Joe Walsh - Chief Executive Officer, President Paul Rouse - Chief Financial Officer Grant Freeman - Vice President of Client Success KJ Christopher - AVP of IR, Treasury & Tax

Good morning, everyone, and welcome to this recorded management discussion of Thryv's second quarter 2021 results. By now you should have received a copy of the company's second quarter 2021 earnings release and Investor Supplement, which is also posted on our website at investor.thryv.com.

With me today are Joe Walsh, Chief Executive Officer and President; Paul Rouse, Chief Financial Officer; and Grant Freeman our Vice President of Client Success. 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. Thryv 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 those measures to GAAP will be posted on the investor relations website at investor.thryv.com.

With that introduction, I would like to turn the call over to Joe Walsh.

Thank you KJ. Good morning everyone and welcome to our second quarter 2021 earnings call.

Our second quarter results demonstrate strong and continued growth in our SaaS business, highlighted by accelerating penetration within our new customer acquisition channels, record client retention metrics, and year-over-year client growth. Total SaaS revenues accelerated and grew by 32% year-over-year, ahead of our guidance, and demonstrates that we are executing well against the strategy we introduced last year.

To us it appears clear that SMBs will move to the cloud. We feel Thryv is well positioned to seize on this opportunity.

We made the decision to invest in SaaS growth. SMBs are currently evaluating and transforming the critical aspects of how they manage their business.

This has been happening at an enterprise level for many years. It is just now happening for small businesses.

They are taking those steps, they are modernizing and it's still pretty early in the game. From my point of view, these small businesses are putting their faith in us as they prepare to take that first digital leap to begin to modernize their business.

It’s a lot of responsibility and we try to do a really good job with it. I set my whole career working with local businesses.

I spent a lot of time now, but in the pandemic I’m not as much in the field, but prior in the field, but I can join sales calls by Zoom, I’m able to listen to a recorded sales calls, I’m able to call existing customers and talk with them about how they use the software and you know where it comes up short, any concerns they have, any glitches that we have and you know as big and powerful as the Thryv tool is, it does a lot. There is always something that customers have in mind that it should do better or it should do that it doesn't do, and so that feeds into our product roadmap and we're constantly tuned in to what our customers have to said.

Plus I have a really cool, believe it or not, Facebook site where the power users all get together and talk about how they use Thryv and what they do, they teach each other. There's a real sense of community.

All of that is part of what’s guiding the improvement and part of why you're seeing such high user engagement levels in the product, and part of why you're seeing churn continue to fall. So we're making a lot of progress with those local businesses and that's making a big difference.

To finish up my opening comments, clients are trusting in us as they look to modernize and organize and grow their business. All of this is reflected in our strong quarterly results that we announced this morning.

Given this solid progress, we're raising guide. The acceleration in revenue and billings was driven by strong business performance in the quarter, in addition to an easier, overall comparison as a result of the challenging business environment we experienced in Q2 of last year.

Our SaaS new channels are performing well. We recently hit high teens as a percent of our overall sales versus our traditional sales force, and that's about double of where we were this same time last year.

I’ll remind you that we expect to hit about half of all sales in the medium term. So you'll see that continue to grow as a percentage of sales.

And our churn hit record lows. We are continuing to dial in our onboarding and time to value so that we're continuing to bring churn down, and that's something that we think makes a big difference and feels really good to have customers staying, paying and feeling good using the product.

Our net dollar retention increased 18 points year-over-year to 92%. ARPU continues to rise, $323 in Q2, a significant year-over-year increase; double digit gains and weekly and daily active users.

We attribute the strength in these metrics to the prioritization of engagement. We're really focused on engagement and we've got teams of people working with customers, teaching then, showing them how to use the product.

[Inaudible], as a percentage of clients using our core features continues in an upward trajectory. So overall, great progress in this last period.

Next, I'd like to introduce Grant Freeman, our VP of Client Success.

Thanks, Joe. You know over the last two years, we have really focused on the experience we delivered to our SaaS clients.

We know with small businesses, the key to long term relationships is focusing on delivering value quickly. We are intensely focused on having a short time to first value and a no-client left behind attitude, engaging clients quickly, deepening their engagement over time and expanding their spend.

These efforts have led to a net promoter score improvement of 100% over the last three quarters and a SaaS monthly churn of 2.1% for Q2 of 2021 down from 3% last year in Q2 of 2020. Our North Star is engaged clients.

Engagement starts with how we sell. We focus on targeting to right prospects and using a team selling approach for SaaS.

Initially we felt we could train all of our traditional sales teams to be software sales experts. However, through learning and analysis we pivoted and made the decision that also Thryv SaaS prospects will work with one of our software sales team experts that only sell software to receive a custom demo of our platform.

