T

Thryv Holdings, Inc.

THRY US

Thryv Holdings, Inc.United States Composite

18.87

USD
-0.18
(-0.94%)

Q3 2018 · Earnings Call Transcript

Nov 14, 2018

Operator

Hello, and welcome to DexYP's Third Quarter 2018 Conference Call. With me today are Joe Walsh, Chief Executive Officer and President; and Paul Rouse, Chief Financial Officer and Treasurer.

Operator

Some statements made by the company today during this call are forward-looking statements. These statements include the company's beliefs and expectations as to the future events and trends affecting the company's business and are subject to risks and uncertainties.

Actual results may vary materially from these forward-looking statements.

Operator

The company advises you not to place undue reliance on these forward-looking statements and to consider them in light of the factors that could cause actual results to differ materially from those forward-looking statements. These factors can be found in our press release dated October 30, 2018.

Operator

The company has no obligation to update any forward-looking statements. Please refer -- excuse me, please reference our website, dexyp.com/about/corporate/investors, for a brief presentation to be used in today's comments.

We will give you a few moments to reference the deck.

Operator

I would now like to turn the call over to Joe Walsh.

Joe Walsh

Thank you, Crystal. Today, Paul and I will review our financial results from the third quarter 2018.

I will highlight some key statements and then turn the call over to Paul to run through our detailed financials as well as full year EBITDA guidance.

Joe Walsh

DexYP experienced another great quarter, delivering 3% EBITDA growth over Q3, our third straight quarter of comparative growth. We generated $107 million of free cash flow, a 98% improvement over Q3 2017.

We are steadily and aggressively reducing our net debt finishing the third quarter at $594 million.

Joe Walsh

Our flagship product, Thryv seen on Slide 4, continues to trail blaze the industry by helping small business owners manage their time, communicate with clients and get paid.

Joe Walsh

Thryv grew its subscriber base by 10-plus percent shown on Slide 5, contributing to more than 50,000 subscribers, who rely on our simple, easy-to-use software to take control of their business and be more successful.

Joe Walsh

While we're thrilled with the growth of Thryv subscribers, we are equally focused on ensuring subscribers engaged with the product and manage their day-to-day business. And so, as we look forward to 2019, we intend to increase emphasis on driving engagement, which may result in a slowdown in unit growth.

Joe Walsh

At the Yext ONWARD conference this month, we announced the Thryv reseller partner program. The program provides us with an opportunity to collaboratively work with other valuable partners by promoting and selling Thryv as seen on Slide 6.

Joe Walsh

Through the partnership program, these sales and agency-type partners can expand current offerings and earn additional revenue and provide a software solution that truly enables our clients to manage their business more efficiently.

Joe Walsh

Slide 7 shows our continued commitment to Thryv Leads, our leads platform that complements Thryv and allows small business owners to generate leads, impressions, clicks and likes across multiple media outlets through a single budget. Paul will share momentarily that we exceeded our EBITDA goals for the quarter by effectively managing our costs ahead of our revenue decline.

Joe Walsh

Now I want to turn the call over to Paul to take you through the financials from this past quarter. Paul?

Paul Rouse

Thank you, Joe. We will now discuss in more detail our consolidated third quarter 2018 financial report released on our website as the operator previously mentioned.

Paul Rouse

Our results are presented on a consolidated basis for DexYP as if YP was acquired on January 1, 2017. I would like to point out that most of the financial measures that will be presented and discussed this morning were prepared on a non-GAAP adjusted pro forma basis.

We believe these non-GAAP pro forma results provide more meaningful information to management and investors relative to the underlying financial performance of the company. In addition, these non-GAAP financial measures are used internally for management for budgeting, forecasting and compensation.

Paul Rouse

The adjustments made to our GAAP results remove the impact of fresh start accounting entries required upon emergence from bankruptcy on July 29, 2016, as well as acquisition accounting entries required following the acquisition of YP on June 30, 2017. In addition, nonrecurring costs associated with the acquisition of YP, including acquisition transaction fees, integration activities, business transformation and noncash expenses associated with long-term stock-based incentive compensation and pension expense were removed from our non-GAAP adjusted pro forma results.

Paul Rouse

I am happy to report that EBITDA results for the third quarter 2018 came in ahead of our plan. Non-GAAP adjusted pro forma EBITDA for the third quarter of 2018 was $151 million.

This represents a $4 million increase over the third quarter of 2017. We generated an adjusted pro forma EBITDA margin of 34% for the quarter.

Needless to say, we are very pleased with the third quarter results.

Paul Rouse

Now I will discuss our results in more detail as seen on Slide 9. Total pro forma net revenue for the third quarter was $449 million, a decline of 21% compared to the same quarter last year.

Pro forma net revenue for the third quarter was $211 million, a decline of 23% compared to the same quarter last year. This decline in our pro forma print net revenue is consistent with the industry trends and is in line with guidance we provided earlier in the year.

Paul Rouse

Total digital net revenue was $235 million in the third quarter, a decline of 19% compared to the same quarter last year. This decline was largely the result of a planned shift from unprofitable digital revenue to profitable digital revenue.

