Thank you for holding, and welcome everyone, to the Thryv Third Quarter 2023 Earnings Call. I will now turn the call over to Cameron Lessard, Head of Investor Relations. Mr. Lessard, please go ahead.

Thank you, operator. Hello, and good day to everyone. Welcome to Thryv's third quarter 2023 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer; and Paul Rouse, Chief Financial Officer. A copy of our earnings press release and investor presentation can be found on our website at 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 like to turn the call over to Chairman and CEO, Joe Walsh.

Good morning, Cameron, and thank you all for joining us on the call today to discuss our third quarter results. I'd like to dive in here with two big ideas. The first is our SaaS revenue beat guidance on both the revenue and EBITDA line, all while carrying additional overhead that was allocated because we had lesser revenue in Marketing Services. So this is really a standout quarter, and it shows the strength that's developing in our SaaS business. Secondly, we finally got behind us this looming third quarter we've been talking about for well over a year, where revenue recognition was going to be light for the quarter and would optically make it look like we had weak revenue. So we generated roughly $7 million in adjusted EBITDA and $37 million in cash flow. And so it sort of underscores the strength of this overall business and the management team is very much in control of the cost and able to look, in this case, more than a year ahead and tell you how this is going to turn out. So we're using that cash to strengthen our balance sheet to pay down debt that shows kind of the strength of the Marketing Services business, even though it's declining, still very resilient and very forecastable. I'd like to take you through our SaaS quarterly highlights. SaaS revenue grew 19% year-over-year, and sequentially, it grew 8%. SaaS adjusted EBITDA was much better than guidance despite the impact of Marketing Services operating expenses. SaaS adjusted gross profit improved 25% year-over-year, delivering an adjusted gross margin of approximately 67%. Client growth was up 29% year-over-year, and engagement, our North Star driving engagement, was a 22% growth. We're really pleased so far with Command Center. It's just been in beta this last period, but our team has been working closely with early adopters and making weekly updates, and we'll wrap up this beta period very soon. With little to no promotion, we've received over 15,000 sign-ups. We've connected thousands of channels, streamlined over 3 million messages, and we've seen positive signs from nearly 10,000 phone calls in hours of video meetings. So during the beta period, we found a few bugs, of course. We've really solidified and strengthened the product, and we're ready a little later this month to go out with our full general release. We're achieving sign-ups to Command Center in two ways. First, we're offering unassisted online sign-ups, which take less than 60 seconds, really easy to sign up. And we've seen these users, in many cases, self-grade and actually purchase where they're buying more channels or more seats or somehow expanding. Those that haven't expanded will monitor their usage and engagement, and those with the highest usage will actually turn over to our sales force to contact them, work with them, and discuss future expansion opportunities. These are what, I guess, you would call really hand-raisers. Second, we're leveraging our global sales force. With Command Center and their toolkit, business advisers are well positioned to provide value as trusted partners. This will help them drive more demos and sales to our other centers in the future. With that, I'd like to turn it over to Paul Rouse and let him take us through our third quarter financial results. Paul?