The software sales experts keep it simple. They uncover the business problem the client is trying to solve.

They understand the impact it's having on their business, and then they demonstrate how our Thryv platform and service teams can work with them to solve that problem. Clients sold using this approach are much more highly engaged right out of the gate.

Data shows when a client has sold via a team selling approach, we have 15% more clients active in Thryv on a daily or weekly basis. During onboarding, after our initial effort where we share it all things that Thryv could do all the time and often quite frankly shared too much, we pivoted.

And now we stay focused on solving the business problem that led the clients to purchase our platform in the first place. Our Thryv support specialist begin onboarding by configuring the software for the client's use case and starting the process of coaching them to use our Thryv software platform to solve their issue.

And our year-to-date transactional NPS score for our onboarding team; it's a plus-86. Once we have solved the problem that led them to purchase, they are then assigned a client success partner.

You know modernizing a small business is a process. As such, this success partner will focus on looking for opportunities to help the client improve their business operations by demonstrating how the software can be used to solve various business issues.

This leads to clients deepening their engagement in our platform over the course of time. These efforts have culminated in an 11% year-over-year improvement in monthly active users by our software clients, but even better.

We've seen daily active usage increase more than 40% year-over-year. Our support team is available 24 hours a day, seven days a week.

In addition, we have a complete blueprint of orchestrated tech touches. For example, catered emails and push notifications, full of content, strategically designed to be delivered to the client when they need it, further deepening engagement and uses.

The investment we make post sales to ensure that clients engage with our platform is a differentiator and will lead to continued success serving small and medium sized business. All our engagement efforts are built on our perpetually improving, award winning software platform.

I believe Joe is going to highlight a few of those wins in just a moment. We remain focused on understanding what clients like and what they don't.

So we can constantly improve the functionality of our software, as well as the user experience we deliver. And with that, I'm going to turn it back over to Joe.

Thank you, Grant. I could pause here and just give Grant and his team some thoughts.

They've done a really good job of focusing on delivering value to our clients and you can see that statistically in the NPS scores that have risen and in the just steadily declining churn. So we consider that now a real core strength of us as a company, so thanks for that Grant.

I want to take just a minute and talk about Sensis our Australian acquisition. Obviously, that acquisition was made very recently.

We've been localizing and piping together Thryv for Australia. We've already got a few customers on the product using it.

And we’ve had some really good client engagement, client satisfaction, training is going on, we're beginning to see some sales. Now this is definitely a ’22, ’23 story and I don't want to get people expectations going that this will ramp straight up, but it is beginning to build.

We are in market with it now, and doing a lot of work on product and on local marketing. More to come on that, but look for that to be a ’22, ’23 story as that belts and unfolds.

Another new area for us, ThryvPay. We just announced the ThryvPay standalone premium app, and that's developing very nicely.

We're pleased with the progress that we're making there. We mentioned recently, I think that volume for ThryvPay well surpassed $30 million in the second quarter, it's continuing to build very nicely and the average transaction size is still over $400, which is I think pretty impressive.

In June ThryvPay actually became our number one payment platform, you know it’s sort of like Switzerland. We put everything on the platform and one should be able to use whatever you like to use and so there are currently five payment processes on the platform, and Thryv moved into first place, like number one.

So we really feel like we're doing a good job, even where customers have a choice to use something else. And look, let's to be honest, there are a lot of software tools out there that force you to use their payment tool and that is sometimes not that popular with the small businesses.

But the fact that we're being selected as number one I think is impressive. So with that, let's get to Paul Rouse and have Paul take us through the financial results for the quarter.

Paul.

Thank you, Joe. As Joe alluded to, it's been a strong start to the year and we are excited to share our results with you.

Okay, let's now turn to the U.S. business segment starting with SaaS.

Second quarter 2021 SaaS revenue was $41.4 million, an increase of 32% year-over-year. Second quarter SaaS billings were $43.4 million, an increase of 39% year-over-year.

The increase in SaaS billings is a result of pandemic adjustments we issued in the second quarter of 2020, which suppressed SaaS billings. Second quarter SaaS ARPU was $323, a significant 39% year-over-year increase when compared to $232 in the second quarter of 2020.

Second quarter SaaS churn was 2.1%, a 90 basis point improvement year-over-year, and a 40 basis point improvement sequentially. As Joe and Grand alluded to earlier, this is a record low for monthly churn.

This dramatic improvement is a result of shifting our focus to an ideal client profile and a more engaged user. Moving over to marketing services.