Paul Rouse

Thryv revenue in units continue to grow at a rapid pace. Earlier this year, we launched Thryv 3.0 and we expected to drive continued growth.

Already the product is producing $1 million in run rate revenue, and we are optimistic in the continuing growth possibilities for this product for years to come. This is our flagship product and is driving new customer acquisition and helping our clients run their business more efficiently.

Paul Rouse

As I previously mentioned, our adjusted pro forma EBITDA for the third quarter 2018 was $151 million. Our EBITDA margin for the third quarter was 34%, an increase of 8 percentage points over the same quarter in 2017.

We expect to continue to deliver EBITDA in the 30% range for the remainder of the year as shown in our updated guidance.

Paul Rouse

Free cash flow for the third quarter of 2018 was $107 million compared to free cash flow of $54 million in the third quarter of 2017. The significant increase in our free cash flow of $53 million was primarily attributable to lower income tax payments and lower interest payments made in the third quarter of 2018 compared to the third quarter of 2017 as well as onetime YP acquisition fees and integration-related expenses that were paid in the third quarter of 2017.

Paul Rouse

Moving on to our year-end results. Total pro forma net revenue for the year-to-date September 2018 was $1.4 billion, a decline of 20% compared to the same period last year.

Pro forma print net revenue for the year-to-date September 2018, was $677 million, a decline of 23% compared to the same period last year.

Paul Rouse

Total digital net revenue was $733 million for the year-to-date September 2018, a decline of 18% compared to the same period last year. Again, this decline was largely the result of a planned shift from unprofitable digital revenue to profitable digital revenue.

Paul Rouse

Adjusted pro forma EBITDA for the year-to-date September 2018 was $442 million, an increase of 4% or $15 million compared to the same period last year. Our EBITDA margin improved 7 percentage points to 31%.

The improvement in our EBITDA margin is due to our shift in revenue to more profitable exclusive products and continued focus on expense reductions.

Paul Rouse

As a reminder, at the time of our acquisition of YP on June 30, 2017, YP had an EBITDA margin of 50%, while Dex Media had an EBITDA margin of 31%. Through our focused management, we have now returned our consolidated business to Dex Media's pre-acquisition level of EBITDA margin of 31%.

Paul Rouse

Free cash flow for the year-to-date September 2018 was $219 million compared to free cash flow of $170 million for the year-to-date 2017. The significant increase in our free cash flow of $49 million was primarily attributable to lower income tax payments and lower capital expenditures made year-to-date September 2018 compared to year-to-date September 2017 as well as onetime YP acquisition fees and integration-related expenses that were paid following the acquisition of YP in 2017.

Paul Rouse

Let's take a look now at our net debt. As of September 30, 2018, our net debt was $594 million, which represents a reduction of $342 million over the 15-month period following the acquisition of YP on June 30, 2017.

Our ratio of net debt-to-EBITDA has been decreased to 1x. We expect our ratio to continue declining below 1x by the end of the year.

Paul Rouse

We are very excited about the rapid deleveraging we continue to deliver to our shareholders. We are in a sound financial position that continues to support future growth possibilities for the company.

We have received inquiries asking if we plan to change our current debt financing, and we are continuing to evaluate a number of scenarios and will provide additional updates when the time is right. It's premature to discuss any details at this time.

We do appreciate all the offers to help we have received.

Paul Rouse

Additionally, we have provided a full year 2018 guidance update as seen on Slide 10. As you can see, we continue to exceed our plans in creating an operationally efficient high-cash generating company.

We expect these trends to carry forward through the rest of the year, and therefore, we are increasing our guidance for EBITDA to $570 million and free cash flow to $306 million for 2018.

Paul Rouse

Now I would like to turn the call back over to Joe for some closing remarks.

Joe Walsh

Thank you, Paul. Overall, we're pleased with our third quarter results.

We were successful in continuing to grow EBITDA margins and reduce our net debt. Our company is making steady progress.

We've continued to innovate our Thryv software.

Joe Walsh

Lastly, we announced at the Yext ONWARD conference the organization's intention to rebrand the company through Thryv to reflect the momentum of our product. We expect to announce the official change of the name in the first quarter of 2019.

Joe Walsh

With that, Crystal, we can open it up for questions.

Operator

[Operator Instructions] Our first question comes from the line of [ Colin Frankenfield ] with [ Classic Management ].

Unknown Analyst

It looks like you guys are actually making some progress in terms of EBITDA and free cash flow. I'm just curious, outside of your core businesses, where do you see opportunity looking at -- outside of Thryv and where are you seeing other opportunities for investment, just generally speaking?

Joe Walsh

We're in a structurally changing industry, and there is a fairly significant consolidation opportunity out there in front of us, and we're getting inbound people that want to talk to us about selling to us or joining our platform or whatever, and that's something that we're looking very carefully at and considering. There's -- whenever -- every industry situation serves a particular opportunities.

In this case, you've got, I think, consolidation opportunities, and you saw us, with the YP acquisition, bring on to our very efficient platform a large number of customers, which allowed us to in now 15 months flow that margin right through the business. And so we're looking at some of those.

