Good morning. My name is Dee and I will be your conference operator today. I would like to welcome everyone to the Thryv Holdings' First Quarter 2024 Earnings Call. I would now like to turn the call over to Cameron Lessard. Please go ahead.

Thank you, operator. Hello and good day to everyone. Welcome to Thryv's First Quarter 2024 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 investor section at investor.thryv.com. Please acknowledge that 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 the conference call today. Before we get started, I wanted to provide an update on segment reporting. Historically, we've provided additional detail for the U.S. and international markets within each of our reporting segments. We're now transitioning to a two-segment reporting structure, SaaS and Marketing Services, encompassing our global operations. It's important to note that this change only impacts how we report adjusted gross margin and adjusted EBITDA for historical segments. It will not impact how we report revenue under the disaggregation of revenue section in our quarterly filings. We are streamlining our approach to offer a unified perspective, which we believe will better reflect our business model and enhance clarity in understanding our business and facilitate more efficient modeling. I will now 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 first quarter results. For the first quarter, we delivered strong subscriber growth, ending the quarter with 70,000 clients. The year got off to a good start. We've got strong momentum across our SaaS business, and we'll be raising guidance for the year. I'm excited to share some great news about our center strategy. We're seeing significant traction. Over 8% of our clients now have two or more paid centers, up from practically zero this time last year. So we're really making some good progress there in selling additional centers to our customers. I think it's a really good indicator of the value proposition we're delivering and how sticky these products are. Another interesting stat that we've been looking at is our seasoned ARPU. These customers have been with us for over a year. We're seeing really strong growth for them year-over-year in the mid-teens. And again, I think this shows loyalty and the fact that people are engaging with and using the platform. I'd like to talk a little bit about our refinancing. We recently completed a refinancing, which is going to make a big difference for us. It's redoing our term loan and our ABL. It significantly extends our debt maturity. This provides us with financial flexibility and the runway we need to invest in growth in this business. Second, it offers us flexibility. This flexibility allows us to strategically invest in our growing and profitable SaaS business, which is really the engine that's driving our success. Importantly, the financing is underwritten with a strong focus on the strength of our SaaS operations as opposed to being so much focused on Marketing Services. This is really a testament to the confidence lenders have in Thryv's future. Equally important, this new structure moves away from a legacy 100% cash flow sweep, and it frees up capital that we can invest in future revenue growth. Finally, this financing allows us to pursue shareholder initiatives. As evidenced, we announced a share repurchase authorization earlier today alongside our earnings release. While debt reduction remains our core priority, this share repurchase program provides an additional tool to enhance shareholder value alongside our ongoing debt repayment efforts. With that, I'm going to turn the call over to our CFO, Paul Rouse, to take you through the numbers. Paul?