Thanks, 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, where each segment can be found in the appendix section of the investor presentation. Okay, let's jump into the results, beginning with our SaaS segment. Third quarter revenue was $67.4 million, an increase of 19% year-over-year and 8% sequentially and above our guidance range. Third quarter SaaS adjusted gross margin expanded to 66.6% versus 63.5% in the prior year, representing a 310 basis point increase year-over-year and a 150 basis point increase sequentially. SaaS adjusted gross margins will see continued expansion with the promotion of centers, and we believe they will continue to expand with the upsell motion from the new Command Center product, which is now widely available to all of our customers. SaaS adjusted EBITDA was negative $504,000 and significantly exceeded our guidance range of negative $3.5 million to $4 million. Let me provide a bit more color on our SaaS adjusted EBITDA margin. As previously communicated, we allocated operating expenses as a percentage of revenue between our two segments, SaaS and Marketing Services. Due to materially lower print revenue in Marketing Services, SaaS carried significantly more operating expense during the quarter, which negatively impacted our adjusted EBITDA and resulted in a slight reported loss in the third quarter compared to continued and sustained margin improvements over the past several quarters. However, I am pleased to report that we were able to substantially narrow this EBITDA loss by more than $3 million by effectively managing our go-to-market channels and customer acquisition initiatives. This is a testament to the strength of our team and our ability to execute on our strategic plan. As Joe said in his opening remarks, we are now past the print directory revenue recognition dynamic. We remain confident in our long-term growth prospects and are focused on accelerating profitable growth in our SaaS business. And we will continue to invest in our key growth priorities while managing our operating expenses carefully. SaaS subscribers grew to approximately 66,000 at the end of the third quarter, an increase of 29% year-over-year. SaaS ARPU decreased to $365 in the third quarter and represents a 3% decrease year-over-year. With our new product-led growth strategy, we anticipate continued subscriber growth, but monthly ARPU may face some headwinds due to pricing mix. While our SaaS subscribers are ramping, they are signing up for lower introductory packages than our current average ARPU. For example, our popular Marketing Center offering is currently priced at $1.99 and $3.49 per month in the U.S. As we move forward, this will allow us to upsell and cross-sell additional products, which will benefit net dollar retention in the future. Third quarter seasoned net dollar retention was 92%, an increase of 300 basis points sequentially. As discussed previously, with the introduction and expansion of our new centers like Marketing Center, paid Command Center, and other products such as ThryvPay, Signatures, website builder, and other marketplace apps and integrations, will make it easier to upgrade customers while providing excellent customer service and support, enhancing our opportunity to expand our NDR. Moving over to Marketing Services. Third quarter revenue was $116.5 million, within the midpoint of our guidance. Third quarter Marketing Services adjusted EBITDA was $7.8 million, resulting in an adjusted EBITDA margin of 7%. This was expected due to the timing around revenue recognition of our print directories, lengthening from 15 months to 18 months. Third quarter Marketing Services billings was $159.5 million, representing a decline of 19% year-over-year. Third quarter consolidated adjusted gross margin was 60%. Third quarter consolidated adjusted EBITDA was $7.3 million, representing an adjusted EBITDA margin of 4%. Finally, our net debt position was $377 million at the end of the third quarter. Our leverage ratio was 1.8x net debt to EBITDA, which was well below our covenant of 3x. The company generated an additional $37 million in free cash flow in the third quarter and used $42.5 million to pay down our term loan, including the additional $10 million of payments made in October. We have made $105 million in year-to-date term loan debt repayments in 2023. Lastly, in regard to warrant expirations on August 15, approximately 8.3 million warrants expired, unexercised, and the company no longer has any warrants outstanding. Warrant holders exercised approximately 1.2 million warrants, resulting in the issuance of 646,000 shares of common stock, resulting in minimal dilution and generating $15.8 million of cash proceeds for the company for debt paydown. Now let's turn to guidance. We are raising our full-year SaaS revenue guidance to the range of $260 million to $261 million. We are also raising our full-year SaaS EBITDA guidance to the range of $9 million to $9.5 million. For the full year 2023, we are lowering our outlook for Marketing Services revenue in the range of $650 million to $655 million and adjusted EBITDA in the range of $177 million to $179 million. The reason for the revision is that we are facing some FX pressure and have proactively made the decision to retain more of our Marketing Services sales force and enter into a new commission structure in an effort to drive higher productivity and growth in our SaaS business. We ultimately view this as an investment that will benefit our SaaS business in future periods.

Thank you, Paul. Our international business is continuing to develop nicely. We now have all centers available in all markets, which is really just as recently as just the last couple of months. And that's part of our optimism as we look ahead to next year. We believe with more centers to sell, our international business will continue to develop at a nice pace. I wanted to comment on Marketing Center. Marketing Center is a platform that's a lot closer to the old advertising and marketing services that our Marketing Services business sells. Therefore, we're finding more application and more traction with those Marketing Services customers. I think you will see us do a really good job of more deeply penetrating that market. Now that Marketing Center is really kicking along and we've got a bunch of happy customers, the referral network is spreading, and the word-of-mouth is starting to grow. Confidence is there within the sales force, and things are beginning to build. So I think you'll see more penetration there. In Paul's remarks, he raised guidance for our SaaS business, and we're delighted that the SaaS business is continuing to really develop. The metrics are improving. We're driving toward a Rule of 40. You're seeing net dollar retention expand, gross margins expand, and an overall acceleration. As we look ahead to next year, we expect revenue growth will accelerate, and we expect margins will expand in the SaaS business. We're continuing to push toward being a best-of-breed Rule of 40 business. And we won't be at 40 next year, but that’s the direction we’re driving toward. Growth in both revenue and margin expansion will help us get there. So that's our thinking on the quarter. Operator, why don't we open it up for questions?