I would say, that's something that we're pondering.

Unknown Analyst

I asked generally, but maybe could you speak specifically maybe about just some of those sectors that you might be thinking about?

Joe Walsh

Well, I don't want to go too far speculating, but just to try to be cooperative to answer your question. There are -- in our -- first starting in the Yellow Pages industry, those businesses are not highly valued, and there are a lot of smaller publishers and larger publishers that are looking for an answer.

And many of those have reached out to us. So we're looking at and considering some of those.

And -- you could see that. And then if you move a little bit further afield in a lot of the other kind of traditional media areas, there's also some consolidating -- some potential opportunity there.

So I'm going to stop there in terms of talking about our plans going forward, but I think that gives you some sense.

Unknown Analyst

Yes. So absent paying down debt, are you looking to use free cash flow to -- I mean, are most of these you're thinking of these obviously being accretive?

Or how you're thinking about those acquisitions more from a earnings potential?

Joe Walsh

They would be accretive. We're -- this team has done nearly 100 acquisitions, and I think if you look at what we did with the YP acquisition, you'll see that we managed to bring a big complicated organization on to the Dex platform, and in a year basically get back to our previous margins.

I would say that, that was a very accretive acquisition and the others that we're considering would be nicely effective also.

Operator

[Operator Instructions] At this time, there are no questions in queue. Actually, now you do have a question, and it comes from the line of [ Marlaena LeMaitre ] with Paulson.

John Paulson

Joe, this is John Paulson. Could you talk -- listen, Thryv is -- you're changing the name to Thryv, that's obviously your key product.

What is the outlook both for 2019, using the resellers as well as your in-house group as well as the longer-term outlook for Thryv?

Joe Walsh

John, thanks for the question. We are really very, very enthused about Thryv.

With Thryv, we clearly have product market fit. We came in here 4 years ago with the idea that we could take the business that had been in the business of connecting wires and sellers, had been in the leads business, and we could make a pivot with this organization and move beyond leads and get much more deeply into the business operations of the companies we serve and help them bring modern kind of big company technology down and deliver it to the local business.

And at that moment, it sounded like a good idea to us, but there wasn't a lot of activity around that. Now we flash forward to today and an entire industry is rapidly growing up around this, and we clearly are the category leader, and there's lots of people piling, and this is going to be a big and dynamic business, way bigger than the Yellow Pages business ever was.

So we're really excited about what Thryv represents for the long term. In the short term, we, as an organization, are rapidly evolving this software.

It's gotten tremendously better. Even this year, we've had a number of key releases that have made the software much, much better.

And I think the lesson that we have learned is that making the sale of the software is sort of step one, but it's not over when that happens. There's a lot of work to get the business to actually change their habits and adopt the software and then use it and log in every day and be engaged active users.

And so we've taken the decision going into '19 to actually tap the brakes a little bit on the rate at which we're adding new subscribers and put the focus on quality, put the focus on engagement and usage. And so we've developed a set of health scores around our SaaS software that we're really focused on now.

And so we will continue to grow Thryv, and in the long term, we think it will grow to be a very large business, and actually, dwarf the rest of the business. But in the immediate few quarters, we're going to really focus on the engagement metrics that are so important to software health.

So I hope that's helpful. That gives you maybe some sense of what we're thinking.

Operator

At this time, there are no further questions. I will now turn the call back to Mr.

Walsh.

Joe Walsh

Thank you very much, Crystal, and thanks, everyone, for listening and for the questions. I just -- I'll wrap the call up by saying that never forget that we're managing a large declining asset.

And so our first obligation to all of our stakeholders is to try to skillfully manage that, which means continually variablizing the cost of the business out in front of revenue decline, anticipating any revenue decline and being in front of that. And I think we've been doing that and we'll carry on doing that going forward.

Joe Walsh

The second thing then is to try to create a future, and try to create a place to go with all the assets of this business. And we're so pleased with the promise that Thryv has shown, and we're optimistic, as we turn the page here heading into '19, that expanding the sales channels coming into Thryv.

I'm sure it won't be easy, I'm sure it won't be quick, it won't be automatic, but as we learn throughout '19 how to bring affiliates and resellers on to the platform, they can experience some of the genuine enthusiasm and excitement that we've experienced in working with small businesses.

Joe Walsh

Last night, I was at a Thryv @ 5 event that we held here on our campus, and there were small businesses from all over the area and talking to us about Thryv, learning about online payment, learning about scheduling. And for a lot of them, it was brand-new and they were really excited about it.

For some, they tried other software platforms and they felt like this broader solution was a better fit for them. But it's just fun to really interact with the small businesses and watch the way they're taking this up.

Joe Walsh

So look, we've got a lot to learn. I'm not saying we've got it all figured out, but we definitely are onto something.

We've got a very exciting opportunity in Thryv. And calling the company Thryv and really focusing our energy around building Thryv over the next few years I think is a central part of the strategy.

Joe Walsh

So thanks for your support, thanks for dialing in today and listening to us, and we'll keep working hard to deliver. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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