Ladies and gentlemen, thank you for standing by, and welcome to the Thryv Fourth Quarter and Full Year 2020 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, KJ Christopher from Thryv. Thank you. Please go ahead, Mr. Christopher.

Good morning, everyone, and welcome to this recorded management discussion of Thryv's Fourth Quarter 2020 results. By now, you should have received a copy of the company's fourth quarter 2020 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 Treasurer; and John Allan, Chief Executive Officer at Sensis Holdings. 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 this 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, and welcome to our fourth quarter 2020 earnings call. To begin, I'll talk about 2020 and then comment on recent developments. Following that, our CFO, Paul Rouse, will provide insights on our Q4 numbers and an update to our 2021 guidance, and then we'll open it up for questions and answers. In 2020, we had a big year. We became a public company again on the NASDAQ. We refreshed our Board of Directors and brought in real SaaS and software talent expertise to help us accelerate the growth of our SaaS business. We launched our own payment platform. And most importantly, we returned our SaaS business to growth. We're really proud of these milestones in 2020 because, let's face it, there were unprecedented challenges for small businesses this last year. And we were inspired and impressed by the way small businesses worked hard to stay in business and were determined to persevere. Our team actually played a pretty big role in helping many small businesses adapt and figure out how to change their business model using the software to be able to do e-commerce or become a business that delivers to make it through those really difficult shutdown situations. We're really impressed by that. 2020 really highlighted the need for small businesses to modernize and transition to the cloud. We believe that the changes the pandemic brought about are durable and will forever accelerate the transformation of small businesses using cloud tools and digitizing their business. We think there's a really strong foundation for our growth coming off of that. I'd like to talk a little bit about growth, churn, ARPU, and some of the things happening in our business. Our SaaS platform grew a little over 8% in the fourth quarter. Our churn is down and has been steadily coming down. We're at a level now that I would describe as par. We probably aren't going to do a whole lot better because we are dealing with modern small businesses, and there is some ins and outs there. It's very acceptable in our models; we can get strong growth at this mid-2s churn level. We think that's around the right place to be. Our ARPU has been improving because of a major shift in our strategy. We had experimented with going down market. We've moved back up market, selling to a little bit larger businesses and a more complete robust solution at a higher price point. We're getting really fully engaged customers. We've been disciplined about our ideal client profile, getting the right customers in. Consequently, you're seeing ARPU, or spend for customers, rising nicely. I would encourage you to take a look at those stats. While our client growth is about flattish, we're looking to see that begin to accelerate as we go through this year as those smaller or less engaged customers roll off, and we're bringing in the larger ones who are spending more and much more committed and truly using the software. So we're looking forward to having not just revenue growth, but also client growth as this year goes on. The big story for us over the last year or so is engagement. We've seen tremendous growth in engagement. Engagement is defined as people active in the inbox using it. We see them adding contact cards to their CRM, we see their scheduler lining up with people scheduling appointments with them. We see them sending out marketing automation campaigns using our console for social media. Most importantly, we see the payment volume. We see them accepting more payments in broad terms. So that really shows us what's happening in that business. We recently hit an all-time high of active users with daily and weekly user growth significantly up year-over-year. We're going to continue to invest in education and engagement growth; we're investing in more people to spend time with those customers, teaching them, helping them transition to the cloud. Sensis, the acquisition we made in Australia closed on March 1. It has over 100,000 small business clients. It's a marketing services business that operates similarly to our business here, just without the software. This gives us access to over 100,000 customers for us to target and expand our SaaS business. Their performance in Australia has been arguably the world's best. They have a strong portfolio, which leads to slower revenue decline and higher margins. In fact, they have delivered margins north of 40%. John and his team are exceptional at this. There's a high cash flow generation; they're really throwing off a lot of cash. You'll be impressed by the similarities between the two companies. I've known John Allan for over 8 years. Our teams have talked and shared best practices and ideas, which strengthens our relationship. I would like to now introduce John Allan to have him share some insights with you.

