Hello. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Thryv Holdings, Inc. Q1 2023 Earnings Call. Cameron Lessard, Head of Investor Relations, you may begin.

Thank you, operator. Hello, and good day to everyone. Welcome to Thryv's first quarter 2023 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer; Paul Rouse, Chief Financial Officer; and Elise Balsillie, our Chief Revenue Officer from Thryv Australia. A copy of our earnings press release and investor presentation can be found on our website @thryv.com or in the Investors' section at investor.thryv.com. Please acknowledge, comments made on today's call and 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 this conference call. Finally, 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 website. With that introduction, I would now like to turn the call over to Joe Walsh.

Thank you, Cameron, and thank you all for joining our call. I'm pleased with our Q1 performance. Our continued focus on optimizing our predictable, scalable and repeatable model to drive revenue growth while improving the bottom line is evident in our results. Every success metric is steady or increasing year-over-year and showing solid performance versus our expectations. This gives us strong predictability and durable smart growth. Our first quarter SaaS revenue grew 24%, which was at the top of our guidance. SaaS subscribers ended the quarter at 54,000, an increase of 15% year-over-year. This is attributable to our best-in-class software platform and continued strong sales velocity. We are seeing each month yielding better results than the prior month. Everything from qualified leads to demos to conversions is all trending up. Now I've mentioned in the past that we expect a balance between ARPU growth and subscriber growth. And you'll have to forgive us, subscriber growth just took off in this period and it's just really going well and we're having a strong uptake. So there won't always be a perfect balance between the two, but we expect a relative balance between subscriber growth and ARPU growth. We continue to set records in user engagement on our SaaS platform. Engaged users at the end of the quarter was 45,000, an increase of 25% year-over-year and 10% quarter-over-quarter. On the bottom line, once again, SaaS EBITDA came in better than our guidance. We've been getting more efficient each quarter, and let me explain how. First, there's a big tailwind at our back. More small businesses are adopting these types of SaaS tools. Our business comes in three chunks. The first is making our regular rounds talking to the approximately 400,000 small businesses in our customer base, our zoo we sometimes call them. More of those feel ready to modernize now and are moving forward and beginning to adopt these tools. So sales have been very strong into our base. Secondly, referrals. Those 54,000 subscribers are bringing their friends. They're telling their neighbors, the guy they're in the bowling league with on Tuesday night. Increasing referrals are becoming a bigger piece of our pie, which means that our cost of acquisition is low. We're not having to spend huge amounts of money to get a conversation with a new business. We can work with friends and family, allowing us to have a really efficient model. Now we do still have an inbound-outbound machine like other software companies do, but we haven't had to rely really heavily on that, and that's part of where the great economics and improved profitability are coming from. We're on a journey to be a Rule of 40 company, and we believe we can continue to have strong growth coupled with profitability. Turning to our marketing services, revenue came in better than expectations, and we continue to see very predictable performance in billings. We've had success in the past acquiring well-run marketing services businesses at fair prices and introducing our Thryv software to those clients. We're pleased to announce that we've acquired Yellow Holdings Limited, known as Yellow, New Zealand's leading marketing services company for over 50 years. Yellow has a history similar to our own, emerging from being the official telephone company Yellow Pages. This is the old New Zealand Telecom, now Spark, the official telephone directory of that market. They've built a significant digital marketing services business with over 10,000 digital clients. We are confident that many of these local Kiwi businesses will benefit from modernizing and automating with our SaaS products. This is a relatively small tuck-in acquisition, and our CFO, Paul Rouse, can share more about Yellow's financial contributions in our updated guidance. Our international expansion is a key focus area for us. Given this announcement, I wanted to invite Elise Balsillie, Thryv Australia's Chief Revenue Officer, onto the call today to highlight the successes we've had in the Australian market with the prior acquisition of Sensis Holdings. Similar to Yellow in New Zealand, Sensis Holdings, before rebranding to Thryv Australia, was a leading and highly profitable digital marketing and directory services company. We acquired Sensis at an attractive valuation and integrated the company to reshape the perspective of SMBs in Australia by providing an easy-to-use solution to modernize their operations. Fast forward to today, Thryv Australia has been a success in one of our top producing regions for SaaS. Elise has been instrumental in leading the Thryv Australia business. So, with that, I'd like to ask Elise to join and share more about our impressive progress in Australia.

