Good morning, everyone. My name is Abby, and I will be your conference operator today. Welcome to Thryv's Third Quarter 2022 Earnings Call. This call is being recorded. I will now hand over the conference to Cameron Lessard, AVP of Investor Relations and Capital Markets. Please proceed.

Thank you for joining us on today's conference call to discuss Thryv's third quarter 2022 financial results. With me on today's call are Joe Walsh, Chairman and Chief Executive Officer; and Paul Rouse, Chief Financial Officer. Before we begin, I'd like to remind you that shortly before today's call, we issued a press release announcing our third quarter 2022 financial results. We also published a Q3 investor presentation on our website at investor.thryv.com. Please note that information regarding our quarterly performance and guidance can be found towards the back of the presentation. I would like to remind listeners that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements about the operations and future results of the company. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. 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. Reconciliations of those measures to GAAP will be posted on the Investor Relations website. With that introduction, I would like to turn the call over to Joe Walsh.

Thank you, Cameron, and good morning, everyone. Welcome to our third quarter earnings call. We made excellent progress on our strategic priorities that enable this quarter's performance and our strong progress year-to-date. As a result, we're raising our full year guidance once again. Paul will provide further details about our financial results and the future outlook. Let's jump into the highlights of Q3. SaaS revenue of $56.6 million was up 26% year-over-year and 8% sequentially, ahead of our guidance. For the second quarter in a row, we kept a balance between subscriber growth and ARPU growth, with both in double digits. This is a direct result of our important recent initiatives, including investing in our product, engineering, and client success teams. This growth has been bolstered by the digital transformation trends that we feel continuing to accelerate in the market, this golden age of SMB SaaS. We feel like this is the decade that SMBs are migrating into the cloud, and they're looking for a complete platform like Thryv offers. This is a megatrend that we're riding. So growth has been solid. We've also been able to achieve this in a cost-efficient manner. We've overperformed on SaaS EBITDA. On our Q2 call, we guided for Q3 EBITDA loss around $5 million, and we delivered much better with a loss of $2.2 million. The U.S. is showing profit for the second quarter in a row. EBITDA losses are purely against our international markets, which we're in the process of standing up, which will lead to future SaaS growth. Keep in mind, we're generating a lot of cash flow on the Marketing Services side of the house, which is where we get the majority of our SaaS customers from. This is that highly efficient model that we have. Sales efficiency is being talked about a lot now. It's being a little bit discouraged to spend wildly to find customers. We have 400,000 existing customers in our base that we're calling on and working with in the normal course. And that's where we get the vast majority of our customers, either directly from there or by referrals from there, delivering that super sales efficiency. Regarding international, we just announced the opening of our regional HQ in Toronto, the hiring of a sales team as well as key partnerships with GetintheLoop and the Canadian Franchise Association. Canada has around 1.5 million businesses. Marie Caron is spearheading that, our international leader. She's taking that market on and has done an incredible job of getting it kicked off. On the Marketing Services, we continue to see very predictable performance in billings, which allows us to generate solid cash flow and pay down debt. One other item I want to mention is that we were named one of the most loved workplaces, which we're really proud of. Overall, I'm super proud of how we're positioned for the balance of the year. With that, let me turn it over to Paul Rouse to take you through our financial results.