Thank you, Joe. I thought I'd share a little bit of information about Sensis in terms of the company and the market we compete in and then how we intend to bring Thryv to Australia. The way to think about Sensis is very similar to Thryv in the U.S. We're a leading digital marketing services and print directory company in Australia. We publish and distribute the yellow pages and white pages right across the country as well as manage marketing services for over 100,000 businesses; the majority of which are small to medium businesses employing less than 200 people. Our strategy over the past 2 years at Sensis has been to develop a range of digital marketing solutions while transitioning our customers from print to digital. The Australian market has significant digital consumers, but print still serves an important role for older and more regionally based individuals. The Australian population is around 25 million people, and there are over 2 million registered businesses here. The small to medium business population we primarily focus on exceeds 800,000 businesses. These small to medium businesses are estimated by The Reserve Bank of Australia to account for 70% of employment and over 30% of GDP. Therefore, they significantly contribute to the Australian economy. The needs of Australian small to medium businesses are similar to those in the U.S., and we see many parallels between Thryv and Sensis. What excites me about the Thryv acquisition for Sensis is the Thryv software. Over the past year, at Sensis, we initiated a software strategy but were still at an early stage. Launching Thryv in Australia will save us years of investment and expedite our approach to the local market, both with existing and potential new customers. During COVID, we saw more small to medium businesses growing interested in software to optimize efficiency and customer management. Additionally, low unemployment rates and higher labor costs have contributed to this awareness among Australian small businesses. The Australian government recognizes the value of digital efficiency, making payroll lodgment compulsory. This has encouraged many SMBs to obtain accounting software, but for a lot of industries, that's as far as their digital journey has progressed. During February 2021, prior to the acquisition by Thryv, we undertook an independent survey asking Australian SMBs about their attitudes and interest in software. We didn't specifically ask them about Thryv, but the survey showed that 69% were interested in software that could help manage customer interactions, website management, and appointments, many of which are features of Thryv. Businesses know they have to do more to digitize, and they're looking for support in that transition. Sensis has a long history of helping businesses connect and manage their customers, going back to the very first find book and more recently with digital marketing services. We're looking to work closely with the Thryv team in the U.S. to localize Thryv for the Australian market. Our intention is to launch later this year, and we'll ensure the product, pricing, and service offerings are adapted to Australian conditions. Thryv has built an enviable reputation within the SaaS community, and my team will ensure we launch on the right foot here to mirror their success. Thank you, Joe, for letting me talk about Sensis. Let me pass it back to you.

Thank you, John. We're thrilled to have John Allan and his team on board. There's a great synergy between our teams. We're excited about this acquisition and the strong base it gives us in Australia with over 100,000 small businesses. We believe we can quickly become the category leader in small business CRM and client experience platforms in Australia. John and his team are exceptional executors who believe in our business plan, and I have confidence they will excel with us. A couple of other quick things I wanted to comment on: verticalization is a significant part of our roadmap. We are rolling out Thryv Home, targeting the home services sector where we've achieved strong penetration and success. While we don't have much competition, there are a couple of players, and we are focused on bringing the unclouded into the cloud. Additionally, we are planning Thryv Legal and Thryv Health, which will deepen our reach in these verticals. ThryvPay has had a great start; it's early days, but we're seeing steady sign-ups and growth in revenue per active merchant. When customers utilize their CRM for payments, their likelihood of churning decreases.