Second quarter revenue was $202.8 million, a decrease of 26% year-over-year. The second quarter marketing services billings were $204.9 million a decrease of 20% year-over-year.

As is consistent with previous calls, we are providing billings and additional operational metric to give our investors better insight into our operational performance. The billings data will show a very consistent and steady decline in our U.S.

Marketing Services segment, which is shown to be lumpy on an accounting basis given the 15 month life cycle of our print directors. This is provided in the second quarter investor supplement available on our Investor Relations website.

Second quarter Thryv International revenue was $60.9 million, measured in Australian dollars, which reflects a $36 million Australian reduction in revenue as a result of acquisition accounting. On a reported basis, Thryv International revenue was $46.9 million.

Turning now to profitability on the consolidated business. Second quarter adjusted gross margin was 67% a decrease of 260 basis points when compared to the second quarter of 2020.

The decrease in adjusted gross margin was primarily driven by the decline in revenue from our marketing services segment. Second quarter total adjusted EBITDA was $96.8 million, resulting in a total adjusted EBITDA margin of 33%.

Second quarter U.S. Marketing Services EBITDA margin came in at 41% and Thryv International adjusted EBITDA margin came in at 35% as a result of their adjustment related to purchase price accounting.

Finally, we repaid $88 million in our Term Loan B in the second quarter. As previously communicated, our capital allocation priority for the year was to focus on debt repayment, and we feel we are making good progress.

Okay. Now let's update guidance, starting with the U.S.

segments. Given our continued momentum in the U.S., SaaS business, we are raising our 2021 revenue guidance range to $157 million to $160 million, implying a year-over-year growth of 21% to 23%.

For U.S. Marketing Services, we are raising our 2021 revenue guidance range to $750 million to $770 million.

As mentioned on previous earnings calls, U.S. Marketing services EBITDA margins will be consistent with the prior years on an annual basis.

For SaaS, we do expect continued EBITDA margin compression primarily as a result of our investments we are making in engineering, sales and marketing. For Thryv International, we are maintaining our guidance for the remainder of the year.

Please see our second quarter investors supplement posted on our IR website for additional information. I'll now turn the call back over to Joe.

Thank you, Paul. As you can see we increased our guidance and we did so because of progress we're making with the product.

Our product is getting better. The software that we're selling is streets ahead of where we were a year ago or 18 months ago, and it's been acknowledged in the marketplace.

Just recently G2 Crowd and Capterra gave us some pretty exciting accolades. We were sighted as easiest to use higher user; higher user adoption for small business; overall best support; most likely to recommend by small business; easiest setup up among small business and overall and easiest administrative functionality and this is from people that are using the software.

It's the only people who can give those ratings and reviews. So we're really proud of those and we think they show the progress that we're making in that type of engagement.

We've also been shortlisted for the SaaS Awards for the second year; Best SaaS Products for Customer Service, CRM. So the marketplace is acknowledging what's happening here.

We obviously have a big and really powerful sales force, Selling Power magazine sighed us one of the 50 best companies to sell for again this year. That's something that our sales force takes a pride in.

We were included in the Russell 2000, which has as you know many, many benefits to stabilize for the company and drive additional volume and it's just the beginning we've just entered. So the full effect is still taking place, but we're excited about that.

Some of the other initiatives that we've done this year, we had our Launchpad America, which was a partnership we did with MasterCard, Intuit, ADP and a few other sponsors to help small businesses that are starting up. We feel like conglobating new startups and helping entrepreneurship is very much on message for not only the Thryv Company, but also our Thryv Charitable foundation, so making really good progress there.

I want to wrap up, I guess by just mentioning the fourth wave of COVID. It's certainly a concern for everybody in the world and for the market.

I'll remind you that we performed very well during the worst of COVID over the last year. Our customer base tends to be service based businesses.

We sort of just trucked right through it. And we really don't have as much in dining and entertainment and travel and high end retail that's less in our market.

So while we're certainly concerned and keeping an eye on things, you know we are pretty bullish on how we think we'll do, even if things get a little challenging. We proved to be pretty resilient last year.

So with that, let me just turn the call over to questions, so operator.

Perfect! Thank you and congrats on the great results, on the growth acceleration.

Joe and maybe this one is for Grant as well if he's on the line, but I would love to dig in a little bit more on the improving net retention rate and the churn rates coming down. If you can maybe just give us an overview of the drivers there, and then maybe just to follow-up on the client success team, do you feel that you've invested enough in that client success organization or is there more that you can do to actually increase that proportion of users that are daily and weekly active versus those that are monthly active still in your customer base?

Thanks Arjun, that's a great question. You know that we assembled a new board September 1 of last year.

