Thryv Holdings, Inc. Q4 FY2022 Earnings Call

Good morning, everyone. My name is Abby, and I will be your conference operator today. I would like to welcome you to Thryv Holding Incorporated's Fourth Quarter and Full Year 2022 Earnings Conference Call. This call is being recorded. Thank you, and I will now hand it over to Cameron Lessard, Head of Investor Relations. You may begin.

Thank you, operator. Hello and good day to everyone. Welcome to Thryv's fourth quarter 2022 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer; Paul Rouse, Chief Financial Officer; and Ryan Cantor, Chief Product Officer. A copy of our earnings press release and investor presentation can be found on our website @Thryv.com in the investor section. 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. Reconciliation of those measures to GAAP will be posted on our IR website. With that introduction, I would like to turn the call over to Joe Walsh.

Good morning, Cameron. And thank you all for joining us on our call today to discuss our fourth quarter results. 2022 was a year of tremendous accomplishment for Thryv. We finished the year with strong financial results, improved efficiency, and continued product innovation with the release of the marketing center. Fourth quarter SaaS revenue grew 25% year-over-year and 26% for the full year. SaaS subscribers ended the year at just over 52,000, an increase of 13% year-over-year. SaaS monthly ARPU grew 10% in the quarter. Our average customer now spends around $4,400 a year compared to $4,000 one year ago and $3,000 in 2020. So we're making really good progress on ARPU with customers using the product more and buying higher-end versions of the product. One year ago on our earnings call, I highlighted our goal of targeting more balanced growth in SaaS subscribers and ARPU going forward, which we've achieved for three consecutive quarters. Engagement has increased 37% year-over-year, which we feel is a very strong indicator for durable growth. Our clients are using the Thryv platform to run and grow their businesses, to find customers, stay organized, communicate, and get paid. Monthly churn has remained flat in the mid-1% range, which we consider to be world-class. On the bottom line, once again, SaaS EBITDA came in better than our expectations. This is significant as we cut our SaaS EBITDA loss by almost half since we issued guidance a year ago. We've been focused on driving cost-efficient growth, not growth at all costs. The U.S. has been profitable for three quarters in a row as we continue to scale and move past our investment stage. SaaS EBITDA loss is a result of our expansion internationally in Australia and Canada. I'm pleased to report that Australia is on a path to turning a profit after selling SaaS for only six quarters; it's been one of our top producing regions. So we feel our playbook really works. And these are not big losses, only single-digit millions. Once we establish a new country, it takes a couple of years to cash flow and then it goes from there. So that will be our model as we move forward. On marketing services, we continue to see very predictable performance in billings, which allows us to generate solid cash flow and pay down debt. Next up, I'd like to introduce Ryan Cantor, our Chief Product Officer. Ryan?