Thank you, Joe. Before we begin, I'd like to point out that while we will be discussing revenue during this call, due to the global pandemic, the company temporarily issued certain customer credits throughout 2020, which have masked the true year-over-year comparability in both SaaS and marketing services. During the fourth quarter, the company recognized pandemic credits of $3.3 million provided to customers most impacted by COVID-19. For the full year 2020, the total pandemic credits amounted to $17.5 million. These goodwill adjustments have been reflected as a reduction to revenue. We are monitoring the business environment of our clients and expect to provide further assistance to those in need through the first part of spring 2021. Throughout the spring months, we expect the business environment to improve as more people are vaccinated, which should significantly diminish the need for assistance by the middle part of Q2 2021. Now, let’s turn to the business segments. I'll start with our SaaS segment, where the fourth quarter 2020 SaaS revenue was $34.9 million, an increase of 8% year-over-year and ahead of our guidance. For the full year 2020, SaaS revenue totaled $129.8 million. Fourth quarter SaaS billings were $38.8 million, an increase of 13% year-over-year. The full year 2020 SaaS billings reached $137.7 million. Fourth quarter SaaS ARPU was $293, a significant increase compared to $260 in the previous quarter and $236 in Q4 2019. Fourth quarter SaaS churn was 2.4%, a significant improvement over 2.7% in the previous quarter and 3.4% in Q4 2019. This improvement in the churn rate is directly attributed to increased usage and engagement on the platform. Turning now to marketing services. Fourth quarter revenue was $212.1 million, a decrease of 32% year-over-year, yet still ahead of our guidance. For the full year 2020, marketing services revenues were $979.6 million. Fourth quarter marketing services billings were $232.5 million, a decrease of 21% year-over-year. For the full year 2020, marketing services billings decreased 22%. I'd like to remind everyone that our print product typically has a contract life that exceeds one year. Generally, Thryv's print directories are published on 15-month cycles, and we build customers and collect payments ratably each month. Under ASC 606, our entire 15-month revenue stream from each directory is crystallized as revenue on the income statement once the directory is 95% shipped. As a result, reported print revenue and EBITDA can appear lumpy, and year-over-year comparability may not be relevant. Management will provide operational metrics, such as billings, to give our investors better insight into our operational performance, which is detailed in our fourth quarter investor supplement available on our website. Regarding profitability, total company adjusted EBITDA for the fourth quarter was $71.6 million, resulting in an adjusted EBITDA margin of 29%, which exceeded our guidance. The full year 2020 adjusted EBITDA was $371.8 million, consistent with the prior year.

Thanks, Paul. While reviewing the financials, you may have noticed a significant benefit in income taxes this quarter. Based on our recent performance, management concluded that it is now more likely than not that a significant portion of our deferred tax assets will be realized, and we've booked this benefit within the financial statements. This conclusion was based on strong positive evidence resulting from our recent earnings and Thryv's ability to generate future taxable earnings as we manage the overall business towards strong margins. Now turning to Sensis, please bear in mind that we are in the process of converting Sensis Holdings financial results from UK GAAP to US GAAP. At this time, we do not have information to share regarding Sensis's financial results for the quarter or trailing 12-month period ending December 31, 2020. However, we provided similar historical results for the trailing 12-month period as of October 31, 2020, and results for the previous three fiscal years ending June 30 based on UK GAAP. This information can be found in the Sensis Holdings acquisition investor presentation filed in the 8-K on January 6, 2021. Let me turn it back over to Paul.

Let’s discuss our 2021 outlook. We are raising our 2021 SaaS revenue guidance range to $140 million to $145 million, up from $139 million to $143 million. For marketing services, we are maintaining our revenue guidance at $740 million to $760 million. While we are not guiding to adjusted EBITDA, we expect the marketing services to maintain EBITDA margins consistent with the prior year. For SaaS, we anticipate EBITDA margin compression primarily due to investments we're making in product and sales headcount. Finally, since we just closed the Sensis acquisition, Sensis is not factored into our 2021 guidance at this time. We intend to provide an update on their contribution to the 2021 outlook at a later date.

Thanks, Paul. To wrap this section of the call, I'd like to remind everyone that our guidance indicates that we're returning to growth with our SaaS business. This isn't some magical thing; it's the result of a lot of hard work improving the software itself, enhancing our onboarding process, and delivering extraordinary results for our customers. Indicators of continued growth can be found in our NPS scores, which have been steadily increasing. You can find this in software reviews on various platforms; just look at what our customers say about the software. The truth is, the software is driving this growth. Transitioning from a sales-driven narrative, we now see product-led growth where the software itself is what propels sales, much of it through referrals and organic growth. We're excited about the growth opportunities ahead; we’re beginning to have enough confidence to guide to that. Remember that while the cloud is obvious for enterprise solutions, small businesses have largely been left out of the cloud conversation. We've made it our mission to bring these businesses into the cloud. The pandemic has acted as a catalyst for this transformation, forcing small businesses to modernize and adopt new technologies. If you believe the cloud is a significant evolution for business, then Thryv positions you well for that.