Thank you, Joe. As a reminder, we're going to focus on total SaaS and total Marketing Services results, which include both domestic and international operations. As you may recall, this is how we provided guidance to the start of the year, and we feel is more helpful in modeling the business. Let's start with our third quarter results, starting with our SaaS business. Third quarter total SaaS revenue was $56.6 million, ahead of our guidance range, which represents an increase of 26% year-over-year and 8% quarter-over-quarter. As Joe mentioned, the growth in revenue was attributed to a balance between subscriber growth and ARPU expansion, with an increase of 13% and 11% year-over-year, respectively. Annualized spend per client was approximately $4,500 for the third quarter. Third quarter SaaS adjusted EBITDA loss was negative $2.2 million and ahead of our guidance. The reason for the overperformance was due to greater discipline as we continue to improve our ROI on our marketing and demand generation efforts. Seasoned net dollar retention was 92% for the third quarter, which is slightly improved when compared to the prior quarter. As a reminder, seasoned net dollar retention represents clients that have been with us for over one year. Monthly churn continues to be stable for the quarter. Moving over to Marketing Services. Third quarter total Marketing Services revenue was $224 million and ahead of our guidance. The reason for the overperformance is due to stronger-than-anticipated digital revenue. Vivial contributed $20 million to Marketing Services revenue in the quarter. Third quarter total Marketing Services adjusted EBITDA was $67.6 million, resulting in an adjusted EBITDA margin of 30%. As indicated in our quarterly outlook for Marketing Services provided at the start of the year, we expected less revenue for print due to the timing of our directories. Third quarter Marketing Services billings, excluding Vivial, was $198.1 million, a decline of 20% year-over-year. When including Vivial billings, the decline was 8%. Turning now to profitability and leverage for the consolidated business. Third quarter consolidated adjusted gross margin was 66%. Third quarter consolidated adjusted EBITDA was $65 million, representing an adjusted EBITDA margin of 23%. Finally, our net debt position was $505 million in the third quarter. Our leverage ratio for the third quarter, in accordance with our credit facility, is 1.6x net debt to EBITDA and well below our covenant of 3x. We generated $37.6 million of free cash flow in the third quarter and paid $39 million towards our term loan. From a year-to-date perspective, we generated $84.9 million in free cash flow and paid $81.5 million towards our term loan. Now let's discuss updated guidance for 2022. For the full year 2022, we raised our guidance for total SaaS revenue in the range of $214 million to $215 million. This implies total SaaS revenue in the range of $57 million to $58 million for the fourth quarter. We are updating our SaaS EBITDA loss outlook in the range of $14.5 million to $15.5 million, which is improved from our previous guidance of $16 million to $19 million. This implies SaaS EBITDA loss in the range of $3.4 million to $4.4 million for the fourth quarter and is designated for international investments, including our most recent launch in Canada. For the full year 2022, we are raising our guide for total Marketing Services revenue in the range of $965 million to $975 million and raising our adjusted EBITDA in the range of $338 million to $341 million, representing an EBITDA margin of 35%. Before I wrap up, I want once again to take a minute to talk to you about revenue recognition for Marketing Services and give you a peek into 2023. Our Marketing Services financial results are reported under accounting rule ASC 606, which has a material impact on both the timing and method of revenue recognition, specifically for our print directories. Print revenue is heavily impacted by the timing of shipments, and our publication schedule is nonlinear between quarters and fiscal years. As a result, this nonlinearity will have an impact on the timing of when we recognize print revenue as is common in the print industry. This entire contract associated with the print publication is crystallized as revenue once shipped. For example, a 15-month directory will have all revenue recognized in the first month of publication. The increase or decrease in print revenue between fiscal periods is not an indicator of the health of Marketing Services. For this reason, we provide billings as an operational metric, which shows the very consistent and steady performance of our Marketing Services business as we expect and have discussed with you. Billings and actual cash collections follow monthly invoicing and collection of cash receipts, unlike revenue recognition. This also gives us high confidence in our ability to manage the business, generate cash and pay down debt. For the full year, we anticipate paying $105 million to $110 million towards our term loan. Looking back on our Investor Day in April, we announced we would be lengthening the directory life in our Marketing Services business from 15 months to 18 months. Advantages of lengthening the directory life are that it helps us improve our unit economics and saves costs, enhances our forward cash flow visibility and frees up time for our business advisers to sell SaaS to existing customers. The only disadvantage is that extending the lives of these publications creates more nonlinearity in the timing of the print revenue recognition in Marketing Services and will impact 2023. At this time, we expect this to be reflected in the third quarter of 2023, where the timing of publications will make the print revenue considerably less, relative to other quarters, both here in the U.S. and internationally. This will have no impact on the underlying fundamentals of the business. It's just an artifact of accounting, unfortunately. We look forward to providing you more color on this when we guide for the full year on our fourth quarter call. So stay tuned. Now I'll turn the call back over to Joe.