Our first question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Thank you for taking my question. Joe, one notable highlight this quarter is the significant increase in new customers for the SaaS business, with an addition of 10,000 customers compared to the previous quarter. It seems that Command Center may play a role in this growth. Can you explain this further? Additionally, I’d like to hear about how you plan to leverage these new customer additions and promote expansion moving forward, as this appears to be a great opportunity for the company.

Command Center is not significantly impacting this because it is still in beta, which we plan to exit later this month. Most sign-ups are freemium and do not transition into customer accounts. However, some users have upgraded on their own and are now paying customers. We have not actively sold this product, so the growth you see is primarily from Marketing Center. As I mentioned earlier, Marketing Center aligns more closely with what customers are looking for in our Marketing Services, and we are seeing positive results there. Regarding your second question, many new customers came in at the lower entry-level price, and we also ran some promotions to encourage migration from older systems. This is why there is a slight decrease in ARPU, but it's not a long-term concern. There is significant potential to increase this revenue in the future, setting us up for improved net dollar retention.

Yes, that's great to hear on Marketing Center. And Paul, you mentioned lowering the Marketing Services guidance. Part of that was driven by FX. Can you maybe just expand a little bit on that? Is this mostly the acquired businesses that are having an impact with Sensis and others? And maybe if you can just touch on some of the sales restructuring that's going on there and how we can expect that to play out over the next year or so?

Sure. The FX pressure we were experiencing in our plan was related to Australia and New Zealand. On the sales restructuring, we look forward all the time. We think about what's best for 2024. Given we now have a Marketing Center and with the success we're having during the third quarter, we should really maintain the sales force we have right now and put the right commission structure in place to drive revenue now and come out into 2024 very strong. So we made an investment in ourselves there, and we think that's the best long-term move for the company.

Our next question comes from the line of Scott Berg with Needham and Company. Your line is open.

Hi, everyone. Congratulations on a great quarter. I want to start with a question about the expectation for SaaS revenue growth to accelerate in 2024. What gives you the confidence in that statement? While customer additions on the SaaS side were strong, the macro environment is still a concern. Can you help us understand where your confidence comes from?

Yes. It really comes back to where we've been coming from. We've been coming from selling one center in one stroke kind of two countries. As we look forward to '24, we are now fully equipped to sell the full platform with three centers and forthcoming next year, doing it in all markets. That’s kind of where the confidence comes from. We're getting a lot of traction with Marketing Center. It's really moving. We had kept it slow in the beginning to ensure we got it figured out, but it's moving quite briskly now. So you're right; the macro is not all better. It's not wonderful. I'm not saying that we'll have massive acceleration, but we do believe there will be acceleration next year just based on selling the full platform in all markets.

And then from a follow-up question perspective, I know the question was just asked about customer additions. But what was different with SaaS customer additions this quarter versus last quarter? If I go back to my notes in the second quarter, Joe, you kind of pulled back from top-of-the-funnel marketing to some of those customers because they weren't converting as strong as what you've seen historically. But why the influx this quarter?

We basically went hard into the existing customer base. We really targeted a lot of the standing Marketing Services customers with Marketing Center. As I've mentioned in the past, while our original biggest center requires some amount of business process change to adopt and incorporate it into their company, Marketing Center is much closer to the Marketing Services products they’ve been buying in the past. It's more kind of apples-to-apples. We're finding it to be easier to penetrate and that’s increasing our optimism about how we'll do in '24. A lot of the customers are also upgrading from older systems, hence why you see a slight decrease in ARPU. However, I expect this is a coiling of the spring for net dollar retention going forward.

Our next question comes from the line of Robert Oliver with Baird. Your line is open.

Great. Thanks. Good morning, guys. Joe, I had one for you and then Paul, I had a follow-up for you. So Joe, just on Command Center, it sounds like really encouraging trends here through the beta. I'm curious to hear just on the usage of Command Center. You guys had some tiered pricing out there for Command Center and just curious what you're seeing within usage patterns and how that could play out in terms of where your customers may land in those tiered pricing plans?

Well, as we said, it is still in beta, and it's early, but we're seeing people hook up a unified inbox and pull together all the different communications from different areas. We're hearing things like, 'I'm not missing messages anymore.' Who goes and checks every one of your social outlets every day? It's a labor-intensive endeavor, and it's pulling everything together in one place. We have had some customers discover Command Center online, download it in the sort of 60 seconds, start using it, and say, 'Wow, this is really cool,' then move through and buy another center like a Business Center. So it's still very early, and there were some minor bugs during the beta period, but we're very optimistic about its potential to help us meet new qualified customers and ideal clients in the future.

