Thryv Holdings, Inc.

Thank you for standing by. My name is Anna, and I will be your conference operator today. At this time, I would like to welcome everyone to the DRAVE Second Quarter 2023 Earnings 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 Start, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press start and number one. Thank you. Camera losser, you may begin your conference.

Thank you, operator. Hello, and good day to everyone. Welcome to Thrive's second quarter 2023 earnings conference call. On the call today are Joe Walsh, chairman and chief executive officer, Paul Rouse, chief financial officer, and Ryan Cantor, our chief product officer. A copy of our earnings press release and investor presentation can be found on our website at thrive.com or in the investor section at investor.thrive.com. Please acknowledge comments made on today's call and responses to your questions may contain forward-looking statements about the operations and future results of the company. 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 conference call today. Finally, our speakers 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 our website. With that introduction, I would like to turn the call over to Joe Walsh. Joe?

Good morning, Cameron, and thank you all for joining us on our call today to discuss our second quarter results. We had another solid quarter in SaaS, most notably from a bottom line perspective as we continue to focus on driving profitable growth, maintaining flexibility, and executing efficiently. Highlights for the quarter were 20% year-on-year SaaS revenue growth, SaaS EBITDA hit double-digit margins, client growth continues up double digits, and our engagement trends continue to be very strong. One of the things that we're really excited about is we had a goal for the year on profitability for our SaaS business, which we've reached already. So in our fervor to get more efficient, we got a lot more efficient. And that is something that we're excited about. It did cause us to have a very narrow miss on our revenue guidance for SaaS. We're in a very strong position with the way all the elements are coming together, and we're confident enough that we're going to be raising SAS revenue guidance for the year and EBITDA guidance for the year. So a lot of very strong momentum in the business. We just made the decision to basically sell fewer of the more expensive sales that come through our inbound channel and made a few other efficiency moves, and it's resulted in about a 10-point swing in the EBITDA profitability from, you know, around breakeven to double-digit EBITDA. So, we're really pleased with that. We think that really demonstrates the profit-making power of this business and the overall control we have over the business model. So, pretty pleased with that, pretty excited about that. For SaaS, we, in the past, have relied on three channels to drive our growth, and I've described that as a third, a third, and a third. So a third coming from the zoo, you know, a third coming from happy customers referring people just like them to our base, and then a third coming from our inbound channel. That's begun to get kind of out of that perfect third thing lately. Actually, the largest source of customers is the referral bucket because there are so many customers in the happy zoo bucket that are referring people. You know, that's well into the 40s coming from referrals. And up, you know, in that well more than a third bucket is people coming out of the zoo. And year to date, less than 20% we now have coming from our demand gen funnels. In fact, in the most recent period, it was more like 14%. We really have been, you know, cutting back on those more expensive sales. We love those sales less because we have to do content marketing, in some cases, paid marketing and advertising. We're doing webinars. all these things to identify these folks. And when they come through the funnel, we can't control who they are. So they haven't been with us for 15 years. They aren't always established mature businesses. So it exposes us to a little bit more churn risk, which in the end makes it a little bit more of an expensive sale. So our ability to reduce our reliance on that has been an important element in this drive toward efficiency and profitability. And we're going to talk in just a couple of minutes, adding now a fourth funnel to our business. And we're really excited about what that will do. We've spoken over the last year or so about our desire to implement product-led growth, to generate product-qualified leads, to use our product to help identify new prospects and new customers, to deliver some value to customers before we ask them for any money, and We've been at work now for several years on an important new product that's going to allow us to do that. And we're in the process right now rolling out the beta version of our command center. Command center is an opportunity for small businesses to consume some of our product, get value, sort of raise their hand, and become a product qualified lead, which can then be worked through and managed by our very powerful sales led motion. So we're not giving up on the sales led motion. We're basically just adding a fourth, very highly efficient funnel to the process. And we're really excited about it. It's the culmination of multiple years work and it's really cutting edge technology. And so, without stealing any more thunder, I want to bring our Chief Product Officer, Ryan Cantor, on to talk you through a little bit about how Command Center fits into our playbook and also how we're harnessing generative AI in our business model. So, Ryan. Thank you, Joe. The launch of Command Center Beta today isn't simply a product launch. Moreover, it's a