Thanks, Joe. In March 2021, Thryv acquired Sensis in Australia. Within months, we were in marketing positioning the Thryv software to our Yellow Pages clients. We had strong relationships with tens of thousands of clients here in Australia, and that trust supported us in presenting Thryv. Building a brand in the market takes time. By leveraging our trusted position, we accelerated this process. Our marketing team then worked hard in the background, building our brand and reputation more broadly across the Australian market to support us in attracting new clients. The competition in Australia was not at the same level as in the United States. While some of our clients use point solutions in their business, the vast majority did not know where to start. Every small business has problems that keep them awake at night, from getting paid to managing their staff and being bogged down in admin. We could finally help them and far more impactfully than just driving leads to their business. The go-to-market approach was critical. We managed the significant volume of customers and revenue in our marketing services business. While we leveraged those relationships to drive conversations, we were not doing it at the detriment of our marketing services revenue or EBITDA. Our sales force is already proficient in selling leads through their marketing efforts. We introduced Thryv as a natural extension, enabling businesses to convert more leads into clients, improve their client experience, and nurture the relationships post-sale to promote customer loyalty. By integrating marketing and client experience, we aim to increase the client base and maximize lifetime value. We trained and coached our sales teams to identify problems and gaps in their client journeys. This approach allowed us to position Thryv as a tailored solution, addressing the most pressing needs of each business. We're seeing strong NPS results, coming through from our SaaS customers at all points of the customer journey, and our volume of engaged users is growing each month. We are specifically pleased with the number of engaged users, showing that our clients are truly embedding the software into their business. I'm really excited about the growing number of advocates we have and the strong feedback they're providing, like Tyler and Eve from a popular decking business in Melbourne. They say Thryv is like an employee; it’s like having another person in the business to take the pressure off us. In Q1, Thryv Australia has delivered strong performance, exceeding all key metrics. Our SaaS performance was incredibly strong, exceeding our target for the quarter, and each month we’ve outperformed the prior by greater than 10%. The Australia region is now one of the top-performing regions globally. In Q1, we launched our partner channel here in Australia, an exciting milestone that has given us a new channel to bring Thryv to market. We’ve seen positive results with our first partners signed on and trained, and our first partner sales being secured. Working across several key trade expos in Australia during Q1 has helped grow both recognition and awareness of the Thryv brand, especially in key verticals, resulting in many partnerships being secured. Our exciting marketing center will launch in Australia later this year, providing an opportunity to expand the value we’re delivering to our SaaS clients while also increasing overall customer recurring revenue. The team is primed and ready to launch these new centers in the market. ThryvPay is the perfect extension for the service segment. In addition to our success with building the Thryv Australia SaaS business, we’ve continued to deliver exceptional results across our marketing services revenue and reached our targets for Q1. Overall, we’re incredibly pleased with the performance of the Australian business, what we’ve been able to achieve in less than two years in market, and what we envision for the future. I’ll now turn the call back to Joe Walsh.

Thank you, Elise, and thank you for the amazing job you've done leading Thryv Australia. Each time we enter a new market—one of these international markets—we expect two to three years of investment as we set that market up, and Australia is no different. We've been investing in the last two years there. We expect in 2024, Thryv Australia will be contributing positive EBITDA and positive cash flow. We’re just about at the end of the investment period, and the losses they're making this year are relatively small. I'm going to broaden the international just a little to talk about Canada. In Canada, we didn’t make an acquisition; we've gone in just greenfield building. There will probably be a full three or so year investment cycle there. We're talking single-digit millions, not huge amounts of money that we're investing. The profitability of the U.S. can carry that small investment. Similarly, with New Zealand, there will be an investment for a couple of years as we set it up, but it will be reduced because we made the acquisition of Yellow, which gives us a significant customer base to target and will provide lower customer acquisition costs, making it a more efficient market entry. With that, I’d now like to turn the call over to our CFO, Paul Rouse, to discuss our first quarter financial results.

