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spk01: Thank you for standing by. My name is Kathleen and I will be your conference operator today. At this time, I would like to welcome everyone to the TRIFE third quarter 2024 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 star followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star 1 again. And now, I would like to turn the call over to Cameron Lessard. Please go ahead.
spk04: Thank you, Operator. Hello, and good day, everyone. Welcome to Thrive's third quarter 2024 earnings conference call. Please keep in mind today is November 7th, and the company released preliminary unaudited third quarter results on October 29th in conjunction with the Keep Acquisition announcement. On the call today are Joe Walsh, Chairman and Chief Executive Officer, and Paul Rouse, Chief Financial 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. With that introduction, I will now turn the call over to Chairman and CEO Joe Walsh. Joe?
spk09: Thank you, Cameron, and good morning, everyone. Welcome to Thrive's third quarter 2024 earnings call. I'm joined today by our CFO, Paul Rouse. Together, we'll present our third quarter results. Ten years ago, our management team was brought in by the Dext Media Board to do a turnaround. The plan was to take the rapidly declining regional directory publisher, it was declining about $400 million a year at that point, and transform it into a market-leading, global software company. Each year since, we've made steady progress toward that goal. Our superpower, as I've called it, has been hunting in the zoo, converting directory customers and marketing services customers to our modern SaaS software platform. First, with CRM, run your business tools with solid success. And recently, we've added grow your business functions. Our success with growth elements has sped up our marketing services conversion. The small miss we had in marketing services this quarter was actually a good guy. We cannibalized ourselves. These customers are now on our modern SaaS platform, poised to grow with us into the future. We've guided that we will be a 100% NDR company. These customers expand their spend. In fact, we see 10 to 15% growth in the ensuing year after this conversion. As a multi-product company, we now see many paths to grow customers once they land on one of our centers. Approximately 12% of our customers are now multi-center. This is a key lever to watch in the future. At 350 million in ARR now, our SaaS business is beginning to show. 72% gross margins, 12% adjusted EBITDA margin, 29% growth. This rule of 40 performance was achieved by hunting in the zoo, converting marketing services customers to SaaS. We've shown we can upsell these accounts. We get referrals from our engaged SaaS clients. While it's in the early stages, our product-led growth strategy is beginning to help us meet new customers. And we gain new customers through acquisitions, like the Keep acquisition we made last week, which added over 15,000 quality customers. I'll talk more about Keep after Paul covers our financial results. Paul?
spk00: Thanks, Joe. All right. Let's dive into our results, beginning with SAS. SAS revenue was $87.1 million in the third quarter and above guidance. representing an increase of 29% year-over-year and up 12% sequentially. Our SAS adjusted gross margin has seen significant growth, increasing by 560 basis points year-over-year and 250 basis points quarter-over-quarter to reach 72.2%. This impressive improvement stems from the continued positive impact of our high margin SAS offerings, which have driven a 40% year-over-year increase in SAS adjusted gross profits. We're delighted to have surpassed our goal of exceeding 70% in adjusted gross margins earlier than anticipated. This success not only aligns with our strategic objectives, but also positions us strongly for continued future profitable growth. In the third quarter, SAS adjusted EBITDA was $10.3 million above our guidance and resulting in a SAS adjusted EBITDA margin of 11.8%. As Joe mentioned earlier, we've achieved the Rule of 40, an incredible milestone for our company. This accomplishment reflects a powerful combination of strong growth and expanding EBITDA margins primarily driven by our strategic product mix initiatives. In the third quarter, we delivered strong SAS subscriber growth, reaching 96,000 subscribers, up from 70,000 in the prior quarter. This 13% sequential growth and 45% year-over-year increase reflects a successful execution of our accelerated migration strategy. transitioning marketing services clients to our SaaS platform. As we've consistently communicated, getting these customers on our platform is strategically critical as it creates a clear path to upsell through our tiered product offerings. SaaS ARPU for the quarter was $307 compared to $333 for the prior