Thank you, Joe. As we previously covered in both 2021 and 2022, Thryv continued to responsibly expand our engineering and product capabilities. We've invested in a robust UI/UX team to ensure the Thryv platform remains powerful and easy to use. We've invested in app experience to fuel our product-led growth initiatives. We've invested in product and engineering to conduct better client research and to accelerate our roadmap to deliver better value to our current and future clients. Small businesses run better on Thryv. We know this and hear it every day from our clients. Thryv is a growing all-in-one small business platform. The needs of these small businesses continue to grow at an accelerated pace and Thryv is in a prime position to deliver increased functionality to meet this growing demand. In early 2022, we unveiled an exciting new product strategy to move to a multiple center platform. This would allow us to solve these additional problems for our existing clients and attract a wider array of new clients into our platform in the coming periods. After a year of development and numerous rounds of live client testing, we were excited to launch marketing center in Q4. This exciting new center presents a bridge between our past and our future. Marketing center was built from the ground up and focused on the modern needs small businesses have with growing their business while leveraging our decades of experience offering marketing services and tools to the market. To date, marketing center results have been strong, and client reception has been incredibly positive. We plan to share additional metrics and insights about our newest center throughout the year. Sitting right underneath our centers are a growing number of modular apps that enable our users to customize the Thryv platform to meet their specific needs and pain points. For those looking for a more cost-efficient payment option built specifically for service-based businesses, we built ThryvPay to be a modular app and then recently improved ThryvPay again by launching mobile card readers throughout the U.S. Additionally, for small business owners who have modern iOS or Android devices, ThryvPay just recently released tap-to-pay using Near Field Communication technology to turn a small business owner's mobile device into hardware to accept lower fee card-present payments. Launched in October 2020, ThryvPay now enables businesses to accept credit card or bank drafts. They can accept in-person payments via mobile devices or device-less with tap-to-pay. They can accept online payments via QR codes, SMS text messaging, or email, and it makes it easy to pay with Apple Pay or Google Wallet. It enables small business owners to offer consumer financing to their clients for larger ticket items. Lastly, ThryvPay enables customizable, automated surcharges or convenience fees to help offset the cost of payment processing. While lower average ticket sales put some pressure on overall payment volumes in Q4, overall ThryvPay volume nearly doubled year-over-year. In 2022, the second full year after ThryvPay was launched, overall payment volume grew to over $140 million, a 114% year-over-year improvement. Another app we've recently launched is our new Signatures app. Signatures enables our users to upload a document to send to their contacts for an e-signature fully built into the Thryv platform. This eliminates the need for users to take multiple manual steps to get their contracts, agreements, or proposals signed and uploaded to their centralized CRM. With Signatures, it is now a fully automated process, end-to-end. The Signatures app enables all users to try it for free with up to five free signatures per month. People who need more and have been able to try it before they buy it can upgrade in-app to $49 a month for up to 100 signatures with a small overage fee for additional. This really is on the heels of our TeamChat app that we launched in early Q4. 10% of our active users are already adopting TeamChat, which is extraordinary, especially given the backdrop of the holiday season. TeamChat enables all of the internal collaboration and coordination within a small business to take place in an organized and secure way. These releases are in addition to a multitude of enhancements we released to improve our core Thryv product. We recently launched both native 2-way real time Google Calendar and native Outlook integrations to better meet SMBs where they are before they adopt Thryv and to easily see their Thryv appointments and events inside both Google and Outlook and vice versa. We launched a robust and configurable end-to-end deposit workflow that enables service-based businesses to be paid a portion of their estimate at the time of approval while capturing a digital signature, all in just a few clicks for the end consumer. In addition to the deposit improvements, we have also released a all new customizable templates for both estimates and invoices, enabling SMEs to choose a style and color that aligns with their brand. Additionally, this month, we launched the ability to better configure both estimates and invoices with customizable sections and headers with easy to use drag-and-drop capabilities. Both of these improvements have been top five requests from our users, and we were delighted to deliver it for them. In 2022, a combined 1 million estimates and invoices were created and sent inside the platform. That represents a 20% improvement year-over-year. We launched an improved rich text editor for our heavily used centralized inbox, enabling better control and customization for longer-form conversations. This release has been a hit, with inbox conversations in 2022 increasing nicely, with Thryv now powering 7 million conversations between small businesses and their prospects and customers. Every month, small business frustration from the over-adoption of independent point solutions continues to grow, with more and more businesses seeking out a true all-in-one platform that can grow with them. That's what Thryv is. It's simple, it's powerful, and it's tailored to the needs of these growing small businesses. And with that, I will now turn it over to our CFO, Paul Rouse, to discuss fourth quarter financial results. Paul?