Thanks, Joe. All right. Let's dive into our results beginning with SaaS. SaaS revenue was $74.3 million in the first quarter and within our guidance range, representing an increase of 24% year-over-year and slightly up sequentially. Adjusted gross margin increased 420 basis points year-over-year but decreased 130 basis points quarter-over-quarter to 68.4%. Adjusted gross margin declined sequentially, primarily due to the introductory product offerings featuring promotional pricing strategies surrounding Marketing Center at the beginning of the year. This seasonal trend is typical as the business experiences fluctuations between December and January due to the holiday effects. It's important to emphasize that the decline in margin is not indicative of a permanent strategy to lower prices. It's a tool to attract customers during the seasonally slow periods of the year. In fact, adjusted gross margin rebounded significantly in March to Q4 levels. Looking ahead, we anticipate exiting the year with an adjusted gross margin exceeding 70%, driven by our focus on growing our client base with new centers and increasing spending with our existing customers. Furthermore, and as Joe mentioned, our company has a proven track record of driving more spend with existing customers after one year, which reinforces our confidence in achieving our margin targets. First quarter SaaS adjusted EBITDA was $3.4 million, resulting in a SaaS adjusted EBITDA margin of 4.6%. Right now, I'm going to unpack the shortfall in EBITDA. At the onset of the year, we initiated plans to trim expenses and enhance productivity across various fronts. While we're delighted to report that we've uncovered more savings than initially anticipated, leading to an upward revision in our SaaS EBITDA guidance for the full year. Let me explain the timing impact on the first quarter in more detail. The restructuring of our company-wide sales commission plan aimed at incentivizing multi-center sales crucial to our profitable growth accelerated the recognition of commissions that would have otherwise been deferred under the previous plan. Consequently, SaaS expenses saw a rise of over $2 million in commissions in the first quarter. Again, this was a timing factor that will normalize and benefit us in the future. Secondly, elevated G&A costs weighed on SaaS EBITDA margins, amounting to just under $1 million. These costs related to deferring cost reductions from Q1 to Q2 onward as we finalize our plans, which will ultimately yield greater savings than initially anticipated for the rest of the year. Once again, we firmly believe that these timing events are now behind us, which is why we are raising both SaaS revenue and EBITDA guidance for the full year. SaaS subscribers were approximately 70,000 at the end of the first quarter compared to 66,000 at the end of the fourth quarter, an increase of 30% year-over-year and 6% sequentially. SaaS ARPU was relatively flat at $369. First quarter seasoned net dollar retention was 94%, an increase of 300 basis points year-over-year. Moving over to Marketing Services. First quarter revenue was $159.3 million and above guidance. First quarter Marketing Services adjusted EBITDA was $50.7 million, resulting in an adjusted EBITDA margin of 32%. First quarter Marketing Services billings were $136.8 million, representing a decline of 24% year-over-year. First quarter consolidated adjusted gross margin was 68%. First quarter consolidated adjusted EBITDA was $54.1 million, representing an adjusted EBITDA margin of 23%. Finally, our net debt position was $341 million at the end of the first quarter. Our leverage ratio was 1.9x net debt to EBITDA, which is well below our covenant of 3x. As Joe mentioned earlier, we are pleased to have successfully completed the refinancing of our outstanding term loan, resulting in a reduction of the interest rate by 175 basis points. With the proceeds, we refinanced both our outstanding term loan and ABL facility, both of which were maturing in 2026. Additionally, we capitalized on the opportunity to swap out our ABL facility for added flexibility at a lower interest rate. The new debt arrangement extends the maturity to 2029 and incorporates amortization that steps down. Furthermore, it features a smaller excess cash flow sweep, bolstering the company's liquidity. The new credit agreement provides the company with essential flexibility to continue investing in and growing our business as well as to strategically allocate capital to maximize long-term value for shareholders. Now let's discuss guidance for the second quarter. For the second quarter, we expect SaaS revenue in the range of $77.5 million to $79.5 million, and we are increasing our full year guidance range to $326 million to $329 million. For the second quarter, we expect SaaS adjusted EBITDA in the range of $6.5 million to $7.5 million, and we are increasing our full year guidance range to $28 million to $30 million, which implies SaaS adjusted EBITDA margin of 9%. For the second quarter, we expect Marketing Services revenue in the range of $141 million to $144 million. And for the full year, the range is adjusted to $487 million to $494 million. For the full year, we expect Marketing Services adjusted EBITDA to be in the range of $130 million to $133 million. Please keep in mind that the print schedule and print directory's published dates can adjust and impact Marketing Services reported revenue and EBITDA. As a helpful guide, you can model EBITDA margins around 30% in the first half of the year and mid-teens in the second half of the year.