And then, Paul, just curious if any revenue impact since it starts to go live this quarter was contemplated in your guidance relative to Command Center for the quarter?

Command Center, very little, but that's really something you're going to see more in the out-year period. It's really driven by the success of Marketing Center and the optimism we have in the fourth quarter.

Yes, I'm just going to add a little tiny bit to that answer for the whole audience. Because it's a freemium model in Command Center, while we're excited about it, we don't see any revenue really this year. Even in the first half of next year, it will be a relatively slow ramp for revenue, not of users. We think users are going to skyrocket, and it's going to be a really powerful tool for us to enter new markets, meet new customers, and spread excitement about what we're doing, but revenue will follow later because we want to deliver value to those customers before we ask for any payment. This contrasts with some of the other centers that had sales-driven motions where, as soon as we rolled them out, we started selling them.

Our next question comes from the line of Zach Cummins with B. Riley Securities.

Hi, good morning. Thanks for taking my questions. Joe, I just wanted to ask a little bit more about Marketing Center. Can you just give us a sense of how much opportunity is left within the existing customer base? It seems like it's really been a focus in the near term, but just trying to get a sense of how much more runway there is in terms of adoption on that side?

A lot, a whole lot.

Yes. We've got nearly 400,000 customers. Right now, we’ve got around 60,000 that are buying some kind of center from us. There’s a lot. I mean, I can't really think of a reason why, over the balance of this decade, virtually all small businesses won't adopt some of these tools. Since they’re already our customers and have a relationship with us, the average has been with us for 15 years. Why wouldn't they give us a chance? I'm quite bullish that we're going to be able to penetrate through that base. Approaching them with marketing-related products and services is easier than approaching them with a full business process change that requires a CRM. It's easier this way. I’m quite optimistic that this will carry through next year, and you’ll see zoo hunting as a bigger piece of the puzzle for customer acquisition.

Regarding the decision, the restructuring within Marketing Services that maintains more of those salespeople. Should we think of that as more of just a one-time margin impact here in Q4? Or what's the right way to think about that in terms of managing margins across the Marketing Services business?

Yes. If we back the camera up a little bit and think about the big picture, we're taking a Marketing Services business and running it on a harvest for cash. We're not really making any efforts to grow that business. Over the last number of years, we've been variabilizing all the costs against Marketing Services in advance of revenue decline. So we lay out what our cost should be to deliver high margins. One of the #1 levers we've used to variabilize the cost of the business is adjusting the size of the sales force. We're reaching an inflection point where Marketing Services is becoming a smaller percentage of our overall revenue while SaaS grows. We can avoid shrinking the sales force as they are now adding more value. There’s a slight cost that shows up, but we believe this will convert into stronger SaaS revenue as we move forward. It’s a gradual transition.

Our next question comes from the line of Daniel Moore with CJS. Your line is open.

Good morning. Maybe just one or two others. Maybe this time last year, you kind of gave the outlook for Marketing Services EBITDA, given the change in the billing cycle. When we look to '24, how do we think about Marketing Services EBITDA relative to your '23 guidance under the current printing cycle?

Let's start with the printing cycle. Clearly, more books will come back next year, which will lead to a slight recovery in Marketing Services. On a positive note, Marketing Services has been performing reliably. If you look at our billings over several quarters, you'll see how consistent it has been. That said, with the momentum we're gaining from the new products, we believe we can be more aggressive in targeting our existing customers. We expect to be more confident in our outlook during the February call. I anticipate that the SaaS business will likely grow a bit faster, while we may model a decline in Marketing Services and adopt a more proactive approach to cannibalization. Overall, this approach appears beneficial as it modernizes our platform, increases customer engagement, and reduces costs in the long term as we transition customers.

And I haven't seen if you put out a supplemental deck, so forgive me, but is there any change in the 20% annual decline in billings?

We don't anticipate that, no. Cameron, do you have anything to add to that?

With the cannibalization, it might wave a little bit over time, but not into the future.

And again, we're doing the work now on how much we think we can do next year, and we'll communicate that in our next call. But I expect we'll lean on Marketing Services a little harder in order to grow SaaS faster.

Our next question comes from Emily Needham. Your line is open.

You can just end the call.

This concludes the Q&A session as well as the call. We thank you for your participation. You may now disconnect.