quarter. This temporary pressure on ARPU is a direct result of our successful accelerated migration strategy as we're bringing a substantial volume of customers onto the platform at introductory price points. While this creates some near-term ARPU pressure given the magnitude of the customer growth, we're confident in our ability to expand these relationships over time through our established upgrade paths within Marketing Center. We view this as a strategic trade-off that prioritizes building our subscription base and to position us for long-term value creation. Importantly, we're already seeing early validation in our land and expand strategy. At quarter end, 12% of our subscriber base had two or more paid centers, demonstrating strong product adoption beyond initial entry points. This growing multi-center penetration contributed to a significant improvement in net dollar retention. which expanded to 101% in the third quarter, an increase of 900 basis points year over year. These metrics reinforce our confidence in the long-term economics of our accelerated migration strategy. Moving over to marketing services, third quarter revenue was 92.8 million. Third quarter marketing services EBITDA was 9.3 million, resulting in an adjusted EBITDA margin of 10%. On the time-related impact of Marketing Services EBITDA this quarter, our full-year consolidated EBITDA guidance remains intact, with no cash impact from this variance. The main difference was the timing related to new client acquisition-related expenses. Third quarter Marketing Services billings were 105.7 million, representing a decline of 35% year over year. Our marketing services billings were impacted by the ongoing success in transitioning our marketing services clients to our SaaS platform. Third quarter consolidated adjusted gross margin was 65%, an increase of 480 basis points year over year. Third quarter consolidated adjusted EBITDA was 19.6 million, representing an adjusted EBITDA margin of 11%. Once again, we recognize the non-cash impairment charge of $83.1 million, $2.29 per diluted share, related to the ongoing structural decline of our marketing services business. This is similar to the non-cash impairment charge recorded in the fourth quarters of 2022 and 2023. We don't anticipate further impairment charges. Finally, our net debt position was $307 million at the end of the third quarter. Our leverage ratio reduced to 1.66 times net debt to EBITDA, which is well below our covenant of three times. Our strong financial performance enabled us to generate $27.5 million in free cash flow, which used to prepay the full year's amortization of $52.5 million on the new term loan. This proactive debt repayment underscores our commitment to financial discipline and a healthy balance sheet. Now let's discuss guidance for the fourth quarter. For the fourth quarter, we expect SAS revenue in the range of $90 million to $92 million. We are raising our full year guidance range to $329.5 million to $331.5 million. For the fourth quarter, we expect SAS adjusted EBITDA in the range of $9.5 million to $10.5 million. And we are raising our full year guidance range to $33.5 million to $34.5 million. For the fourth quarter, we expect marketing services revenue in the range of $81 million to $83 million. And for the full year, the range is adjusted to $479 million to $481 million. For the full year, we expect marketing services adjusted EBITDA to be in the range of $125 million to $128 million. For KEEP, we anticipate the acquisition will generate approximately $11 to $12 million in revenue for the fourth quarter, which reflects only November and December. as the acquisition closed on October 31, 2024. Keep adjusted EBITDA will be de minimis as we initiate the plans to integrate the SAS businesses. Ahead of the acquisition, one of the key steps that we took earlier this spring was refinancing our term loan and ABL facility. Under the prior structure, which essentially swept all of our cash for debt repayment, we were pretty constrained. The refinancing significantly extended our debt maturities, unlocked financial flexibility to invest in our SaaS business, and allowed us to focus more on accretive M&A opportunities, including Keap. Last week, we completed an upsized follow-on equity offering to fund the acquisition of Keap and further accelerate our deleveraging efforts. We issued 5.7 million shares in total for approximately 76 million in net proceeds. The offering finished multiple times oversubscribed with strong demand from new and existing investors. I'd like to thank our equity investors for their support around the acquisition itself and the subsequent financing, which put the company and its balance sheet in great shape to execute our growth strategy. With that, I'll turn it back over to Joe for more details on strategic rationale of the deal and closing remarks.