They did a deep dive into our software themselves. They also hired Gartner and a thorough review was done.

And then our December Board meeting, the conclusion was made that we weren’t investing enough in growing this thing, and so we were green lighted some additional money. We essentially were given a licensed instead of making double digit EBITDA margins with our SaaS business to run it a little closer to breakeven and just kind of reinvest some of those dollars.

And so at that time, we laid out a plan for how we'd use that money and we've been implementing it as this year’s going on. And I'd say that the priorities were engineering.

We've added a lot of engineering talent. So our roadmap map, our products improvement has really begun to accelerate.

I'd say we're just beginning to see that lately. It wasn't instant at the time to hire the people and get them going in product and marketing.

But one of the other areas that was very important to us and very big was to begin the muscle build, that client experience team, and it's led by one of our most talented executives Grant Freeman and he's on the call. So I'm going to let him talk a little bit about it, but it wasn't like on December 2 he all of a sudden had a big powerful team.

It’s taken him time to build it and we train these people for so long, for a long time before they actually, hit the phones and hit the Zoom’s and start helping. So we are really beginning to feel the full brunt and the full power of that now.

And I just want to commend Grant and his whole team, because I really focused them on bringing churn down and they did. And they've done it, and they’ve consistently done, it's continuing to come down.

It’s beginning to actually eclipse my expectations now, and now the next thing I've sort asked him for is, okay, let's really work on the whole client experience gig from building usage as you just asked about, to also monetization. So Grant, can you amplify a little bit how we're approaching the CX activity?

Yes, absolutely Joe. So, the first thing I'd like to say is that we're definitely already seeing some results from the investment and that we’ll likely increase that as we progress into the year as we get more staff onboard and continue the hiring and training process.

I think there's a couple of things that are important to mention. The first one is looking at initial onboarding.

You know we've tweaked that a lot over the course of the last twelve months and now we have a very simple and singular focus, and that's during the initial onboarding, achieving a very fast time to first value. And what that means to for our clients is truly understanding the problem that they are trying to solve in their business, the impact that that problem is having on their business and staying right there during initial onboarding until they feel that that initial problem has been solved, and then having the client success team come in after we've already solved the initial problem and saying, hey listen, there's ways that this software can do more for you, such as x, y and z like others in your industry take advantage of Thryv for.

So I think it's really a combination of getting them imprints in the software initially for what their sole purpose was and then deepening that engagement over time and our team is very, very adept at doing that right now, and that's obviously having a positive impact on the churn that was shared today. So I don't know if that answers your question or if there's a follow-up?

No, no, that's very helpful. And then you know I would, just in terms of how – this one maybe be for Joe.

How we think about the net retention rate and the churn going forward right? Is there additional room for that to improve right, we're in the low 90s for the retention rate, certainly a nice sequential improvement in both that metric and return metric.

But do you see opportunities within the base where you think that can continue to get better or are we at a point where you feel pretty good about where it's at?

I feel very good about where it's at and the progress has actually come a little quicker than I thought it would or that I've told people that it might. I'll remember before we get too hopped up about revenue retention.

We are working with small businesses. This is not enterprise software.

So we're not dealing with big corporations where we can then go from department to department selling into it and have 130% revenue retention or something. That's never going to be the deal here, just because of the client base that we are working with.

But I have said that I thought we could over time lift revenue retention all the way to 100%, maybe even a tiny bit beyond that. If we can keep churn nice and tight and low, keep high engagement and our product roadmap has the resources to keep coming.

We've got some really blockbuster product initiatives that we're working on, that we think will just continue to drive ARPU, the money that each client spends with us, and give us more opportunities to grow those. So I'm very pleased, almost tend to be a little bit surprised of where we are so quickly, if I'm really honest with you.

But I have said and I'll say it here again, that in the medium term we think we can work our way all the way to 100. I don't want to promise anything more than that, but because we are dealing with SMBs.

But I think there's more in the tank and if you look at the ARPU progress, it sort of tips you off to what's happening there.

Wonderful! That's great to hear.

And last one for me if I can. I noticed you expanded your free offerings this quarter.

I think there was a new invoice generator maybe among some other tools that you launched into your free tools that are available to small businesses. What impact are you seeing from having those free versions out in the market?

I know payment also has a free app that customers can use, but I would love to hear maybe just what you're seeing on the top of funnel as some of these look to digitize and what their – what impact the free solutions that you have out in the market are having on that new customer acquisition.

Yes. So, we can find people out there online who are interested in automating and improving their business, either by paying Google nine portions to get them one at a time or we can provide some organic free tools that allow people to improve their business, that somebody is trying to find how to do better can sort of find online and use.