Thank you, Ryan, and good morning to everyone on the call. As a reminder to listeners, we are going to focus on our two segments: SaaS and marketing services, which include results from both domestic and international operations. We feel this is more helpful in modeling and understanding the business. An additional breakout between domestic and international for each segment can be found in the appendix section of the investor presentation on our website. Okay, let's get into the numbers, beginning with our SaaS segment. SaaS revenue grew to $59.3 million in the fourth quarter, another strong quarter, and a 25% year-over-year increase. Moving to the SaaS revenue grew 26% year-over-year. At the end of the fourth quarter, SaaS subscribers totaled approximately 52,000 compared to 46,000 in the prior year. This represents a 30% increase in subscribers year-over-year, and our third consecutive quarter of double-digit growth. SaaS ARPU increased to $387 in the fourth quarter, compared to $351 in the prior year, and represents 10% growth year-over-year. Turning to the bottom line, fourth quarter SaaS adjusted EBITDA was negative $2.2 million and ahead of guidance. Full year SaaS adjusted EBITDA was negative $13.4 million, which is an improvement of 36% year-over-year and almost $10 million better when compared to the midpoint of our original guidance. As indicated at the beginning of 2022, our goal was to show more operating leverage in our SaaS business as the year progressed. Throughout the year, we emphasized the value-creation potential from improved marketing efficiency due to our enhanced team-selling model. We are pleased with our results and have confidence in our positioning in 2023. Seasoned net dollar retention was 91% in the fourth quarter. As a reminder, seasoned net dollar retention represents clients that have been with us for over one year. Moving over to marketing services, fourth quarter marketing services revenue was $220.1 million and ahead of guidance. Our notable performance was due to strength in our digital offerings. Full year marketing services revenue was $986 million, which includes $89 million in contribution from Vivial holdings on a reported basis. Fourth quarter marketing services adjusted EBITDA was $17.4 million, resulting in an adjusted EBITDA margin of 32%. Full year marketing services adjusted EBITDA was $346.79 million, resulting in an adjusted EBITDA margin of 35.2%, in line with our projections throughout the year. Fourth quarter marketing services billings was $192.8 million, representing a decline of 70% year-over-year. Full year marketing services billings was $829.9 million, representing a decline of 18%. Both of these measures exclude the impact of Vivial. Fourth quarter consolidated adjusted gross margin was 68%. Full year consolidated adjusted gross margin was also 68% and unchanged when compared to the prior year. Fourth quarter consolidated adjusted EBITDA was $68.2 million, representing an adjusted EBITDA margin of 24%. Full year consolidated adjusted EBITDA was $333.3 million, representing an adjusted EBITDA margin of 28%. I would also like to point out that we have an impairment to goodwill, a one-time non-cash charge in the fourth quarter in the amount of $102 million, or $2.98 per diluted share, related to the structural decline of our marketing services business. Net loss was $50.4 million or a loss of $1.47 per diluted share for the fourth quarter 2022 and compared to net income of $5.1 million or $0.13 per diluted share for the fourth quarter of 2021. Finally, our net debt position was $468 million in the fourth quarter. Our leverage ratio for the fourth quarter in accordance with our credit facility was 1.4 times net debt to EBITDA and well below our covenant of three times. The company generated an additional $34.5 million of free cash flow in the fourth quarter. We paid $31 million towards our term loan. From a year-to-date perspective, we generated $119.3 million in free cash flow and paid $112.5 million towards our term loan. Since the refinancing associated with the census acquisition in 2021, we paid nearly 40% of our term loans in just under two years. In addition to the progress we have made on long-term debt, we have made significant headway in reducing our pension liability over the course of 2022. A reduction of $68 million, nearly a 50% reduction when compared to the prior year. Now let's discuss guidance for the first quarter and full year 2023. For the first quarter, we expect SaaS revenue in the range of $59.5 million to $60 million. For the full year 2023, we expect SaaS revenue in the range of $257 million to $259 million, which implies SaaS revenue growth of 19% to 20%. For the first quarter, we expect SaaS adjusted EBITDA in the range of negative $2 million to $3 million. For the full year 2023, we expect the SaaS adjusted EBITDA to be positive. This full year guidance currently reflects a more profitable U.S. SaaS business offsetting international investments. For the full year 2023, we expect marketing services revenue in the range of $635 million to $649 million and adjusted EBITDA in the range of $185 million to $187 million. You can find quarterly ranges for marketing services revenue in our press release and investor presentation available online. As indicated on the third quarter 2022 earnings conference call, we expect to ship fewer publications in the third quarter of 2023, and due to the accounting treatment, it will impact our third-quarter results. However, this does not impact free cash flow and our ability to retire debt. We expect a very high cash flow conversion in the third quarter. For this reason, we want to point investors to our marketing services, billing performance and operational metrics in our investor presentation which shows steady performance for many historical periods. We’ve realized the non-linearity of print is a bit complicated, and we try to provide as much information as possible to be transparent. And finally, due to the visibility we have in the business, we feel confident we can retire approximately $100 million of debt in 2023.