spk09: Thanks, Paul. We've long admired Keap as a company. Their automations have been around for a long time and are well used. They are an interesting combination of simple yet powerful. They work really well. I've gotten to know co-founder and CEO, Clayton Mast, over the last seven years or so. We met initially at a conference, and we stayed in touch, talked about the developments within our industry. And over the last sort of three years or so, we've been on again, off again, talking about this deal and potentially Thrive acquiring Keep. We're really enthused about what Keep does for Thrive because it really does help us with one of our main goals, and that's moving a little bit up markets. You know, we deal in the very small business group, and we still have a lot of two, three, five, seven very, very small employee businesses. And we'd like very much to have more 15, 17, 20 employees, a little bit bigger small businesses. And these automations are the kinds of things that a little bit more sophisticated, a little bit bigger business with some managers in there are looking for and something that can really provide benefits. We have many, many of those in our current customer base that we feel that we can sell these automations to. So, we think there will be a real revenue lift that comes from having the automations on our deck, being able to sell those into our customers. And that more to sell will flatter gross margins, it'll flatter net dollar retention, and it'll help really drive Thrive's growth in 2026 and beyond. They also have a partner channel, which is something that we've attempted to build, but not been anywhere near as successful as Keep has. Keep has hundreds of certified partners. They've got influencer channels. Their main way of acquiring businesses is through this partner channel. And they're good at it. They do it very well. And we're excited about the idea of putting Drive's full product catalog on the table for those resellers and partners. to market to their base. A lot of those customers will be able to benefit from the growth-oriented products that we have at Thrive. So, we think there's real synergy there. They have a product and engineering team that increases the size of ours by about 50%. We have a lot of respect for this group. They have done some incredible work. We deeply diligence this their products and the way they go about doing it, looking at how they do their architecture, how they do QA, how they run the software process. And they've got a really solid team. And so that should increase the punch of our overall product and engineering team and improve the pace of roadmap going forward. So really excited about that kind of acqui-hire aspect there. We pick up 15,000 customers, quality customers that have been with them So, that's a real plus. And we add 80-plus million of revenue, and they're going to do more than 8 million of EBITDA this year. So, it does boost the size of our business as well, boost the scale of our business. As you would imagine, there are some synergies to be picked up in the combination. We think there's around 10 million of synergies that we will realize. So, when we look ahead here in December, we've got an analyst day. Investor Day coming up where we have an opportunity to spend some more time talking more deeply about how KEEP and THRIVE fit together and more about, you know, our model for the next few years and how we see this transformation continuing into the future. So, with that, let me turn it over to the operator for questions. Operator?
spk01: Thank you for that. We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press the star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue. And your first question comes from the line of Jason Crayer of Craig Hill. Your line is now open.
spk03: Wonderful. Thank you very much. Joe, wondering if you can just elaborate on the Keep automations that you had highlighted, just any more details on exactly how those help the SMB customers. And then I'm curious, if you look at the current base of Thrive SaaS customers, what mix of those would be at the high end of that SMB that would be a good fit for that cross-sell.