re-architecture of the entire Thrive platform into a modular and easily expandable user experience built for the average small business owner. The need for command center arose out of three primary drivers. Number one, our close relationship to our users identified that even before payments, communication tools are the most primal and initial needs a small business owner has. Before scheduling on a calendar, they will email about dates and times to meet. Before accepting credit card payments, they will text the amount due. Conversational commerce is how most small businesses operate initially and how most continue to operate today. Command Center meets these business owners where they are, not just where we want them to be. Command Center supports native integrations to Gmail, Outlook, Microsoft 365, IMAP email, Facebook, Instagram, native phone, voicemail, and texting, along with a free web chat client. It covers all the ways today that a business communicates with their customers, unified, not only in a single inbox, but in a single conversation. Number two, we wanted to reduce the time to first value and eliminate friction for the small business owner to get started with the Thrive platform with less disruption to their day-to-day business. Drive's Business Center CRM is magnificent, with thousands and thousands purchasing, adopting, and integrating it into their day-to-day with commitment. We see the results our products have on these business owners every day. But for every business owner who has this commitment and Drive, we have identified others who simply need a simpler entry path. Command Center takes just a few minutes to set up. A simple sign-up using existing logins for Gmail or Facebook, and you are communicating with your customers in less than a couple of minutes. Multiple threads and different channels are seamlessly combined into a single conversation with each customer, bringing an aha moment to the user. This entices them to continue to connect more channels, more emails, and more accounts. Every contact, every conversation is subtly building a robust business center CRM for them in the background. ready to be unlocked when they're ready. Number three, Business Center had a growing inbox and it was often the first feature to be adopted and it carried the most usage of any feature with over 7 million conversations happening in 2022 and 4 million already year-to-date in 2023. Yet, like all growing platforms, it had challenges and needed an overhaul to operate seamlessly with native email and include features and capabilities commonly found in other email clients or messaging applications. To meet our users' feature requests, Command Center was born. Command Center brings native email into a chat-like experience. It brings pinning and labels found in other platforms inside our inbox. It creates a visual experience with attachments and centralizes all of the files both sent and received across any channel into an iPhone media gallery-like experience. Command Center presents an inbox that looks like Gmail operates like an iphone with the convenience features of slack and all built for the small business and it is available for free forever in an all-new freemium model paid plans are available per seat to properly scale with the financial size and maturity of the small business and those plans start at 20 and 30 dollars respectively in the united states per seat for a plus and a professional plan with these plans offering additional channels, more call minutes, and even more features. The Command Center beta program is available in the United States, Canada, Australia, and New Zealand. Command Center turns virtually all facets of customer communication into the rhythm and convenience of the text messages you get on your phone. So imagine you're a business and you open your phone. You open up messages, and it isn't just the text. It's any prospect or customer trying to contact you all in one easy place, presented in a uniform chat-like experience. This is a modular approach. Since you've been following the company, we frequently state that each small business owner is unique with individual needs. The reimagined Command Center navigation enables the Thrive platform to grow and be customized to meet each business owner's wants, needs, and aspirations. And with Command Center, the Thrive platform can be customized to meet this need of individuality and improve personalization. By focusing on reducing friction of use, pricing it on a per-seat model, and creating easy avenues for expansion and customization, We believe the launch of Command Center and the platform re-architecture presents a clear path to sustained net dollar retention improvement in the coming period as volume materializes against the overall size of our existing business. Furthermore, we believe the frictionless adoption of Command Center via online channels presents a potential force multiplier for our professional sales force who can be made more efficient by reducing the time they spend sourcing new business themselves and replacing it with qualified users in their local community ready for a local representative and to upgrade their experience. Beyond just command center, we are seeing the pace of innovation and platform improvements increase nicely. In the first half of 2023, on average, three new major improvements were released every week. After slowly rolling Marketing Center out in the first part of 2023, more Marketing Centers were sold in June than in all of Q1 combined, and we will soon have a couple thousand active Marketing Centers sales. Marketing Center is a single platform that helps small businesses navigate all the complexities of modern-day marketing. Websites, Google business profiles, paid advertising