Thank you, Paul. The 18-month directory innovation is really important. It does a lot of good things for us. It helps us with ESG. The directories are coming out less frequently. That's environmentally friendly. Our small business customers have been with us, on average, something like 15 years, and they view their listings in our Internet Yellow Pages directories and in our print directories as an important utility in running their business. It keeps them able to be found everywhere. They don't really think of it as advertising, like they're going to run an ad. That's why these very long contracts work out just fine. And it's part of what insulates us from the ups and downs of economic climates. So that's part of why the business is steady. And remember, this is a gigantic melting iceberg that we're running for cash and very focused on the cash-generative characteristics of it, and it generates a lot of cash. I want to talk for a minute about some of our product improvements we're excited about. We recently launched ThryvPay in Australia and in Canada. It's a payment tool that's particularly built for service-based businesses; allows them to recapture convenience fees and other costs that they have in doing business, which they like a lot; allows them to get paid right away for them to have sort of next-day funds. It allows them to do it more efficiently at lower cost. So it's been wildly popular. It represents a huge percentage of the payment volume coming over our platform. We're seeing it growing really fast. It's sort of 100% year-over-year growth off of a small base, but it's becoming meaningful. We're excited about ThryvPay and the additional engagement that it drives. When your software is paying you, you don't tend to cancel it. So we're pretty pleased with that. Another area we're really excited about is the launch of TeamChat. TeamChat is the much-anticipated ability for people to communicate within the platform. Staff can chat, share files, annotate photos, and reference-link to any item within Thryv for fast coordination and collaboration in real-time. There's also a separate TeamChat mobile app that a small business can give to their contractors or to their workers in the field. They don't necessarily get to see the entire Thryv with all the payment details and all the CRM stuff, but they can share details about the customer. They can take photos of a job. They can exchange documents. It allows really great communication, almost a Slack-like experience within Thryv, and gives the small business owner the flexibility that they were looking for and that they need. And this is one of our most requested features. The main goal here is no more disorganized messages. Thryv collects and collapses all conversations across all channels into a single continuous conversation with a client. So this is a big deal, and this is going to increase engagement at a much, much higher level across particularly our service-based businesses, but really all of them. Anybody that's got people out in the market, out in the field, that communication about the jobs, about their customers, is something that we've been asked a lot for by our power users. So that's off to a great start. We're really excited about that. I wanted to quickly comment on Marketing Center. We announced earlier in the year that we were launching another center called Marketing Center. We've been testing that extensively throughout the year. We've had it in pilot now with a number of sales teams. Customers are buying it. And it will be fully rolled out before the end of the year. I would expect to see revenues from Marketing Center beginning in 2023. So with that, why don't we turn to the operator for questions. Operator?

And we will take our first question from Arjun Bhatia with William Blair.

Congrats on the good results. Joe, maybe could you just take a second to talk about the macro and the demand environment? We obviously hear a lot from some of the other companies we cover in software. But I take it, your market is a little bit unique, with being in SMBs and service-based businesses, there are likely some differences versus what we see elsewhere. What are you seeing within your customer base given how much things have changed in the last few months?

For us, things haven't changed significantly in the last two months. We're working with small businesses, typically with 5 to 10 employees, rather than large corporations. These businesses are aware of the headlines and the general message to be concerned, but their behavior hasn't changed. I've noticed some earnings calls recently where others mention longer sales cycles and slower decision-making from higher management, but we don't deal with corporate structures. Our focus is on mom-and-pop businesses. Despite the media's efforts to scare them about the economy, our results remain strong. We continue to see solid growth. Our proactive approach has been key; we reach out to our 400,000 customers regularly about updating their listings and programs online and in print. This contact has led to more of them purchasing software from us. There is a significant shift happening as small businesses are moving to the cloud, seeking efficiency, organization, and modernity to connect with their customers. This transition is much more impactful than the economic concerns that may be prevalent in the corporate world. While the economy may eventually affect us, it hasn't yet, and we are doing well with double-digit growth in subscribers and revenue. Our business is well-equipped to handle the current environment. Our customers are on 18-month contracts managing their online listings, which is a complex task, making them unlikely to discontinue our services easily. That sums up our position.

That's great to hear. I wanted to ask about the new headquarters you opened in Toronto. What led you to decide that you needed a physical presence in that market, and how should we view the progress of revenue in Canada?