Thank you, Joe. As a reminder to listeners, we are going to focus on our two segments—SaaS and marketing services, which includes results from domestic and international operations. We feel this is more beneficial in modeling and understanding the business. Additional detail between domestic and international for each segment can be found in the appendix section of our investor presentation. Let's jump into the results, beginning with our SaaS segment. SaaS revenue was $59.9 million in the first quarter, representing growth of 24% year-over-year and at the top of our guidance. SaaS subscribers totaled approximately 54,000 at the end of the first quarter, an increase of 15% year-over-year. SaaS ARPU increased to $379 in the first quarter, representing 8% growth year-over-year. Turning to the bottom line, first quarter SaaS adjusted EBITDA was negative $204,000 and ahead of our guidance. As Joe described in his previous remarks, we have been emphasizing productivity in our SaaS business and efficiently managing our spend in our new acquisition channels. I'm excited to announce that our U.S. SaaS business has achieved positive EBITDA for the past four quarters. Additionally, negative EBITDA contribution in our international markets came in better than expectations, which resulted in our overall EBITDA being near breakeven. We are encouraged by the strength we are seeing in the U.S. and by the success of our international investment efforts and believe we are on the path to becoming a Rule of 40 software company. We are confident that our strong growth and profitability will continue to drive our success in the years to come. First quarter seasoned net dollar retention was 91%, unchanged versus the prior quarter. As a reminder, seasoned net dollar retention represents clients that have been with us for over one year. With the rollout of our additional centers like Marketing Center, the company is on the path to achieve 100% net dollar retention. By providing our subscribers with a better experience, additional centers can help to increase customer satisfaction and loyalty. This can lead to clients renewing their subscriptions, upgrading to higher value packages, and recommending the company to their friends and colleagues. We also believe addressing these factors will keep churn low, generating new revenue streams via new centers to offset the cost of customer acquisition, leading to higher net dollar retention. Moving over to marketing services, first quarter revenue was $185.6 million, which came in better than expectations due to timing and shipment of publications from Q2 into Q1 in both our U.S. and Australian markets. First quarter marketing services adjusted EBITDA was $58.7 million, resulting in an adjusted EBITDA margin of 32%. First quarter marketing services billings were $193.4 million, representing a decline of 21% year-over-year. Please note this metric now includes billings for our Vivial Holdings for the 2022 comparative period. First quarter consolidated adjusted gross margin was 66%. First quarter consolidated adjusted EBITDA was $58.5 million, representing an adjusted EBITDA margin of 24%. As previously discussed, these measures were impacted by revenue recognition in our marketing services segment around the timing and shipment of our print product. Finally, our net debt position was $451 million in the first quarter. Our leverage ratio for the first quarter, in accordance with our credit facility, was just under 1.5x net debt to EBITDA and well below our covenant of 3x. The company generated an additional $27.2 million in free cash flow in the first quarter and paid $35 million toward our term loan. Now let's turn to guidance. We are reaffirming our prior full-year SaaS revenue guidance in the range of $257 million to $259 million, but upgrading our profit outlook for the full year as follows. For the full year 2023, we now expect SaaS EBITDA in the range of $2.5 million to $3.5 million, which we previously guided to as turning profitable or breakeven. For the full year 2023, we are increasing our outlook for marketing services. We now expect revenue in the range of $653 million to $663 million and adjusted EBITDA in the range of $187 million to $190 million. This upgraded guidance for marketing services reflects our recent acquisition in New Zealand, which we believe will contribute around $10 million in reported revenue. You can find additional information related to our 2023 guidance in our press release and investor presentation available online. As communicated on our last earnings call, we expect to ship fewer print publications in the third quarter of 2023. 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, and 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 operational metric in our investor presentation, which shows steady performance for our many historical periods. We realize the non-linearity of our print is a bit complicated, and we try to provide as much information as possible to be transparent. I'll now turn the call back over to Joe.

Thank you, Paul. So I guess as sort of the headlines here from today's call, I'd like to underscore a couple of things. The profitability of our SaaS business is coming along a little faster and a little stronger than we expected, and that's really owing to our great model. The fact that we've got 400,000 existing customers who want to talk to us, we can have conversations with them and help in this journey of modernizing their business, and they're bringing their friends and introducing us to referrals at an ever-faster pace. As our subscriber base gets bigger, they're introducing more and more referrals. So it's sort of a self-regenerating model. Our Marketing Center launch is going well. We're just in the early days of that. Obviously, we just began at the very end of last year, but sales are coming along nicely. Our sales organization is learning how to talk about the product and how to do it the best possible way. We've had some early successes from customers that are excited about what they can do with Marketing Center. The final couple of takeaways I would offer you are our North Star is an engaged user, and more and more small businesses are running their businesses on Thryv, as evidenced by the huge gains we're making in engagement. This is a great leading indicator of what revenue will look like in another year or two. Our engaged users are increasing steadily, and I think the final proof point of that is our subscriber growth—15% subscriber growth—coming in almost as fast as we can sign them up and onboard them. It's really outstripping our expectations, and it's due to the excellence of our software, which is making such a difference for small businesses. With that, we'll wrap the call up, and I'll turn it over to the operator.