Your first question comes from Arjun Bhatia from William Blair.

It's good to talk to you again. Joe, maybe I'll start off with a higher-level question for you. You touched on this throughout your remarks earlier, but to hone in a little more, help us understand some of the trends that you're seeing in the SaaS business that give you confidence in the guidance for double-digit growth in that SaaS business next year. What are you doing on the product side, on the go-to-market investments, and other investments in the business and trends you're seeing in your customer base? How do you feel about your 10% growth guidance for 2021?

Thanks, Arjun, it's good to hear from you. There have been several key initiatives. We've been focused on innovating the software itself—not just adding more features, although we've added many. It's really about making things more accessible, improving user experience, and enhancing interconnectivity. A significant number of our customers have used APIs to integrate other tools they use to run their businesses. Thryv has become the main dashboard for many. We’ve had significant releases over the past few months that greatly improved functionality and user experience. Onboarding has also seen improvements; we've developed onboarding widgets to identify purchase intent promptly, which has made a big difference in client engagement and excitement. We are focused on raising engagement levels; we measure daily, weekly, and monthly active users, and we're pushing those numbers higher consistently. The gains in usage are significantly outpacing the revenue growth we’re forecasting. In my previous experience, increased time on site and user engagement have served as strong indicators for renewals and future sales growth; I think we're seeing similar patterns here. Regarding investment, we’ve revamped our board as of September 1, bringing in software expertise that has fueled our growth strategy. After a thorough review of our product, the consensus was clear: we should invest more to drive growth faster. Our focus has been on engineering, product enhancements, content generation, and marketing, all with the aim of increasing leads and building our inbound sales team methodically.

That was very helpful to understand the product and go-to-market investments. You've also touched on verticalization a bit, specifically on Thryv Home. Can you provide an overview of your verticalization strategy? Are you moving into new verticals or extending your leadership in existing verticals?

So, Arjun, our approach has been to analyze customer performance across verticals. Historically, we offered a comprehensive service horizontally, which led to a diverse customer base. However, after analyzing customer data and traction, we've identified that home services, legal, health, and pet services are areas where we thrive. We're investing strategically within these verticals, while still maintaining offerings across other categories. We’re focused on maximizing our success in these identified segments.

It was great to hear John discuss Sensis. Are we anticipating that the SaaS product will be rolled out later this year? What timeline do you envision for converting Sensis marketing service customers to SaaS clients?

Yes, absolutely. We have plans for SaaS rollout, while there’s significant groundwork to establish connections and integration between the organizations. Drawing from our experience during the YP acquisition, we initially penetrated about 10% of their customer base in the first two years, and I expect similar performance. This year may be modest as we focus on integration and training, but we anticipate accelerating customer conversion into next year. It's critical we ensure an exceptional experience for the initial customers to set the right tone.

Yes, in Australia, we've initiated several project streams to localize Thryv for our market just after the acquisition closure. Our design emphasizes strong collaboration with the Thryv U.S. team. Our goal is to ensure that we launch into our customer base in the second half of this year, focusing on a seamless product integration and solid customer experiences. Excitement is palpable in our team, and we aim to maintain high standards.

It's reassuring to hear. Shifting to your organic go-to-market investments, what traction are you seeing from new customers? How do payments fit into that framework?

Half of our new customer acquisitions are now from Thryv. Our focus on inbound marketing will only increase this percentage. We're engaging with customers who’ve expressed interest in our services, creating a more streamlined acquisition process. Additionally, customer penetration continues; those previously hesitant due to the pandemic are now expanding their software adoption.