Well, I mean, we have some revenue beginning to develop there now. We have Thryv available in an online-only fashion now prior to these announcements. What we're adding now is feet on the street. We're adding feet on the street through partnerships, and we're doing it by beginning to build a direct sales force. And that activity is just getting underway. I don't want to make it like we've been doing it for a long time. We're just getting going now. So this is really a 2023 kind of thing. Don't look for a bunch of revenue in this quarter. But we're going to go build that out, and we expect strong growth off of obviously a very tiny base. But it's just another plank in our growth plan. Canada is obviously more like the size of almost one big state in the U.S. So it's not going to massively alter our results. And we haven't acquired anything there yet. This is just us going in, getting going. And the model that you're seeing us execute there, I think, you'll see us doing in additional countries as time unfolds here.

Joe, I have a question for you, and then Paul, I have a follow-up for you as well. To build on Arjun's question, it appears that you are not experiencing any macroeconomic impacts. You have smaller customers who are benefitting from the current environment for SMB digital transformation. Given your extensive experience, could you discuss the potential recession resilience of your business and any strategies you might employ to capture more customers during challenging times? Specifically, if we were to enter a prolonged recession and SMBs were affected, how would your company maintain its defensive position or competitive advantage compared to others?

In our Marketing Services, we don't run traditional advertisements like billboards or radio spots. Instead, our focus is on ensuring our clients are visible across various platforms where consumers search for services. This includes printed and online directories, a network of around 100 additional online directories we don't own, and managing their listings throughout the web. It's akin to removing the sign from a business if we stop; we only ask clients to update their information every 18 months, and much of it auto-renews with minimal communication. Our customers typically remain consistent, as they are small businesses that prefer not to disrupt their visibility. Over the years, both Paul and I, along with other team members, have experienced various economic downturns, and one thing stands out: many of our customers have been with us for a long time. We do not focus heavily on acquiring new business since younger entrepreneurs—like those starting at 33—are unlikely to purchase ads in the Yellow Pages. Instead, our clientele usually consists of established businesses with stable operations. When considering our SaaS business model, our sales efficiency is a significant advantage. Many peer companies express concern over high spending on Google and other online resources to generate leads, but we are fortunate to engage daily with thousands of small businesses. Many businesses that weren't ready for our services last year have now opted to modernize. One-third of our new customers come from ongoing conversations, another third are referrals from satisfied clients, and the last third comes through various new strategies we’ve implemented. This approach ensures our customer acquisition process is very efficient. We’ve noticed other companies spending excessively to drive growth; however, Paul and I prioritize cash flow, profitability, and sustainable unit economics, which makes us feel more confident in the current environment.

That's great. Paul, just on that point, with the improved ROI on some of your marketing spend, it sounds like you have found some leverage you can continue to pull there to drive better profitability and more efficiency, which you guys are showing, which is great. Are those levers been exhausted? Are there additional levers that you might be able to pull to drive further efficiency in operations and in particular, maybe in your marketing spend?

We're always exploring opportunities to improve our business. As our SaaS business expands, our revenue increases, leading to higher profitability. For the past two quarters in the U.S., we've already been profitable. We're continuously assessing the business to identify ways to reduce costs.

Congrats on a good quarter. I guess I've got a couple here. First of all, Joe, you talked about Marketing Center to be released, it looks like by the end of the year. You're in beta right now, at least it looks like it because I was able to find some things on your web page about it. With the early successes that you've had there, how do you think about selling that product going forward? Do you have to change anything in your sales motion? Maybe it's going back and trying to cross-sell to your existing base or something net-new to drive initial adoption of that solution?

It's a great question. You need Thryv to access Marketing Center, so we can only sell it to Thryv customers. Currently, we have 51,000 Thryv customers, which is our potential market. Additionally, customers must have used Thryv for over 30 days before they can add Marketing Center. Each customer has a business adviser, and we also have a monetization team engaging with small businesses. We plan to implement marketing efforts to raise awareness about its availability. We've noticed a strong interest in tracking various marketing activities, such as lawn signs, truck movements, and physical flyers. Customers want to see what works, and Marketing Center enables them to consolidate all this information into one dashboard, which is invaluable for well-organized small businesses. So, that's our target market and sales approach.