spk09: Great. Thank you for the question. Good ones. So the automations are, they began as just, well, I shouldn't say just, but they began as important, you know, marketing automations. But what they've ended up doing is figuring out how to move beyond that to, you know, service operations, sales, you know, recruiting, hiring, onboarding, all the things that you need to do kind of repetitively in a business. You can build automations that help bring consistency, precision, and excellence to those. And, you know, they remind me a little bit, this is a little bit oversimplification, but remember when you were kids as Mad Libs, you know, the long sentence and you'd fill in blanks that would change the whole meaning of the sentence. It's sort of like that where they've got, it's a recipe basically. And the recipe is, designed and built, and you drop in the actions that you want. And so it can be when someone comes to your website and is kicking around, it then begins to nurture them and follow up. It could be when someone fills out a certain form or makes a certain request, kicks off a process. But they are not so big and complicated that you have to have a consultant put them in or a systems automation person drive them. In some cases, that is what happens. I mean, Keap obviously works through a very powerful reseller channel and they do a wonderful job. But they're simple and straightforward where somebody who's pretty sharp could figure out how to do it. And then internally within Keap, they have a team that actually will build these and give service and customize them. You know, I think it's hard for a solopreneur, somebody working alone or maybe a two-person business, to probably justify spending hundreds and hundreds of dollars a month on software when they have so little revenue. And so I think that's tough. But when you get into a bigger business and they have, you know, let's say maybe $750,000 of revenue or a million of revenue, it's a little bit bigger. Time is really important and consistency of business. service is really important to them. And spending maybe five or six, $700 a month on some software to do that is actually cheaper than having staff do it and more reliable. So that's sort of what they do and how they fit into the world. In terms of our customer base, we believe that our 96,000 current subscribers, that there are a not small group within them that could really benefit from these automations. And it would make them more satisfied customers. We could serve more of their needs. It would be an upsell path for us. And also, I say this, I don't want to sound defensive, but it also would keep them potentially from graduating from us and maybe graduating to a bigger, more powerful tool, like moving what would be way up market to like a HubSpot or a Salesforce.com or something like that. We want to continue to grow with these folks. And a lot of the Thrive businesses in a particular market are much more successful than the non-Thrive businesses because they tend to be pretty smart, pretty innovative, and they've got these powerful tools they're using. So there is a slight risk that they could graduate from Thrive. And these automations help keep them on board, as well as the next couple of centers that we have coming also are designed to help us continue to grow with the bigger small businesses. So what really excites us is when we serve these, you know, 20, 25 employees, a little bit bigger small businesses, because they have a willingness to pay that's much, much higher, and they have a churn profile that's much, much lower. So, you know, I think what you'll be seeing is us trying to focus less on the solopreneur onesie-twosie business and more on the bigger businesses and keep us in the same mode. Did that answer your question?
spk03: That answers it very well. Thank you, Joe. Appreciate it. Thank you, Jason.
spk01: Your next question comes from the line of Scott Berg of Needham. Your line is now open.
spk08: Hi, everyone. Thanks for taking my questions here. Say, Joe, when we think about the product here going forward, how much of this is going to be just integrating the key platform with the traditional Thrive platform? Are you going to take more of a true single-platform approach where you take their functionality and just maybe rebuild it on top of what you have today?
spk09: I mean, we're going to fully and completely integrate everything together. We have approximately a 200-person team. product and engineering team. They have approximately a 100 person product and engineering team. And we're keeping the whole thing and leaning in and nourishing it and even putting more investment in. Product is really our highest priority. Really making sure our products are best in class, that they are interoperable with other tools that are out in the marketplace. And of course, that they work well together as well. And so we'll be working very fast, working on the plumbing to pull everything together and have a unified platform. In the meantime, we will begin to work together like two companies that actually aren't connected, where they use APIs to go back and forth between the companies. So we will try to create some interoperability right away, even before all the deep plumbing is done to make everything work. So that's kind of the game plan.
spk08: Got it. Helpful. Your marketing services business the last couple quarters has had more customers convert to your SaaS business, I think, than maybe what you were expecting at this stage of the cycle, and certainly seeing great success retaining those customers on the new platform. But how do we think about those conversions here going forward? Is the last two quarters an anomaly? Is this kind of the right rate to think about? And then obviously the inverse relationship for those marketing services revenues, or could that rate actually accelerate and you have more customers, you know, of those customers even more quickly convert to your SaaS platform?