We've seen a considerable improvement in our marketing efforts. Our cost per lead is becoming more efficient, and monthly qualified leads have skyrocketed, up over 100% year-over-year. Specifically for ThryvPay, our targeting of service-oriented businesses is yielding higher adoption rates than our competitors. Our strategy revolves around serving our ideal client profile, ensuring our marketing messages resonate effectively.

We are planning to roll out ThryvPay premium later this year, and we believe it will identify prime prospects, allowing us to capture new customers initially as ThryvPay-only clients.

Our next question comes from Daniel Moore from CJS Securities.

I wanted to focus on your guidance. You expect to maintain flat margins on the marketing services side. Can you provide any insight on the investments leading to margin compression in the SaaS sector for 2021, especially excluding Sensis?

When you add revenue to a well-scaled SaaS business, flow-through is typically robust. We're not anticipating significant losses in the SaaS sector; instead, we may allow for moderate margin dilution while reinvesting some of those gains back into business growth. Thryv has had positive cash flow and EBITDA since mid-2019, and we're aiming for prudent growth rather than purely maximizing margins.

I understand that it’s still early for Sensis. But can you share insights on their normalized rates of decline relative to the North American marketing services business? How about margins?

Adding Sensis will help stabilize our revenue decline since they've maintained better performance. They also have a higher margin compared to our existing operations. However, John can provide additional insights since he understands this landscape intimately.

We are leveraging the existing Thryv software instead of creating a new version for Australia. Our primary investment will be on localizing the software for our ecosystem. We operate with a relatively low capital requirement model and plan to maintain that philosophy as we introduce Thryv into the market while sustaining our margins.

A final topic I want to explore: any updates on the Caribbean partnership and revenue ramp expectations?

The partnership was progressing nicely, but recent shutdowns have halted momentum, placing it in a state of hibernation. We are hopeful that as more people are vaccinated, we will see a resurgence in business growth in that area, but for now, it's on hold until conditions improve.

Understood. Finally, can you address pro forma leverage with Sensis and your strategy to return to lower leverage levels while potentially looking for future acquisitions?

We have levered up a couple of times to execute strategic initiatives but will work to quickly deleverage afterward. We prefer to maintain lower leverage levels. Paul can provide further detail on our financial strategies.

We will follow the same strategy to manage our leverage. We don’t prefer excessive debt, and our historical patterns showed quick deleveraging after strategic investments.

Certainly. Your final question today comes from Ryan MacWilliams from Stephens.

Can you elaborate on your focus on product-led growth and expansion in distribution? After such a tough year for small businesses, how does Thryv stand to benefit from the recovering environment?

I anticipate a business creation boom. Early indicators are emerging, and we're working closely with the Small Business Development Group to support new business starter packs, emphasizing the importance of CRM solutions from day one. This proactive approach should allow us to capture new business early, although there's some risk if they deviate from our ideal customer profile. Based on economic trends, we expect growth as vaccinations progress and overall demand increases.

On ThryvPay, the significant increase since the last quarter is encouraging. With average transaction volumes increasing, how do you plan to expand this product across different verticals?

It's early days for ThryvPay, but the momentum is promising. The product caters specifically to service-based businesses, and we are seeing strong uptake, especially in sectors like plumbing and landscaping. Our customers are engaging in larger transactions, affirming ThryvPay’s relevance. Ryan can provide additional insights into our growth strategy around ThryvPay.

As we mature ThryvPay, we continue to enhance onboarding, client success team engagement, and our overall marketing strategy. This focus enables us to effectively target service-oriented businesses, ensuring they have the functionality they need, which will contribute to enhancing overall product adoption.

I want to conclude by thanking everyone for their participation. 2020 was a solid year for us, establishing a strong foundation for growth. There is enthusiasm for the prospect of our new partnership with Sensis. Additionally, domestically, we are building sales channels that are improving month over month. We are excited by long-term contracts with franchises and the influx of new reseller partners. Our traditional sales team is thriving, with reinforced customer relationships that strengthen our growth trajectory. I appreciate your engagement, and we eagerly anticipate updating you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you once more for participating. You may now disconnect.