Thank you, Paul. When you think about Thryv, it is a category leader in a big megatrend. Small businesses are following big ones into the cloud. They're doing it to save time, save money, and deliver a better experience for their customers. And for us, it's delivering strong, sustained growth as that megatrend unfolds. We're really excited about what we're seeing and demand picking up the way it is. I think it's also interesting to think about what's happening with our platform strategy. More and more centers are being bought by customers. And that trend, we believe, will really drive our future as we build out our platform. We're very excited about our new Chief Product Officer, Rees Johnson, joining our company. Rees has a very strong background in SaaS having worked for some big, well-known companies, and he's the type of talent that can help us take our platform to a whole other level. So welcome, Rees, and we're really excited about what that means in terms of us continuing to develop our software platform. When you think about what's happening in our company, there is a colossal legacy issue within our Marketing Services business. And increasingly, as we build our products like Marketing Center, we're finding more and more traction penetrating that base. We're accelerating that penetration into that base. We think this is really good news for the development of our SaaS business and looking forward to really what's going to unfold in the year ahead. So with that, operator, I'd like to open the line up for questions.

And your first question comes from Arjun Bhatia from William Blair.

And congrats on the nice results here. Joe, maybe to just continue on that last point, I know last quarter, you had announced this kind of accelerated shift from Marketing Services to SaaS. Can you maybe just give us a sense of how the Marketing Services, the legacy customers are receiving that? I know it's been relatively early still. But give us a sense of what kind of traction you're getting there. And is that something that is driving the accelerated growth that we're seeing in SaaS clients? I know that number was really strong today, but would love to hear some more color on that.

Yes, 30% subscriber growth we think is pretty strong. And yes, it certainly was aided by going deeper into the customer base. I mentioned on previous calls that with Marketing Center, it's a much closer leap to the reason that people bought our various Marketing Services products in the past—to get more leads, to make their phone ring, and to get more inquiries coming in. So that is not as big a jump as transforming your business operations and putting a CRM in and really changing the way you run things. It's in many ways, it's a shorter leap and an easier sale. It's closer to what they were looking for. And so we're continuing to have really strong success selling into that base. As I mentioned, we're also seeing really strong traction with the two-center uptake. That's picking up. People are really buying into the concept of buying the platform and not just one of the solutions, but buying the broader platform. So we expect that to continue, Arjun. That's part of our bullishness on the overall results for the year.

And then I know the—obviously, the debt refinance is an important step here. When you think broadly about your capital allocation strategy, how does this impact it? I know you announced the buyback, but maybe what are your thoughts on M&A going forward if you have a little bit more capital flexibility and where might you think about increasing investment even in the SaaS business?

Well, as we've discussed before, we have an active corporate development effort looking at and talking to SaaS entrepreneurs about how they might fit into the Thryv picture. The challenge in the past has been twofold. One is our very low valuation makes acquiring a SaaS business of any size dilutive. It sort of makes us think about having to do smaller ones because they're typically valued as SaaS businesses, and we're not. We're valued like a phone book business. And so that makes it challenging. It doesn't mean we can't do it. We're pretty skillful acquirers. We're good at integrating. We have a big sales force and a lot of ability to magnify somebody else's results. So we're very much out there looking at that, working on that. The second constraint, as you touched on, was our prior credit facility, which was essentially sweeping all of our cash. So we were operating almost in a straitjacket. This business throws off a considerable amount of cash. It generates a lot of cash. And we now have some flexibility in using that cash. And so whether we use that cash to acquire SaaS businesses to build out verticals and accelerate our growth, whether we use it a little bit to buy back shares, or whether we continue our debt repayment efforts, we're looking at all of them. That wind up on where you started; there are definitely some interesting SaaS targets. I think you might see more of that type of activity in the future now that we've got a little bit more flexibility, Arjun.

Our next question comes from the line of Scott Berg from Needham.

Congrats on the nice quarter results here. Joe, following up on the 8% of your SaaS customers with multiple centers today, are you seeing any sort of patterns emerge in terms of customers buying a specific center first and then adopting a specific second one, or maybe it's changing on how you land a little bit? Just didn't know if you had any color on exactly what those 8% are kind of buying today.