spk09: Yeah, I think Scott, what we've been doing is we've been really focused on it. We've been, and we're very, very proud of the fact that we were able to transition faster than was our plan a year ago. You know, the way, the way business works when you're, you know, you do a budget and a plan, you sort of spend September, October, maybe a little bit of November, perfecting a plan and a budget, and you agree with the board and all that, and then you go to work on it. And we're sitting here a year later, and we fully delivered and actually outstripped the plan. We actually are making those conversions faster. So that was, as I said in the prepared remarks, it was kind of a good guy. We're really excited about that. So back to your question about what does it look like going forward. I think what you're seeing, and you and I have talked about this, what you're seeing is A lot of the people in marketing services came there because they wanted to grow. They wanted leads. They wanted growth. They wanted to be found. They didn't necessarily come there for operating their business software. And so what we're offering them now are tools to help them grow, tools to help them do better in marketing their business, tools to help them be found, and tools to instrument all the marketing that they do and see how it works and sort of eliminate a lot of the waste. And that's something that is attractive and people really like a lot. And so we've had more success than we thought we would. And yes, I think that does mean that the transformation process has picked up speed a little bit from kind of the pace that had been on when we were selling just run your business software. Because that was a harder conversation to have with somebody that wanted to grow their business. Some actually did want to run their business, but it was a little harder talk track. So that pace has picked up. I do believe if you study the numbers, you'll see when they move over, margins are very strong when they move over into SaaS. And when we look back at the early groups that this transition occurred for, they're spending 10% to 15% more when we look back a year later. So we're growing these. Once we get them onto the new platform, we have a chance to talk to them about where they are in their digital journey and help them along. So I think we're at a key part of the story here. So yeah, I do think that the pace that we cannibalize marketing services will be faster in the coming quarters than it was looking back a couple years.
spk08: Very helpful. Thanks for taking my questions. Thanks, Scott.
spk01: Your next question comes from the line of Arjun Bhatia from William Blair. Your line is now open.
spk02: Thank you. Joe, can you just touch a little bit on how you think about the go-to-market motion and how it might evolve with the two companies now together? Because it does seem like there's different go-to-market motions where the direct motion a big partner ecosystem. And then along those same lines, where does pricing kind of come into this? Do you sell it as one SKU? Do you sell it as separate SKUs? So just give us some sense of how you're thinking about that at this stage.
spk09: That, you really put your finger, Arjun, on the fulcrum here. It's about distribution. You know, Keep has a wonderful platform partner ecosystem with multiple layers. It's very sophisticated. They're very good at it. They have a, you know, a big annual conference and a lot of sub conferences and they just do so much so well there. And so, you know, that's a big piece of what drove this acquisition. We're excited about, you know, being able to be a part of that and offering the full catalog of all the key products and all the Thrive products, which I think will make those partners really happy. because they're just going to have a lot more services and products that they can provide to their customers. So it's going to be a real income lift for them. And for us, I think it's going to be a real source of growth and revenue and access to a more sophisticated, you know, low churn, really nice market. On the flip, Keith gets access to our you know, about 700 person international Salesforce. And that's a real positive for them. You know, Keep has a less than 10 person direct Salesforce. They rely mostly on channel and their direct team work on, you know, inbound leads that come in or leads that go stale out of other channels or whatever. They kind of work in that market. So they haven't really put the amount of emphasis that we do on the direct channel. And so all of a sudden, the key products will be able to enjoy the distribution of this very big sales organization that exists in Thrive. And that's one of the things that everybody's really excited about in this process. So I do think distribution is the magic here. And I think it will take us a minute to get it all wired up and working. I don't think you'll see. Sales in Q1 go straight through the roof. It'll take us a couple of minutes to get it wired and ready and working. But as I look at the course of taking, Keep's top line revenue has been declining. That's not a secret. Taking that decline and turning it into growth and then allowing Keep to feed into accelerated growth for Thrive and 26 and beyond, that distribution is, I think, really the key. And to your question about pricing or really detailed tactics, we're excited about working directly with the Keefe team and the partners and figuring out the best way to do this. Luckily, they have a big conference coming up in a couple of weeks in Arizona, and there's a big partner day, and there's going to be hundreds and hundreds of people there. We'll have lots of opportunity to sort of listen. And that's the mode that I'm in, that we're in right now, is listening. You know, tell us how we can help. Tell us what you need. Tell us what would be, you know, ideal for you. And then we'll sort of work to try to meet those needs. And so I'm not going in with an India Inc., you know, pre-baked plan and, you know, shove it down their throat. Really going in with an open tablet to say, we have these wonderful products and we've made all this progress. How can we aid you? How can we help you? And I think I think we'll be met with just, I mean, even some of the early conversations we've had with a couple of partners, they're just super excited about having the key company have this big, powerful business behind it. And then, of course, having all these additional products. So does that answer your question?