And so we're sitting around, got teams of people sitting around thinking about every which way we can help small businesses and help them improve, and in the process of doing that, we are sort of capturing people who have raised their hand, who are interested in modernizing and improving their business. And some, not all of them come into our funnel and work their way through and become paying Thryv customers.

Some are too small or too new. I think we've talked about our ICP, excuse me, our ideal client profile and how some businesses can be just too small really, you know where they are kind of not ready.

But certainly these various organic tools are bringing a lot of additional folks into our funnel and helping us keep our cost of acquisition in line.

Perfect! That's very helpful.

Thank you guys for taking the questions and congrats again on the quarter.

Thanks Arjun.

Hi everyone. Congrats on a great quarter and thanks for taking my questions.

I guess I wanted to start with the SaaS ARPU increase in the quarter that had a nice accelerating step-up. How should we think about the puts and takes around that increase?

ThryvPay obviously at a good quarter, not sure how much that is driving the increased versus just the continual shift up to larger customers.

Okay. So, I mean there's a lot of pieces to it.

We have people buying additional seeds, we have people, and it’s an upcharge to have a HIPAA Compliant version of Thryv. We have some sort of managed services that fit in around it that we sell that help you with social posts and different things like that.

ThryvPay is a big component of it. ThryvPay has exceeded all of our expectations inside the client base.

We're going a little slower outside of the client base with ThryvPay premium. We're just kind of taking baby steps there, kind of crawl, walk, run.

We don't want to get ahead of ourselves. But in the client base, I mean, it's gone from the fifth selected option to the first in half a year, it's been incredible and people are switching to it, so which we're really excited about.

So yeah, that's a big part of it. Yes, so those are some of the components.

Excellent! And then your SaaS client metrics increased year-over-year for the first time in several periods.

I guess where do you think you are in the evolution of migrating from some of those legacy customers to those larger customers? Are we in a period where we can see consistent year-over-year client growth in that metric?

And we’re still kind of maybe bouncing around plus or minus until that legacy cohorts still get little smaller?

Yes, that legacy cohort is definitely still kind of – like think of a mouse moving through the snake. I think it's still moving through the snake for sure, it's not completely out yet.

But Grant and his team have done such a wonderful job of bringing churn down that it makes it pretty easy to move forward. So we have guided that we think that we can double or more than double our number of subscriber base in the medium term and we're sticking to that.

So we definitely feel comfortable. It's a big total addressable market and we're really just now building the machine to go get it.

I'll remind you, we got kind of lucky. When we started, we had this giant group of friends.

I typically call them the zoo, are people that we could go talk to, and a gigantic sales force ready to go talk to them. So we didn't have the challenges, though the software companies have of trying to kind of build a machine to go get it.

We're building that machine now, and with great success we're making really good progress. Those new channels increase pretty much every quarter with a higher percentage of our revenue, coming from them, and its – we're making cookies.

We're just methodically expanding all those activities. So I guess in summary I answered your question.

I guess you're trying to kind of work your model there. We do believe that we can grow the client base.

We don't see declines in our future, it’s not to say we couldn't have a little bit of a surprise one quarter where it's flat or something like that, but we don't expect it to go backwards any more. We expect it to begin and march forward.

Excellent! Then last question for me, thank you.

In that backdrop, obviously that and other SaaS metrics were extremely strong in the quarter, weather it was a slightly weaker comp or accelerating in the business side, I think the business acceleration was pretty pronounced there. Your guidance for SaaS revenues in the second half imply effectively flat revenues from the second quarter level, both in Q3 and in Q4.

I guess what are you seeing on the macro currently that gives you maybe a little bit of pause or hesitation on guiding the second half revenues, a little bit higher than what you saw our experienced in Q2.

Well look, we're a new public company. We're just a couple of quarters in.

We raised our guidance. I guess you're asking why didn't we raise it even more.

We really want to deliver, we don't want to disappoint anybody ever. It’s like we see some giant black clouds.

We just thought it was appropriate to move – if we were in the high teens to move it up into the low twenty. It seemed like the right way to go.

We're not trying to telegraph a brick wall in front of us or something like that. You know look, the marketplace this summer, there's a little bit of a yellow feeling, you know you only live one out there.

And a lot of our customers who hadn't taken a vacation first for almost a year and a half are taking to time off and even some of our reps who hadn't taken really any time off are taking some time off. So we've had some softer weeks this summer, but nothing that I'm particularly concerned about.

I mean people only have so much money and time that they can pick off, and their livers can only take so much fun. So they're going to be getting back to work.

I’m not overly concerned about that. So I think it's just an abundance of caution on our part.

Just trying to make sure that we don't disappoint you guys, if I’m honest.