Thank you, Paul. We're focused this year on efficient growth. We're fully scaling in the U.S. The business has been profitable now for a while, and the losses are fairly small for the new country starts, and not so that the U.S. can cover those and carry them. We've got an overall now profitable business in '23. And we've reached that scale or beyond the investment phase. So as we launch new countries going forward, there will be a small investment as we set up a new country, but we now have a fully scaled U.S. business that we think can carry that. One interesting highlight in this transformational journey of our company. And this is actually, I think, a really big deal is that for 2023, in our financial plan and our model, SaaS revenues actually eclipse print revenues for the first time. Yes, that's right; I'm being clear about that. The SaaS part of our business will have recognized revenue larger than the print part of our business. Now, to be honest, a little bit of that is the revenue recognition issue where some books move out of the year, but by the time they get to '24, and that sort of corrects and reverses the SaaS business at the rate that it's growing, will just pull it away from the print business. So this was the inflection point where SaaS is larger than print. And from here on out, it'll just pull away. So that's a gigantic milestone when you're trying to transform a legacy company into something new. And for those that were sort of waiting for that moment, this is that moment where that crossover is occurring. The way we are investing our money is into engineering and into product. We're pretty focused on making sure we've got the best-in-class product and an all-in-one solution at the moment when small businesses are beginning to move to the cloud and beginning to experiment with point solutions. There's a sort of a crisis of disconnectedness where people really desire something more simple. Think about you get an iPhone because it just works. The Android phone might be slightly better with a better camera and a few other odds and ends. But it's more of a do-it-yourself project. When you get that iPhone, it just works. And that's what Thryv is. It's this premium brand, super high quality, everything works well together, it's integrated into its own app store and marketplace. You can run your business under one login with one dashboard with an all-in-one product. And that's super desirable for people at this point. There is a sort of a vendor consolidation thought process out there, that's going on even with people who have begun to experiment with SaaS. So our investment is in product. We haven't had to throw lots of money at marketing and sales because we have this unfair advantage. We have 400,000 existing accounts in our zoo and our customer base that are steadily buying more and more software as this trend is picking up speed of small businesses moving to the cloud. The largest area now of customers for us is actually referrals where those existing 52,000, who are thrilled with what Thryv is doing for them are telling their friends, and that's driving referrals to be more and more of our revenue base. When you think about investing, don't think of us throwing money at plastic sales and marketing efforts. Think about a robust product investment. When we think about our customer base, we often talk about the SMB space. When we started, we were kind of in the lowercase s; we were selling to very tiny solopreneurs, two-employee, three-employee businesses. But as our platform has gotten stronger, gotten more robust, and as we've gotten better at figuring out who our ideal client is, we've begun to move up market. So we're moving towards the 10 or 15, or 20-employee businesses a little more, and we're finding that they are able to consume a lot more on the software, and obviously, they have lower churn, they have great payment capabilities, and they tend to be less volatile. So that's part of the journey that we're on is moving from lowercase s to kind of uppercase S and even tipping into the M just a little bit as we move forward. Our marketing services business, I realize, is a little tough to understand the way the revenue recognition is bouncing around. I would just direct everybody to look at cash flow. We can show you cash flow going back through the years and it's like a metronome; the rate of decline is very steady. And that cash is coming through, and we paid down a lot of debt last year and we will pay down a lot of debt again this year. So we're cash flow-focused; keep that in mind. We're very focused on delivering cash. It's what we've been doing our whole career, and we feel comfortable that we will be able to continue to do that. When we first got to Dex Media, the very first thing we did was rip out a couple of hundred million dollars of costs just to restructure the business. Then we bought YP, and in no time flat, we improved margins by 20 points for anybody who was watching. So we're pretty focused on efficient growth and delivering cash; that really is always our way. And we are always looking ahead, planning ahead, and looking to variable costs. Looking at cost levers that we can use as well. And keep in mind in 2024, the publication schedule normalizes a lot. So the marketing services' revenue recognition leads kind of roars back and, but SaaS, as I mentioned, will fold away and be bigger at that point. So that's a quick trot through our business and an overview of where we are. Operator, why don't we open it up for some questions?

Thank you. We will take our first question from Scott Berg with Needham & Company. Your line is open.

Hi, everyone, congrats on the nice quarter. And thanks for taking my questions. I guess I've got a couple here, Joe. I know it's really early, you've only had marketing center out for a couple months. But any bits of anecdotal information you can share? Maybe is this being purchased by new customers as part of the business center suite or is it just maybe selling better to existing customers and across the sales motion?

Thank you for the question. The marketing center is off to a strong start. We only began selling it at the very end of last year, so we don't have a long history to analyze yet. Initially, we restricted sales to existing visitor center customers only. At this point, we aren't acquiring new customers through this offering, but this will not be the case indefinitely. It was simply our cautious approach to launch and ensure strong initial success. Sales have been good and interest is high. As Ryan mentioned in his prepared remarks, this aligns with our legacy of connecting buyers and sellers through marketing services, and many of our employees have a long history and credibility in this area. It was a logical move for us. Ryan, would you like to share any insights about customer experiences or uptake?

Thanks, Joe. Early signs from people who have adopted the marketing center, as Joe alluded to, are adding it on top of their already powerful Thryv experience. And they're taking advantage of better insights as customers are visiting their website or their landing pages. They know where they're coming from, which is really starting to now inform their decision. So we're just starting to see people starting to run some paid advertising through the platform in the early parts of the year, and we're starting to see some really, really strong results there as well. So all things are very optimistic.

Thank you. That's super helpful. And then for a follow-up question. Paul, we know what's going on with the marketing services business this year. You guys certainly detailed that over the last 90 days. But I think the number one question I get with the revenue in the year is how should we start thinking about bookings or billings for that segment here? I know we've kind of used the 20% annual contraction as a rule of thumb the last couple of years; should we think about the billings being kind of in line with that, 20% maybe a little bit below it, which is where it's been, or is there maybe a different trajectory going to occur this year? Thank you.

No, no, I think that's the correct way to think about it. Like it was 80% for the year, 17% negative for the quarter. Like Joe mentioned, it's a metronome, and that's the correct way to think about the links going into '23.