Right. That's the reason I'm pointing now, particularly in the third quarter of next year, there's going to be very little print. So with very little print, there's very little profitability. That's completely detached from the cash flow of the business. So that's why each quarter, we keep on bringing this up to remind everyone. The health of the business is really the billings. It's not really the recognition of the revenue.

Joe, just starting off, nice to see a double-digit subscriber growth again in the SaaS segment. Can you give us any update on kind of the mix of the channels that you're acquiring customers from? I know it's typically been 1/3, 1/3, 1/3 in the past. I'm just curious if there's been any shifts around here in recent months.

Yes, we're observing a subtle change in customer acquisition channels. Currently, the share from new channels is slightly below one-third as we prioritize profitability. Earlier this year, we anticipated a loss in the mid-20s range and have adjusted our expectations based on market responses. One effective strategy has been to focus more on sales from the zoo, where our customer acquisition costs are very low and efficient. In comparison, costs from new channels align more closely with industry standards. While the concept of one-third for each channel remains, it may now be around 29%. We have the flexibility to adjust this as needed. Additionally, our new Chief Marketing Officer, Tami Cannizzaro, who joined five months ago, is exceptionally talented and will enhance the efficiency of all channels. I'm optimistic about the improvements we can achieve over the next year through her efforts.

Most of the questions have already been addressed at this point. However, regarding the Marketing Services accounting, Paul, to clarify, the reported revenue and EBITDA may be somewhat artificially low in Q3 and for the full year 2023, but we anticipate a recovery in 2024. Is that the correct way to understand it?

Yes, it is, that the normal decline rate is a shrinking business, will be normalized in '24.

Perfect. Helpful. And then the initiative in Canada, is there any sizing of incremental expense you might incur in '23 as you stand up that office and kind of look to drive growth? Or do you expect that to be relatively neutral in the short term?

We're working on that currently. There will be a loss in Canada as we stand it up, but it will be small comparatively.

Got it. And just curious, you didn't call it out, was there much of an FX impact on either revenue or EBITDA in the quarter? Just thinking about the recent movements in the Australian dollar, any noticeable impact there?

Yes, there was. There was a loss on revenue, about $2.2 million, and maybe a $300,000 impact on EBITDA for Australia.

Yes, Paul, I'll address that. I can't guarantee that it will progress in a perfectly straight line to 100%, but the trajectory will be upward. We've recently increased from 91% to 92%, and I hope to continue that positive trend. However, there may be occasional anomalies in the data that could cause slight reversals. Overall, the steps we're taking in our product strategy, combined with the insights from customer retention and our client experience team, suggest that our overall retention rate is stable, if not improving. Additionally, with the new centers, there are more offerings for these customers. As customers start purchasing the Marketing Center, it will significantly contribute to our net revenue retention. Until now, we've had smaller upsell opportunities like additional seats or compliance features, but now we have complete new centers to offer. We're entering a phase where upselling will become much more significant than just initial sales. Thank you very much. I appreciate it. Dan, thinking about your last question, we made a significant paydown on our debt last year and acquired Vivial in the process. This business generates a lot of cash, which really distinguishes us. Firstly, it has a strong cash generation capability, much like a built-in data center. Secondly, our model offers great sales efficiency. In a time when there are concerns regarding sales efficiency, it's important to look at what we are doing. We're consistently reaching out to our regular customers, and as they recognize the need to modernize, we are there to guide them into the SaaS space. We're very excited about the progress we're making, especially with the upcoming launch of Marketing Center and its potential impact on our numbers next year. Our initial progress in Canada looks promising, and Australia is performing exceptionally well. In October, our single region in Australia outperformed all the U.S. regions. They're really finding their momentum and understanding the market. We're enthusiastic about our international expansion, with Marie Caron energetically exploring opportunities and planning further growth in additional countries as we move into next year. We're truly excited about our current position as a business. We are aware of the headlines, but we believe our success is in our hands. We actively engage with customers rather than waiting for them to come to us, giving us control over our future. At the moment, we aren't facing significant challenges, but if they arise, we're ready to work harder and execute effectively. Thank you all for your time; we greatly appreciate it and look forward to updating you again soon.

And ladies and gentlemen, this concludes today's conference call. And we thank you for your participation. You may now disconnect.