Excellent! Congrats again on this fantastic quarter.

Thanks for taking the questions.

Thank you.

Great! Thanks guys taking my question.

Joe, I wanted to ask about the zoo that you mentioned, that big base of customers that you guys have insight into, which is really I think a differentiation from some of your competitors. Is 40% still the right way to think about that in terms of the conversion, in terms of customer ads.

And then can you talk a little bit about what you saw there in terms of conversions this quarter?

Yes, so thanks for that. I do think it's a big way that we're different, because a lot of those businesses just weren't ready.

They thought we were the cloud, wait some at the cloud? What’s the meaning of Cloud?

You know when we came out there and talked to them over the last couple of years. And they are much more interested and much more ready and we're continuing to see even people who gave us the heisman maybe three or four years ago are now really engaging and they are getting to talk to us about it.

So we do think that there'll be continued deepening and further penetration into that base for sure. I'm asked every now and then, are you done, have you hit the max?

And the answer is, we have not. These businesses are dynamic.

The marketplace around them is dynamic and we're continuing to further penetrate them. But I do want to make a point here and it's a really important point.

With that sales force out there, our business advisors we call them, they have a very close and deep relationship with our clients. And about two-thirds of what they are selling are coming from non-zoo, non-customers that they are getting through, mostly through referrals in their community.

So they are doing a really good job with serving our customer and the customer is really happy with Thryv and it's like they are doing a good job for them. And those customers are referring a friend and saying, can you help my Saturday morning golf buddy Fred, who's got this Spence Company.

Can you help them out? And that's where a lot of our sales are coming from.

Is it’s sort of spreading virally out there through those guys. So even though it's an installed base of customers and an installed base of sales force, it's acquiring a lot of new customers for us that we're not reaching through our advertising or any of our marketing activities.

They're just coming virally through happy customers, and I'm happy to report that that seems to be picking up.

Great! That's really helpful color.

Thanks Joe. And then Paul, just one for you as well.

Maybe a follow-up to Scott Berg’s question. You know so it sounds like really the ideal customer profile strategy is really paying off for you guys in terms of both the ARPU lift and the churn decline, which is great to see.

It sounds like there maybe also still some of those non-ideal client profile customers that are still in the mix? I’m just you know curious as you look at the churn numbers and again, Joe rightfully doesn't want us to get too excited, but at the same time it does look like maybe you guys are still over churning a little bit now because of some of those customers that still likely to churn out, how should we think about that?

Thanks guys.

Paul?

You know, I'm not sure how to answer that question directly since it’s not a direct financial number, but churn is improving. Well, we're doing a better job just like Grant explained and Joe explained.

So I think we're getting to sort of a steady state with the churn we're experiencing. So if you were going to model out, I’d keep it in that range.

Great!

Yeah Paul, if I can just hop in on the back of that, I know you know lots of people listening to this call are trying to tend to their models and you know I'll just reiterate, I think the days of us going backwards are behind us. There was – we were in a tractor being there for a minute, because just we just had to fight off some of that stuff that we had sold before.

It's not completely gone and we're not completely passed it, but we have enough powerful momentum with all the new things that we're doing and the progress that we're making that I think we're on the growth side of the equation, and that should be accelerating going forward. Again, I wouldn't rule out maybe a surprised flattish quarter, but I don't see us going backwards anymore.

I see us going forward on subscribers at this point. There's just too much growth momentum.

I appreciate all the help. Thanks guys.

You're welcome.

Yeah hi! Good morning.

Congrats on the strong results and thanks for taking my questions. Joe, could you talk about a few of the other drivers of your new acquisition channels.

I'm just curious if you could give us an update in regards to resellers and maybe what you're seeing on the franchise side as well.

Sure, be glad to. Well, the biggest piece of it is the inbound machine and you know we were asked earlier about some of the tools, free tools that we have out online to help us identify customers who are interested in modernizing their business.

That's driving a lot of traffic to our side, its identifying a lot of prospects. Obviously we cookie and we follow around and send messages to and all that.

So it's bringing a lot of the interested part in the market to us, which we're too really excited about and feel good about. And those leads come down the funnel and they are coming to an ever larger group of SDRs and you know sales development reps and demo people that we've been steadily scaling now throughout the year.

And so it's a bigger machine and therefore obviously it’s yielding bigger results as time goes by. So that's kind of math.

There's a funnel and you get so many in the top and so many have to convert to a demo and so many of those buy and we're just, we're working that process and that's part of what gives us confidence that we're going to be able to just continue to push our way forward. I would say that's at the center.

Now I'm going to jump over to franchise. The franchise team has done really well.

