marketing services client base, and finally, sales of additional seat licenses, automated leads, and add-ons. The third quarter season SaaS churn was 1.7%, a 90 basis point improvement year over year, and a 10 basis point improvement sequentially. As Joe and Brian alluded to earlier, We will now be reporting this additional metric going forward as it best reflects our efforts in driving adoption and engagement for our SaaS solution. Seasoned net dollar retention reached 95% for the quarter, a 900 basis point improvement year over year. Moving over to U.S. marketing services, third quarter revenue was $213.2 million. an increase of 2.3% year-over-year and ahead of guidance. Overperformance for the quarter was driven by a print publication schedule that included a significant number of books published when compared to the prior year and was expected based on our publication schedule. Additionally, our digital offerings, specifically IYP, came in above our expectations. Given these positive developments, We will update our revenue guidance accordingly for this overperformance. Third quarter marketing services billings were $204.9 million, a decrease of 21% year over year and consistent with previous quarters. As is consistent with previous calls, we will provide billings and additional operational metrics to give our investors better insight into our operational performance. The billings data will show a very consistent and steady decline in our marketing services segment, which is shown to be lumpier on an accounting basis given our 15-month lifecycle of our print directories. This is provided in the third quarter investor supplement available on our investor relations website. Moving on to Thrive International. Third quarter Thrive International revenue was 53.3 million Australian and ahead of guidance. On a reported basis, Thrive International revenue was $39.3 million. The reason for the overperformance was related to the timing of pre-publications in the quarter. Turning now to profitability for the consolidated business. Third quarter adjusted gross margin was 70% for the consolidated business. When excluding Thrive International, adjusted gross margin was 71%. a 710 basis point improvement year over year. Third quarter total adjusted EBITDA was $102.4 million, resulting in a total adjusted EBITDA margin of 34.4%. Third quarter U.S. marketing services EBITDA margin came in at 45%, aided by strong print revenues, while five international adjusted EBITDA margin came in at 30%. due to timing around print publications. As expected, SAS EBITDA margin was lower due to our increase in go-to-market investments compared to last year. We expect SAS EBITDA margin for 2021 to be negative for the full year. And we expect to exit 2021 with Q4 at around negative $6 to $8 million. Finally, we repaid $35 million of our term loan for the third quarter, which brings our cumulative new term loan repayment to $123 million since the refinance associated with the acquisition in March. We continue to be very focused on debt pay down. Okay, now let's update guidance, starting with our U.S. segments. For our US SaaS business, we are raising our 2021 revenue guidance range to $169 to $171 million. For our US marketing services, we are updating our 2021 revenue guidance range to $785 to $790 million. As mentioned on previous earnings calls, U.S. marketing services' EBITDA margins will be consistent with prior years on an annual basis. At Thrive International, we are updating our four-quarter revenue guidance range to $53 million to $57 million Australian. Please see our third-quarter investor supplement posted on our IR website for additional information. I'll now turn the call back over to Joe. Thank you, Paul.