Our first question is from Rob Oliver with Baird.

I had two. Joe, one, I'll start with you. Strong on the subscriber front. You mentioned that, you also alluded in your prepared remarks to kind of that working towards that balance between subscribers and ARPU. Just on the ARPU side, growth dropped to below 10%. I’m just wondering, is that just a function of the economy and people kind of starting out with a smaller bite at the apple or maybe being a little bit slower to upgrade? Is it because people are waiting for some of the new products or help us just understand that? Then I had a quick follow-up.

I think it's probably a mix of things. Our customers, we've talked about them before; these are very resilient small businesses. Our average client has been with us for more than 15 years on the marketing services side. These are well-established businesses, not new starts. They don't tend to go out of business if the wind blows. But they read the same newspapers you do. They hear that there's a great recession coming, and they're being cautious. So there is definitely a tinge of conservatism out there in the market, and people are measuring twice, maybe three times before they cut. As you can see, we continue to do really well. We're still seeing strong uptake. We achieved more demos in the first quarter than ever before, setting a lot of internal records as things keep moving along. I think demand is there, and we are growing. People are coming into our product ladder, and they tend to move up because our products are good and work effectively. So I don't think it's anything to particularly worry about.

I'm sure there's going to be a bunch of questions on Yellow from some of the other analysts, but I'll just ask a quick one to start. You guys mentioned 10,000 digital clients there in New Zealand. What does digital look like there? Is that SEO, SEM? And is there a print business here too?

Yes, no problem. As I mentioned, they were and are still the directory company in New Zealand. New Zealand has a population of about five million, covered by twenty directories in total, so it’s not a giant business. Yes, they have a directory business alongside their traditional printing. They also have a very strong online directory that is quite profitable and highly utilized. In addition, they engage in general small business agency work where they build websites, and handle SEO and SEM. They have a trusted relationship with those small businesses, and that's what we're going to build on.

The next question is from Arjun Bhatia with William Blair.

Joe, maybe just a follow-up on what you're expecting out of New Zealand on the software side. Can you maybe just compare some of the market characteristics between New Zealand and Australia, which seems like it's been a success thus far? I remember Australia was relatively early in terms of SMB software adoption. Do you see those similar characteristics in New Zealand as well?

Yeah, I would say the two markets are very similar in that regard. If anything, New Zealand is probably a year or two behind Australia in terms of digital sophistication and software adoption. There is an initiative in the country to drive small businesses or businesses in general to be more digital, to move to a more paperless approach and adopt these tools. So, it’s definitely a focus there, and I think our entry into the market will be well-timed and welcomed.

When I’m looking at the SaaS metrics for Q1, it looks like the subscriber growth was one of your best quarters in adding net new clients on the SaaS side, but we didn't see that flow through to revenue this quarter. Is there anything different about the characteristics of the customers that you're adding this quarter versus what we've seen historically? Just trying to square those two trends a little bit.

Not really. I think the prior question touched on it a little bit. There’s a little more conservatism out there in terms of what people are buying. There are also various add-ons that affect the ARPU number, and I think people were a bit more cautious around that. Many took time off during the holidays and have had a strong February, March, and now April; however, there’s always a slight noise in the numbers. I don’t see any big trend to identify, and those who start lower on our product spectrum typically migrate up over time.

The next question is from Robert Rally with Needham & Company.

In this macro environment, are you seeing any behavior changes in your marketing services customers intending to move to your SaaS solution?

I mentioned in the prepared remarks that many established, mature HVAC, plumbing companies, roofers, etc., have been aware for a while that we provide these tools but just weren't ready to move. We find increasingly they are now saying they're ready. The world is moving on. The megatrend we described—watching enterprises adopt the cloud over the last decade—is trickling down now, and small businesses are looking to use these tools. Some are coming right from paper and pencil and are “uncaptured” while others have onboarded point solutions. They are looking for a platform, and Thryv offers that platform. We’ve worked to reduce adoption friction and make it easier for customers.