They've had a bunch of contract wins this year and they typically sign multi-year contracts, typically three year contracts with escalators in them. And one fun little fact, the early sales that we had from last year, that base has grown by about 20%, just as they've naturally added franchises and so on.

So we're just really bullish on this one. We think it's going to be a big part of our success.

They love Hub, you know the tool that we developed for them that sits on top of Thryv. So really, really, really bullish about what that's going to look like.

It's kind of a slow build, because it's a long sales cycle. It takes months typically to get one of these closed, there's a lot of testing and so on.

But once they come in, we get a really high engaged group and steady growth out of it. On the partner channel, the reseller side, I don't have as good a news to report there.

I'd like to tell you that we're great at that and we figured it out and we're kicking ass, we’re not. We are seeing sales out of that channel, but we just got more work to do, to figure out how to kind of perfect our selling and marketing model there.

And we’ve been refining and working on who our ideal kind of reseller is and it just has been slower progress there. So I'd love to tell you we're great at everything.

I have to be honest with you; we're just not doing as well with that one. And if we can get it figured out and we've got some initiatives going, that I think we may, I think it could be another big leg of growth for us.

But so far it's sputtering along a little bit.

Understood. That's really helpful.

I appreciate the additional color around that. In terms of ARPU, I mean really nice to see the increase here, again here in Q2.

I believe that your average monthly subscriptions is somewhere in the $350 range. I'm just trying to get a sense of how we should think about the continued growth in ARPU versus maybe more client ads in terms of driving growth going forward.

So I mean, I would just give you a kind of perspective. You guys all typically follow HubSpot, you know about them.

They get $10,000 from each customer you know and they tend to work with some fairly sophisticated small businesses, but they're none the less small businesses. They are $10,000 a year from those customers and we get just over $3,000.

So there's quite an additional scope we think to meet more needs. I mean the customers that I talk to, that we meet with and we spend time and our little Facebook group with and so on, you know they have many other needs, and we think that we can meet many other of those needs.

And they like us, they trust us, they enjoy working with us, they are on a journey of modernizing their business. They are willing to do more stuff with us and so we've got quite a robust roadmap of additional things that we are developing and that we are doing that we think are going to allow us to – I would expect that you're going to see ARPU continue to grow.

Some of the really dramatic growth you've seen so far is some of those early smaller do-it-yourself sales falling out, which just on the math is bringing our ARPU up. But as you pointed out, we're not even yet at our midpoint unit, which is our most popular seller.

So it's definitely been held down by that. So I would expect, if you're modeling, I would model that ARPU to keep going up.

That's how we're modeling it.

Understood and I appreciate that. And Paul, just one final question from me.

In terms of the purchase accounting adjustment for Sensis, should we think of that as more just a one-time thing here in Q2 that should normalize in the back half of the year? I'm just trying to get a sense of how we should think about that from a revenue and also from a margin perspective for Thryv International?

That's exactly how to think about it, it’s a one time. It will not affect the third, fourth quarter.

Understood. And I guess just one final one around the Sensis side of the business.

It sounds like some promising early traction there. So how should we think about just the adjusted EBITDA margin profile for that business?

I mean, I know you're making incremental investments there, but still fair to assume something around the 40% area?

I think – yeah, I think that's fair, yes.

Understood. Well, thanks again for taking all my questions and congrats on the strong results.

Thank you.

Thank you for taking the questions and obviously congrats on the momentum. Maybe just one or two in terms of expectations for SaaS margins for the remainder of the year.

Obviously given the strong results in marketing services, you've got plenty of flexibility to ramp investments, but do you still expect to run SaaS closer to breakeven or maybe a slight loss for the remainder of the year? Any thoughts there?

Well, you're right on. You have your questions perfect.

It was a big decision to make those investments this year and I have to say they are paying off. We're really, really pleased with how we've deploy the money and [Technical Difficulty] I think my ear buds scrapped out, sorry.

Can you hear me?

We can now. We’re back, yup.

That’s alright.

The pods only last so long you know. Anyway, your question is right on.

It's really good. You know we were – you know this time last year our SaaS business was trucking into the double digit EBITDA margin land.

So we know it has the ability to make money and make a lot of it. We made a decision with our new board to invest in growth and to run the thing a little closer to kind of a breakeven and let it sort of use its own juices to accelerate its growth and grow faster, and we do not plan to make it a big loss, making business and run it at a huge loss.

But I have to tell you honesty, we are a little tempted to push the envelope and let it slip slightly into the red, because the growth initiatives are really paying off, they're working really well. And we actually have a board meeting later today where we're going to be kicking this around a little bit with our board for their guidance and so on.