spk02: Yeah, that's very helpful. Thanks for that. And then maybe one, just on the core business and on, Q3, the Q3 strength in the SAS offering. The NRR number is quite a surprise to the upside, right? I think maybe my expectations would have been we're still a few quarters away before we get to 100% plus net retention rate. But give us a sense for what's driving that. Is that a surprise to you that it's picked up so quickly? And, you know, when we look ahead for the next several quarters, is this a new baseline or is there still going to be some variability in that retention rate, just, you know, given some of the accelerated transition that we're seeing from the legacy business?
spk09: Yeah. As you know, I have guided that we would be right around 100%, that I saw that as our, you know, where we would run over time. And, you know, when we were back into the lower middle 90s, I kept encouraging people that we would get there. It would just take a little while. You know, it's a pretty big business and it's a pretty big transformation. There's a lot going on. There are a lot of different sales channels. There's a lot of different, you know, individual product and product stories that are crisscross currents that are going on. So it sometimes is hard for me to know with precision, you know, what it's going to be the next quarter just because it's a look back a year. It's not, you know, when you're looking at this. But Yeah, we're very comfortable that we will hang out now here. This isn't like a one-quarter aberration, and it's going to go to 92 next quarter. It'll be there, thereabouts, 100 from now on. Could it shoot a little higher in a few quarters? It could, and I'll tell you why. You're probably in your head thinking through the levers right now. Right now, 12% of our customers... are buying more than one center, that number is rising very rapidly. And so that really flatters net dollar retention when people add an additional center. It also really flatters margins. It also really flatters our cost of acquisition and lifetime value. And so it's kind of the power stroke, really, of when you're building a platform business. And you and I have actually talked about this privately before. You spend all this time, money, and energy getting that first product built and getting a nucleus of customers. And then as you begin to add the second product, the third product, and you continue to build out more customers, the margins really improve very rapidly. And that's kind of the state that we're at now, where the business is fully scaled and the catalog of products that are available are pretty big. So I think you're going to see that customers with more than one product, which is at 12% now, I think that's going to be a really key lever over the next few years to keep that net dollar retention up and strong. Another area that's the same thing but just a little different is as we have converted some of these customers over from marketing services onto the SaaS platform, as I mentioned earlier, they tend to spend 10% to 15% more when you look back pretty quickly. Because we initiate a dialogue with them to show them all the new features and all the new things. And they end up saying, yeah, I need to understand how I'm found. I need to do a better job on social. I need to figure out why people bounce out of my site. I need to. I need to. And it's on and on the list. And we're pretty good at all that. And so we're helping these businesses grow a little better and grow. they're happy to exchange a little bit of money for, for those leads and that faster growth. So I think there's a bunch of levers here and, you know, I'm not going to lie. We could overshoot the hundred by a little bit. But I think the way I would, I know you're always modeling it. The way I would probably model it is kind of circa 100. And there there's going to be some quarters. We're probably going to shoot up a little higher and there could be a quarter. We ding down to 99 or something, but it's not, it's, We're not going back down into the low 90s or mid 90s. This is going to be 100% NDR story.
spk02: All right, perfect. Thank you, Joe, and congrats on getting the deal closed here. Thanks, Arjun.
spk01: Your next question comes from the line of Dan Moore of CJS Securities. Please go ahead.