Great, that's all I have. Congrats on the next quarter again. Thank you.

Thanks, Scott.

We will take our next question from Arjun Bhatia with William Blair. Your line is open.

Hi guys. Thanks for the question. And congrats on the quarter. Maybe to start off with product, and Joe maybe this for you and Ryan, possibly if you want to jump in, but it seems like you're adding a lot more capability to the solution? You're adding a signature. You've had the chat functionality, obviously adding the marketing center, how do you think about with new capabilities that are coming in? How do you think about partnering with existing solutions that are out there versus building something yourself? And what considerations do you take in terms of product experience, UI/UX, etc? Because it seems like your MAU growth kind of jumped off the hook a step function increase, rather this quarter? And I'm sure product enhancement has something to do with it. But how do you think about just the roadmap and adding new capabilities going forward into the platform?

Thanks for the question, Arjun. We're listening to our customers. We're spending time talking with them, meeting with them. We do Zooms with them, we call them. We have a Facebook chat session with them. Ryan just spent a couple of days with one of our biggest customer groups, this big franchise group. He went and spent two days there sitting and talking with people about the details, the little stuff like screen, like help sessions, like really end of the week. So we're listening to our customers. And I would say that if I were to put a banner over the whole thing, we're trying to make it as easy as possible for our customers to succeed. We're trying to make when you kind of plug things together, and that just works. And so the way we do that is we sort of think of ourselves as Switzerland. Now we've got our marketplace, which we've got plans to even significantly improve that in the year ahead. But we've got our marketplace, which if there's some standing stuff from existing stuff that you're already using, you can often just go into the marketplace, and connect it and the data flows and it starts populating your CRM and it makes life easy. In terms of the add-on features and products that we have chosen to build and develop, those were in direct response to requests and conversations with our customers. And we ask them to force rank they can't do that for everything. It's like, okay, you have to force rank this to put in order. And things like having signatures within the tool, so they don't have to go get signatures somewhere else, and then put it in their CRM is just so labor-saving and such a kind of a home run. We've decided to do it that way. So it's really all about just allowing our small business customer to do this easily without having to sit down and take courses and become certified or something. It's keeping it really simple. And in many cases, we allow them to do something multiple ways. If they'd like to do email marketing, Thryv has email marketing inside of it. But it also integrates with MailChimp, if that's what they want to do; I mean, if they like Constant Contact, no sweat, just connect; it works. So we're trying to make it as simple as possible, and put as few barriers in front of them as possible. And where our answer is yes, that works. Here's how you do it as often as possible. Ryan, I want to give you an opportunity if you want to expound any on my answer.

Thanks, Joe. Arjun, great question. And I would say that speed to market is what we're focusing on. And we're focusing on the UI experience for our users so that it is a homogeneous experience as you move from one part of the platform to the other. We think that delivers really kind of compounding value to the user because they're not having to relearn new functionality as we launch it because it relates and looks like a pattern they've become familiar with. Where we can partner, embed, and include partnerships with other companies to accelerate our roadmap faster, we obviously continue to choose to do that, as we think that is ultimately a key to success in the small business space. But most small businesses don't care how the technology works. They just care that it does. And it does what they want it to do. And so we continue to work smarter, not harder. And ultimately, just deliver focusing on delivering value to our users as fast as possible.

Awesome, that's very helpful. And to maybe circle back on Marketing Center. When you think about the go-to-market motion, maybe not what you've seen in the last month, two months. But as you go forward, and you think about where the adoption comes from, and you look within your install base. Do you see this as somewhat of a targeted strike? There is a group of customers that fit the bill that would adopt marketing centers is something that you plan to take to all your SaaS customers because there's broader opportunity for adoption there. What are the thoughts on that strategy for the next year or so?

Right, Ryan, I'll start that answer. And then if you want to amplify it, you can. I would remind you, Arjun, that if you look back at 2022, we have a billion dollar marketing services. It's a pretty big base of people that are trying to advertise and promote and get more customers. So we've got a really big universe of people that we can go and talk to about the marketing center. It really is right down Broadway for us. And if I'm really honest with you, it's a little easier to sell, help you grow your business than it is a full business process change where you've got to install a CRM at the heart of it and begin to live in our inbox. I mean, that's kind of a higher order sale; it's harder. So we're actually moving down into an easier area. And as I mentioned, we're taking baby steps by initially just marketing to existing SaaS customers. But that won't be forever. We do plan to go into the broader zoo eventually. We're just making sure everything is perfect, and we have momentum first. So, Ryan, I'll let you amplify if you want to add anything there.