Given the macro conditions, have you seen any material change to churn with your non-seasoned customers?

I see what you're saying about getting past seasoned into overall. We are noticing some nervousness, but we haven’t seen a big upward movement or anything in churn. There’s always a little bit of noise in the data, but I wouldn't say there's a significant trend to identify.

The next question is from Zach Cummins with B. Riley Securities.

Joe, just kind of following up on net dollar retention. It's remained steady at about 91% over the past couple of quarters. How do you think about consistently driving that number higher over time?

We are on the record stating that we believe this can be a 100% net dollar retention business. There is limited scope to reduce churn further because it is already low, but upsell growth will play a significant role. The upsell will be driven by the wonderful products our engineering and product teams are developing. We have just begun rolling out new centers and expect to capture more needs from our customers, which will help us in our goal to achieve a 100% net dollar retention rate in a few years.

Final question for me is really around acquisition channels for the SaaS business. It sounds like you've had strong referral volume recently. How are you thinking about where those new customers are coming from? Is there a greater emphasis on the referral channel or how do you view the overall customer acquisition engine?

I wish I could give you some genius insight, but we are just seeing more referrals. It's simple. Our existing base—our engagement numbers are surging. Year-over-year—seeing engagement drive means that existing customers are bringing in more friends. Our Chief Customer Officer shared how our North Star is to help these small businesses, driving that engaged user number up. As engaged users rise, they are referring us to more and more people. We are now receiving more sales from referrals than directly from the channel. This has allowed us to reduce our investment in the inbound funnel. We have access to 400,000 customers that have a multitude of friends. So we are fortunate that most of our conversations are warm lead discussions.

The next question is from Dan Moore with CJS Securities.

Can you talk about the progress you're making with the Marketing Center? When should we expect details on other centers you plan to introduce in the next few years?

Marketing Center launched at the end of last year. We staged the rollout, providing it to a limited group of customers and sales people initially, to make sure we worked out any bugs or edge cases. It has gone well. We're still only allowing customers to buy Marketing Center if they're already Thryv clients who’ve been using our platform for at least a month. We plan to open it up more broadly soon, allowing Marketing Center to be sold to the broader base. We believe there’s a substantial market interested in Marketing Center, even those not yet interested in software. Expect to see some influence from Marketing Center in the numbers in the back half of this year, likely strongest by Q4. The second part of your question about additional centers: We guided at our Investor Day to think about launching one new center per year, which I am confident we can deliver on.

If I could ask one follow-up. Over the past several quarters, you have accelerated the timeline of getting positive profitability in your SaaS business. Can you discuss why you believe that is the right course of action given the material growth opportunities in front of you? Does this decision have implications for achieving long-term growth targets you've articulated roughly a year ago?

That's an excellent question. We engage in constant dialogue with our significant investors. Over the last five to six quarters, there has been a reevaluation where growth-at-all-cost models have fallen out of favor. We never aggressively pursued that approach. However, we were leaning into investing and growing. There’s a clear desire to see our SaaS business profitable with positive cash flow. This wasn’t a gigantic shift for us because it was already happening naturally. The scale of the business and referral contributions keep our costs low. We are still bullish on our long-term plan, believing we are in a very large total addressable market. The decade of small business software is unfolding, and we plan to provide an update on this later in the year.

We have no further questions at this time. I'll turn it over to Joe Walsh for any closing remarks.

Thank you very much, Chris. Appreciate that. Thanks everyone for attending today and listening to the call. My big thoughts at the moment on our business are that swinging to profit is a significant milestone. We have been profitable in the past, but weren’t for several quarters, and we are back to profitability. Our SaaS business is profitable, and as we start new markets, new centers, new countries, we will remain profitable and use the business’s cash flow for growth and expansion. We’re fortunate to have a vast base of highly engaged customers that can propel us along. Marketing Center is exciting, and we expect it to be a big lift in our numbers as we progress through the year. The engaged users make me happy every day. When I turn on my computer, I see the number of active users, and that continues steadily increasing, which drives subscriber growth. Confirming the health of Thryv, our subscriber growth is impressive. Thank you again for your attention, and I look forward to updating you soon.

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