spk06: Hi, this is Will on for Dan. In marketing services, should we expect another decline in EBITDA next year related to the timing of book publications, similar to what you recorded last year? And overall, what is your confidence that consolidated EBITDA will grow in 2025, including the addition of Keep? Thank you.
spk09: Yeah, I'm going to split that question with Paul Rouse, if I can. You know, as I answered earlier, I do think that, you know, overall, marketing services, you know, decline is going to accelerate a little bit just because, you know, we are cannibalizing and we are converting customers quickly and with better products and with better skill and with better precision and with better success than we were before. And I'll just remind everybody that we have a publication schedule where due to the accounting rules, we have to recognize all the revenue at the time of publication. Our publication schedule moves around. So You can't just look at it period over period. It's bouncing around based on what books publish when. And we've continued to innovate our print product line as we're in the latter stages of life of the print directories where we've gone from what used to be a 12-month publication and we had worked our way out to 18 months. We're now working our way out to 24 months. So it's moving these pub dates around. I'll turn the rest of the question over to Paul to talk about, you know, how he thinks about how marketing services EBITDA comes through next year and how he thinks about overall. We haven't yet guided for the year, so I don't know if he can answer that one. But, Paul, why don't you take that one on?
spk00: Yeah, thanks, Joe. Actually, I think you framed it pretty well. It will be down in the first quarter next year for the exact reason Joe said, because of the print schedule. So, and I don't think we're prepared to guide for the full year of 2025 yet, but that'll at least get you thinking about the first quarter of 2025.
spk06: Super helpful. Thank you. And then how should we think about annualized free cash flow pro forma for the acquisition of Keith?
spk09: Paul, I'm going to let you take that one as well.
spk00: Yeah, again, we're not prepared to guide to 2025 yet.
spk09: Well, you're going to need to come to our analyst day, December 3rd.
spk06: Okay, great. Thank you for taking our questions. Thank you.
spk01: Your next question comes from the line of Rob Oliver of Baird. Your line is now open.
spk07: Great, thanks. Good morning. I'll be there. Looking forward to it. Two questions for me, Joe. First for you, just really helpful when you enumerated some of the reasons for the KEEP deal. And one of the things that stood out to us is you guys have made a lot of contributions really value-enhancing acquisitions of zoos internationally, but it's obviously expensive for you guys to grow internationally. It looks like Cape has an international presence and a reseller network. So I just wanted to get some more color for you on what that opportunity could look like in terms of being able to more aggressively convert and have a brand presence in some of those international geographies. And then I had a follow-up for Paul.
spk09: Okay. Yeah, well, look, I love this question, and you're thinking like I am. You know, we are very excited about continuing to push out into Europe. Certainly, all the English-speaking places are available and some of the other, you know, easier languages with more developed economies. And KEEP does have about 20% of their revenue in all those places that we're talking about. And they have well-established partners resellers, agents, people that work with them in those markets that are actively working and selling keep with good success. So it really is an entry point or a landing ramp for us to go into those markets without maybe having to go in and buy some kind of giant company to help us enter like we did in Australia or New Zealand. And so that was very high on the list of things that we were excited about. And we think that maybe we can really
spk07: nourish that invest in that build on that and accelerate that accelerate our growth in those markets through those entry points it's helpful thank you and then um just on on the arpu uh call out you know obviously you know you guys have pointed us to the fact that arpu would continue to be under pressure however caesar's arpu was was strong i want to want to just parse you know some of the um the language around that so um In the past, you guys have said that the general economy is causing new customers to come on at lower commitment levels, which totally makes sense given what's going on with the SMB. It sounds like, and I know you guys have been converting customers more aggressively from the zoo to SaaS. it sounds like now there's more of a stress on the conversion and the incentives around the conversion being more the driver of the our pressure arpu pressure in the near term so i was just hoping you guys could give us a little bit of color on how we should think about those two contributors to the near-term arpu pressure thank you yeah um i think we put in our uh little investor deck on our site uh i think it's slide 20 a um