No, Joe, I think early stages, Arjun, as we focus on the existing business center user, we're really seeing two cohorts. We're seeing the already active user who is naturally willing to add on additional functionality and get more value out of the platform. Our teams operate very well when we give them a focusing area to go after, so that's working out pretty well. But users inside the platform can also activate a 14-day trial inside the platform, which we're excited about. And we are starting to see some users who may be a little on the lower end of engagement, but really being able to track and measure the effectiveness of their marketing is now a catalyst for using the platform more. Sometimes small businesses need a little bit of a push on, well, why should I use an online CRM? Or why should I track my online payments? And if one of those reasons is it can deliver you an understanding of which marketing works and which marketing doesn't, that can be a catalyst to drive future engagement in our CRM product. So we're seeing a little bit of both happening at the same time.

Great, that's helpful. And one last just housekeeping item for Paul. The goodwill impairment that you mentioned, Paul, is that related to a legacy acquisition YP? Or is there something more recent that that impairment is related to?

Yes, that's what relates to, we'd like to claim on the books in 2016, with the restructuring and plus and the YP acquisition in 2017. Actually, it's not too bad. We respected during that time, $1.6 billion in cash from the business. So given where we are, I think we're doing pretty well, and it's a declining business; from time to time this could happen in the future. What you don't see that it was interesting is accounting rules. I'm going to let you write own assets, not write up. And the valuation on the SaaS business and at the national was actually a lot higher than the carrying value. So that's the deal.

All right. Makes perfect sense. Thank you guys. And congrats again.

And we will take our next question from Rob Oliver with Baird. Your line is open.

Great. Hey, good morning, everyone. Thanks for taking my questions. First ones for Joe. Joe, just curious, there hasn't been a question yet on the macro. It seems the economy, at least in the U.S., has been fairly resilient. And certainly, your SaaS numbers for Q4 metrics are quite strong. Bit of a DSL here in the guidance that reflects that. So just wanted to get your sense of what's contemplated in the guidance and how you view the macro having been through a bunch of cycles here before, and then I had a quick follow-up for Ryan.

Okay. Yes. Our company has been in business for 137 years. And so there have been a lot of cycles that the business has been through and the customer base has been through. The macro is really good for us right now. I mean, our SMB customer has weathered a pandemic, a supply chain crunch where they couldn't get the supplies, they've weathered a staffing issue where they couldn't find anybody to hire and all of that is better now. FX better now. The supply chain is easing, and they can hire again. So these are the best of times compared to what they've been going through for the last three years or so. Remember, our customers, on average, have been with us for about 15 years. So these are very mature kind of icons in their community, more successful businesses. We really don't trade and the new startups. Our ICP are more established businesses. And so that group has done really well. And the consumer, as I think you mentioned in your question, is good. It’s continuing to do that little concrete job out back or reroute their house or whatever they need to do. So our mostly service-based type businesses are continuing to be really busy and continuing to do well. And that's part of why you see our growth and results very, very strong. And we're actually a couple of months into the year already, and engagement in the software is higher than ever right now. And sales momentum continues very strong right now. In terms of your mention of our guidance implying a DSL, we guided the same last year with the same guidance we gave you last year. We tend to be under-promise, over-deliver kind of guys. We've been around a long time, and we're very conservative. We're proud of the fact that we beat and raised every quarter since we came out. We're not going to get over our skis; that's not who you're dealing with. We're being told that there's a great gathering storm out there. So we put a little bit of a conservative guide and it's just as we did last year. And we continue to have very strong momentum. And we've now got more than one center clicking as we go through this year. And I mentioned in my prepared remarks, Australia is now hitting full stride, and Canada is coming up really nicely. And we hired an international president. So you can imagine we're planning to add more countries; that's not hard to figure out. So I feel very comfortable with guidance that we gave. It's probably conservative, to be honest. But we tend to be guys that want to fully deliver, over-deliver, and we're just not going to get out over our skis. So no issues in the macro at all; our guys are doing great. And we don't see any signs of trouble, which is not to say that it couldn't come. I mean, I read the same stuff you guys do. But I honestly, just want to say one more thing here: I have heard some of the enterprise companies talking about decisions being delayed and C-suite getting involved and this and that, and the other, you will understand our customers don't have a C-suite. We're dealing with the decision-maker, and they're chugging along just fine. And really, nothing has changed for them. And it has to get a whole lot worse, for them to begin to really affect the way they think about modernizing their business. This is a trend that you can't put back in the bottle. Small businesses are moving to the cloud, and they're moving at an ever faster rate to the cloud. This is a big trend that we're riding, and I think it's stronger than a little economic crosswind.