campaigns, offline call tracking, and more. These are all just various ways consumers seek out and find small businesses, and Marketing Center helps each business owner know in real time which of these efforts is working and which ones aren't. Sales are also accelerating due to additional product enhancements. We launched integrations with Nextdoor, YP.com, Yahoo, and Yelp to enable paid profile enrichment that is fully integrated and controlled inside the platforms. We also just announced expansion of Marketing Center into both Canada and Australia, coupled with the addition of a new higher tier of Marketing Center at $299 a month. We are now offering both a plus at $199 and a professional version at $299 a month. It is important to state that our focus on centers will also bring an expected higher gross margin, as each center is being designed to deliver north of 75% gross margins. Across the rest of the platform, innovation also continues. Earlier this year, we launched our integrated signatures app, and since then, thousands of e-signatures have been sent and signed. Thrive Pay got mobile device readers and tap to pay. This helped deliver 30-plus percent quarter-over-quarter growth in Q2 and about 60% year-over-year growth year-to-date. We aren't just focused on usable features, but as engagement in the Thrive platform continues to grow, it is equally important that Thrive takes the proactive steps to ensure our users and their data remain safe and secure. In Q2, we successfully rolled out and have universally enforced that every user inside the platform is now protected by multi-factor authentication. The other area Thrive has been focusing on is generative AI. Through the end of 2022 and early parts of 23, the product team invested hours and hours in speaking with our users about practical ways generative AI tools could improve the product and to help them in their day-to-day. Our focus initially is when to use generative AI and using AI to help create the right content blocks at the right time. Today, we are leveraging generative AI to create ad copy, headlines, keywords, and ad groups inside Marketing Center. AI is used in the creation and publishing of our professionally designed websites. In the near future, we are excited to bring AI to our social media module, aiding small businesses in the creation of better content. We plan to bring it to our review management section to help small businesses with suggestions on how best to respond to online reviews and to our new inbox to aid in response times. Many of these items are in various stages of development and testing, but our most important guiding light is never to simply use AI for the sake of AI, but instead to ground each improvement, each dedication of resources towards a capability that will make a difference to the benefit of our small business users. We have an exciting roadmap ahead with continual improvements to all of our centers and apps, and I look forward to sharing with you in future periods. With that, I will turn it back over to Joe. Thank you, Ryan. Command Center is our new front door. It's how you'll enter our company. It's how you'll enter our product. It's the idea of a platform with multiple products. The entry point is command center. So if you have business center, you'll also have a command center. If you have marketing center, you also have a command center. And what it does is it frees us up now to sell marketing center to anybody. We can use it as an opening product. Up until now, we've been very deliberately, very carefully ramping marketing center and only selling it really to customers that already have a business center. And, you know, it's moving along nicely. We're at about a 4,000 marketing center annual run rate in the most recent month. It's building nicely. But the sort of velvet ropes come down now. And rather than only being able to sell into the business center universe, you can now sell anybody a marketing center with the advent now of Command Center as our new front door. So Command Center's multiple years of work coming to fruition. you know, today, you know, going out in the market right now. And we think that it really is transformative in terms of using the product to prospect for ideal customers. And then based on their usage behavior, they identify themselves as people that we want to spend time with and assist in their digital journey. And that will be a really good use of our Salesforce's time. We will call these product qualified leads as they reach a certain point of value consumption. So really pleased with this fourth funnel, this very efficient fourth funnel that we're adding to our machine. And it's part of how we see growth accelerating as we go into 24, because rather than selling one center in one country, we're now in multiple countries and we're now selling multiple centers. So there's many more vectors of growth that will allow us to lean into that and expand our growth. We've talked before about, we see ourselves as a rule of 40 company. This is part of how we get there is these additional products, which have been multiple years in development that are finally there. Last comment I'll make, Ryan touched on generative AI. We have approximately 3,000 employees. So we have all kinds of different functions and departments across our business. Our leadership team are looking to leverage generative AI right across our business and find additional efficiencies and find additional services and superior products and superior service delivery that we can give to our customers. And we're seeing it in little and big ways right across the business. So it will help us become more efficient as we look forward. I think it's time we get into the numbers. Let's hear from Paul Rouse. Paul?