spk09: a little illustration to help you with that. And we sort of broke out the overall ARPU number and we teased out, you know, which of it looking at local sales. And if you look at local sales, you can see their ARPU is held up just fine. In fact, it's actually growing a little bit. And then you look at this migration and you see it going down a little bit. And part of the reason is that, you know, we're trying to sunset some of our legacy technology platforms in marketing services. And remember, we bought a bunch of different marketing services companies. So we've got more than just any one company would have. We've got, you know, the old Super Pages stuff, the old Dex stuff. We've got, you know, the old YP stuff, all these different platforms, the old Vivio stuff that we're looking to try to wind down down some of these legacy platforms. Some of them are 20 or more years old. And so they're expensive to maintain, and they don't necessarily have anywhere near the functionality that our modern tech stack and our modern platform have that we're moving people to. So it's a big upgrade for the customer. But back to your question. What we've done, and we haven't really talked about this publicly before today, and maybe we can explore it some more That's the analyst day. But we've sort of come up with a kind of an entry marketing center, like a marketing center starter. It's kind of a little bit of a stripped down marketing center that we've been using at a price point below the full price to bring people in. So they're not getting the whole darn thing for a real super cut rate price. They're getting kind of a step in product like a starter. And it sets up a wonderful conversation for us to have then. with let me show you the whole marketing center and what you could get if you had the whole thing. And here's some upgrades opportunities. And so that, I think, sets up for us a real nice upsell path over the next year or two as we work with those customers and really gives a lot of qualified leads to our sales organization to go farm. And it's one of the things that gives me confidence that we'll be able to sustain that 100% net dollar retention because we're landing these customers at price points that have a lot of possible upside. So, you know, if I were an analyst following this, that's one of the things I'd be excited about is we brought a bunch of people over that are kind of spring loaded for growth now. That's not to say we'll grow every one of them. You know, we may not, some of them may not budge, but we have a lot of wonderful things to offer. And most of these small businesses are still at an early stage in their journey to harness all these tools. And, um, They've been with us for many, many, many years. Our average customer has been with us for 15 years. So, you know, we have a trusted relationship with them. And here's a chance for us to talk to them and demonstrate and show them all the value. So I don't know if you've had a chance to see that slide in the deck yet, but I think that will help a little bit.
spk02: Thank you.
spk09: You said you had a follow-up, I think.
spk02: No, those are the two. Thank you very much. Appreciate it.
spk09: Oh, perfect. Thank you very much for the question.
spk01: And your last question comes from the line of Zach Cummings of B Riley Securities. Your line is now open.
spk05: Yeah, thanks. Good morning. Thanks for taking my questions. A lot of ones that I had have been asked by previous analysts, but I was just curious about the gross margin progression in the core Thrive SaaS business. I mean, can you talk about the progress on that front and what's kind of the right way we should be thinking about the pace of margin expansion on that side, especially as you continue to pick up momentum on the multi-center adoption?
spk09: I love this question. You know, at our last analyst day, we had guided that long-term or, you know, in the planning period ahead, we thought we could, you know, drive toward a 75% gross margin. I think at that time we were in the low 60s. And that was one of the, you know, kind of warts on our model for people. And as our volumes grew and as we got bigger and as we became a more mature SaaS company, you know, the margins started rising. And now that we're selling additional centers into standing accounts, it's really starting to rise. And then when you layer in Keep, Keep really flatters our gross margins a lot. Their gross margins were actually quite a bit higher than ours. So as the two fold together, I think you'll see continued really strong progress there. And we have plans to update the future guidance in terms of how to think about gross margins at the upcoming analyst day. But I wouldn't look for them to go backwards. I think that all the things that are happening as we add centers and upsell and uplift this are going to improve those margins.
spk05: Understood. Well, thanks for taking my questions and looking forward to the analyst day. I'm a little under a month. Excellent. Thank you. Looking forward to seeing you there.
spk01: That concludes our Q&A session and today's call. Thank you, everyone, for joining. You may now disconnect.
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