Really appreciate all the colors. Joe, that's really helpful. Thank you. And then Ryan, there's been a bunch of product questions already. But when I look at the platform today versus when some years back when it first started doing work on you guys, I mean, it's been a tremendous evolution. The functionality you guys mentioned, chatting, sign, obviously the marketing center, estimates, invoices, calendar integrations. When you look at kind of what's on your agenda over the next 12 to 24 months, I know you don't probably want to give away all the goods in terms of new features. But what are the priorities for you? I know you mentioned kind of UI. You guys have also done a lot of work in verticals to kind of what constitutes success in terms of continued platform expansion for you over the next year or two? Thank you.

Thanks, Rob. I think as we look forward without giving away all the goodies, we've obviously announced a multicenter approach. We now are excited that we have two and obviously, we're continuing to focus on that effort as well to solve additional pain points and problems that users have, creating easier onboarding. I mean, Joe alluded to CRM is a business process change. And so we're always really focusing on how can we meet small businesses a little closer to where they are before they come to Thryv today. And we think we can lessen that gap. We're reducing the friction to really be able to adopt the platform and then grow with us inside. So that's a really, really big focus. I think as we add sensors, as we add these apps our focus on the UI is to ensure that again, it remains simple, easy, effortless. Joe's analogy to an iPhone is simply perfect; it just works. It's homogeneous. You don't have to learn new things when the iPhone is improved; it just is intuitive and natural. And so we're putting a lot of effort in there because that's always the risk as you add additional functionality that it can bog down the platform. And so we're being very, very careful and methodical about how we do that. And then to your last question about vertical. You're really seeing now a transformation of the platform into this combination of centers and apps. ThryvPay is now an app and we have these centers. And we think that the appropriate way that we're thinking about verticalization is really on the CRM side; the CRM is verticalized. But there, of course, are functionality and features that certain verticals would like to see. And being able to do those in a more modular app-like way would allow the vertical to want it, to adopt it without turning away or turning off verticals who don't. We don't want to give them any reason to think that the platform isn't built for them. And so that's really our direction: to kind of complete that transformation this year into the center kind of app strategy and really focused on usability.

Great. Thanks for that. Appreciate it, guys.

We'll take our next question from Daniel Moore with CJS Securities. Your line is open.

Hi, everyone, thank you for your time. This is someone filling in for Dan. Can you discuss how your SMB customers are managing in this economic climate where they seem to be cutting back on discretionary spending? You briefly mentioned your direct communication with decision makers. Could you elaborate on your approach to their decision-making process and how you're handling these challenging economic conditions? Do you foresee any potential negative effects on your SaaS business, even though you are predicting strong growth?

Thanks for the question. Yes. I appreciate where you're going with that, trying to parse it a little bit more. I think in your question is the answer. You use the word discretionary. And there's very little discretionary in the clients that we serve at Thryv. It's the dentist where you cracked your tooth, and you got to go in and have a cap, or have a root canal or whatever, have something done. It's the air conditioning doesn't work in your house, and you’ve got to get it fixed. If a deer ran out and ran inside of your car when you were driving down the back road, and you've got to get the gigantic test on the side of your car. I mean that's our customer base. It's the service-based businesses that care for your home, your body, your car, your family, your life. We really are not targeting high-end dining or fancy travel or it's just not, there's not a lot discretionary in what our guys do. They are really working with making life keep going. I sometimes say it's the nasty things in life that our guys do, they do the nasty things in life. And accordingly, those things don't talk. And if your roof leaks, you get it fixed; you don't just sit there with a bucket under it. And having said all that, I just want to underscore we're finding that the consumer is fine. Our customers have jobs that backlog the job. There is a lot going on in this environment; it is incredibly good. The pandemic is quieter; they are able to get supplies now; you can get a two by four. You can order supplies and get them much better than you could a couple of years ago. It's not all better, but it's much better than it was. They'll take 11 months to get a Sub-Zero refrigerator, but you can still get things better now and people got caught customers and they’re able to hire again. The ability to hire, their staff has improved quite a bit from where it was last spring or last summer. So that environment is pretty good. In terms of your questions, teetering ahead and saying, Well, what if things get bad? I would sort of refer you back to the same question. Our guys are the most established businesses in their markets. So if there are 12 carpet cleaners in your county, we have the top six or seven, the most successful guys that have been there for a while. We don't typically have a new start; they aren't, they didn't go by yellow pages. They didn't jump into our customer base usually. We don't have a lot of efforts to try to get the new start business. We're pretty much focused on the more mature ones. And you might say, why is that? It's churn. Churn is a nightmare. I mean, you have all the same costs to sell a new start that you do to sell a mature business, but less likelihood that he's going to be around. So we really have focused on the established business as our base, and that's borne out when you look at our super low churn. We have that because of this really established base. So we don't see a big calamity coming. But we read all the same headlines you do about monetary supply being tightened; at some point it’s going to kick in and all that. So we're cautiously guardedly watching all that. But sales right up through yesterday, yesterday was a great day for drive sales, marketing center sales, everything was really strong right through yesterday. I can't tell you about today; it’s just getting started.