But I had previously told you to think of it right at around zero and you know we're very tempted to push it a little further and run it at a tiny loss. I want to underscore that this is a choice and if we do that, it'll spell fast growth, you know six, eight months, nine months, ten months later, as you put the money and get it out later.

And this is not some big cash assuming business or loss making business, but it is quite tempting. There’s a land grab going on out there and you know small businesses are way more ready for SaaS software now than they had previously been and we are feeling very tempted to push, so.

Anyway, that's the thought process going on inside. I hope that's helpful.

That’s as transparent as I can be for the moment.

No, that makes all the sense in the world, just trying to get the expectation set. And then on – there's been ten thousand questions on ARPU, but how do you think at this stage about pricing?

You know do you see an opportunity in the medium term to raise pricing on your good, better, best offering or will ARPU be really just driven by mix and usage?

We have no plans right now to raise the price. You know I guess we feel like we’re really – we really like our pricing and really like where we are.

When we finally find a real ideal client, and we finally really tell them our story. If they've done their homework and they look at the options, they come back and they say to us.

Wow! This is such a great value.

We hear this all the time. I mean, if you were to add up the point solutions, that it would take to equal Thryv, if you went out there and you bought them a-la-carte and they're out there, all these different point solutions.

You'd have to spend about $1,500 to $1,800 a month to try to equal Thryv. So we think there's really, really good value there.

At the same time, a lot of these small developing businesses that are coming up, for them that feels like a heavy lift, you know $350, $400, $500 a month. I mean that’s still like you know – so we like our prices, we like where we are.

We don't right now have a price increase in mind or one on our road map. We're planning to drive that ARPU through add-on sales, additional offerings, additional fees, all the different things that come with more usage and that's our current plan.

Nothing saying that a price wouldn't be possible, and we've had that discussion. One of our board members kind of persistently brings that up and we kick it around.

But right now, I mean our – think of our Thryv customers who have been with us for a few years, their Thryv has gotten 10x better for the same price. It just keeps getting better and better and better.

In fact, we have these little communications here, you Thryv just got better and then we tell them why or how. So we're trying just wow them with value right now, to have really low churn and really high engagement.

We hope and we think that's the right strategy, but again, we got one board member that raises his hand every meeting and says, shouldn’t we have an annual price up here or at least some kind of pricing regime. So I hear it’s talked about in the board room, but right now that's kind of how we're thinking about it.

That's perfect. Lastly, just before we jump, for Paul.

This I think it's itself evident, the deferred purchase price accounting adjustment, that was not added back to get to the EBITDA number consolidated, correct? So that's...

Right.

And then on a free cash flow basis, just curious what your expectations are around cash generation for the back half of the year?

Hey, on your first question, I was on mute when I answered it? It's not added back, so that's an add back if you want to get to with our purchase price accounting, so it is not in our reported number.

And to think about – I guess I’ll answer it this way. If you're looking at debt repayment, we'll likely pay down debt in the range of an addition for the second half of $60 million to $70 million.

Got it, okay. Thank you again for all the color and congrats on the momentum.

Thank you.

Thank you very much, I appreciate it. Listen guys, thanks for all the questions.

They were really good and I think helped tease out and illuminate the story a little bit. We're really pleased.

We feel like we're making good progress right now, got some good momentum, a lot of what we've been working on the last few years is really coming together with usage and engagement. I think about our priorities for the kind of the back half of this year.

It is continuing to just doggedly stay focused on user engagement. Trying to help more of our clients light up more features and become even happier or even more engaged.

That seems to bring us more referrals, it seems to be just a great way to go and it makes us happy to see them using it the way they are. I think you know driving that cloud adoption out there within the base, is bringing the un-clouded under the cloud, it's sort of the missionary work.

The Sensis integration is ongoing and going really well. Didn’t have a lot of questions on that, but it's going in really well and we really expect that sort of 10%-ish of the Sensis clients over the course of ’22 and ’23 will become SaaS customers; they have about 100,000 customers.

So that's 8,000, 10,000 additional subscribers that will be coming from there, and make us a category leader in Australia. We're really excited about that.

We already have some customers on Thryv in the market. The satisfaction and engagements are great, NPS scores have been great, training has gone well.

So that's beginning to light up, maybe even a little bit ahead of plans. So we're really pleased and excited about that; more to come later.

You know and then capital allocation you know for the moment, we're pounded away paying down that debt, and we're making a really great progress. Paul just mentioned just how much we're going to pay back here in the second half.

So you know paying down debt has been a big deal for us. So anyway, thanks everybody for your interest and your support.

We really appreciate it and we are excited to update you again soon. Thank you.