All right, that sounds great. And a quick follow-up; could you talk about a little bit about the progress you're making with the marketing center? When should we expect to see a more meaningful inflection and growth as a result?

I think you'll see it build steadily, and I think you'll start to really meaningfully see it reflected in the numbers in the second half of this year. You remember, when we sell them it takes a couple of minutes to get it set up and get it going. And the numbers that we're selling right now are so big to move the needle, but I would say in the second half of the year, this year, you'll start to see marketing center revenues really starting to contribute. And I think maybe one of the places you'll start to see it lifting is our net dollar retention that we're very, very strong in terms of renewal and logo renewal and holding on to people. But as Ryan detailed in his prepared remarks, we're beginning to offer a nice menu of additional things that customers can buy, whether it's signatures or team chat, or the big one being marketing center, and these additional purchases by existing customers. He also mentioned, there's actually in-app upgrade capability which is another express path. I think in the second half, you'll start to see, let me just back up one sentence. I mentioned in our long term guidance that you should expect us to get to 100% net dollar retention. And these new products that we've been building for a while now that are now released and coming into the market are part of why I felt that way, and part of why I believe that we would be able to do that. So I would expect in the second half of this year, you will see them start to come through, and I'll ask you to kind of keep an eye on net dollar retention and the progress; I think we'll make toward our goal of 100.

Thank you for your attention.

Thank you for the question.

And we'll take our last question from Zack Cummins with B. Riley Securities. Your line is open.

Yes. Hi. Good morning. Thanks for taking my questions. Just diving in a little bit more on that, Joe. As we're thinking about the rollout of the marketing center this year, are you still thinking of the SaaS growth drivers as kind of a balance contribution between new customer adds and ARPU expansion, or could we see that fluctuate a little bit this year?

No, I think we're still striving for that balance. And I expect good solid subscriber growth. I mean we are entering new countries. We are entering new segments we are dealing with; there's a lot going on here that should be able to drive that. But if you go back and you think about the Investor Day, kind of long-range guidance we told you that we thought that we would be able to grow ARPU up into the $7,000 range over the next few years, and part of why we believe that is we felt that we could serve more needs in slightly larger businesses as time goes by, and that's exactly what we see happening. And so it might be that ARPU starts to outrace some subscribers where it's not perfectly balanced, but I'm not guiding you that subscriber growth is going to stop or slow down or that we don't see any more of it. It's just that we've got a lot to see ARPU drivers here now. So it might pull ahead again a little bit on it. But we are striving for balance. And it would be a high-class problem if we have a big jump in ARPU, but we are striving for balance.

Understood. That's helpful, and final question for me. And Joe, I know you’ve made a couple of references to it in your comments, but can you just talk about some of the progress you've made on the international side? It seems like Australia is really coming right now. Canada is starting to ramp up pretty quickly. Just any insight into existing countries and how you're thinking about expansion over time?

Thank you for your question. Last spring, we hired Marie Grown, an international leader who has done an excellent job integrating into the business and getting to know the team and the company. We're confident in her abilities, and she's actively developing plans to enter additional countries. To answer your question specifically, our approach in Australia involved acquiring a well-established marketing services business, which has enabled us to quickly gain a competitive advantage there. Our monthly sales demonstrate this, as Australia, while smaller than the U.S., often outperforms the U.S. regions. We have a strong leader and an enthusiastic sales organization in Australia, and we started cautiously by selecting ideal clients to ensure everything was set up properly. This has led to low churn and high engagement, resulting in numerous referrals from our modest customer base. Now that referrals are coming in, we are primarily focusing on our existing client base without a lot of inbound marketing, and everything is progressing very well. I expect the revenue from Australia and the international segment to grow rapidly. In Canada, instead of making an acquisition, we entered into a partnership with a reseller, and we established our own direct sales team, which is performing well in the market. The Canadian software market isn't as developed as the U.S. market, so there's significant interest in what we offer. We're taking a measured approach to growth in Canada without rushing, as we didn't make any initial investments, and we are prioritizing efficiency. We have plans to expand into more countries, although I can't disclose anything specific today. It's important to note that as we aim for significant revenue targets, our strategy involves entering new markets beyond just the U.S. and Australia to broaden our growth opportunities.

Understood. Well, thanks for the additional color and best of luck with the rest of the quarter.

Thank you very much for your question.

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