It's definitely evolving. It was obviously Business Center first, and then you go back and you try to add Marketing Center. Now we're seeing—one of the most interesting patterns emerging is customers buying the whole package right away, buying both centers. It's not a huge number yet, but the sales force is excited about it because they've had more than a handful of these kinds of double sales. And that bodes really well for the future. The other thing we're seeing is where they buy Marketing Center first, get onboard with that, and then want to continue on the journey and want to buy Business Center. That's particularly heartening to see. Business Center requires a bigger onboarding experience and demands more engagement than Marketing Center. Once you're set up on Marketing Center, you don't necessarily have to log in all the time for it to be helping you. So those are some of the patterns we're seeing. It's relatively early days, but I'm really excited about thinking where we'll be in a year. We've gone in one year from negligible percent of the customers buying two centers to 8% at the end of this quarter, and it's surging upward. We think that does a lot to help with our long-range journey, which we said we thought we could go from kind of $4,000 a year per customer to $7,000 a year per customer. We could fill more of their needs and do more for them. We believe that this supports that. We've said that we felt like our net dollar retention would be able to reach 100% over time. The ability to sell multiple centers into these customers will really support that and drive that. Looking at our cost of acquisition relative to our lifetime value, as these customers are growing and prospering and doing well with the software and buying more centers, it has a favorable influence on our lifetime value and improves our whole business model. So it's a pretty exciting trend.

And then how should we think about the decay in the Marketing Services business going forward? Obviously, you just answered the question that we all know you're pressing into that base a little bit to hopefully lure them over to some of the SaaS solutions. But I did see you reduced the full year revenue amount of that segment. Why don't you help unpack? Is that really more a function of how you're pressing on these customers to transition to your SaaS solutions, or is there another macro element out there giving weakness to that business? Because we are seeing some SMB pressures out there today?

That's a great question. We certainly read the same headlines you do. We do hear some concerns in the market about low real estate transactions, which affect things. Our small businesses tend to be quite resilient and they chug on through. They tend to be the more mature businesses in the market. We have not been big sellers of the new start business. The price point in our software products starts at $200 a month and goes quickly up from there. There's plenty of free and cheap tools available online for very small startups, and they should use those and then graduate to something like Thryv later. We're more of a premium brand in the market that people look to grow into. In terms of macro, our customers are doing fine and are continuing to buy. Back to your question about what do I see in terms of the transition, make no mistake about it, we are definitely pursuing the transition actively. Ideally, we want to be a SaaS business, and we don't see the Marketing Services business as a long-term future. We see it winding down. So we're working hard, calling on customers, offering them interesting propositions to switch to the SaaS world, and they're listening. We're having good traction with that. I think when you started covering us, we were around 12% SaaS revenue. We'll be at 40% this year and we'll pass 50% next year, becoming a majority SaaS revenue business. So part of that is due to our success hunting in the existing customer base.

It's been a good business transition, no doubt. Looking forward to seeing it hit 50% next year. Congrats.

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

Joe, I really wanted to lean into kind of the multi-center adoption side of it. With the changes that you've made to your sales commission structure, can you talk about how just the overall go-to-market strategy has evolved? And could we see potential acceleration in that multi-center strategy adoption as we kind of progress throughout this year?

Yes, it's a great question because that really drives the direction of the company in some ways. We have gradually increased the incentive to sell software and gradually decreased the part of the compensation that comes from selling the legacy products each year. Obviously, it's been a gradual transition. We couldn't just flick a switch as it would have left the sales force with uncertainty. We take good care of our sales force; they're crucial to our success. As we rounded the bend into 2024, it felt like the right time for the next logical step - moving that compensation structure more in favor of selling multi-centers. It's just been about three months or so since we've done that, but the results have been dramatic. The sales force is focused on it and having a lot of success. Looking ahead, it's likely we will see substantial growth in selling multi-centers. As I model the business, at this time last year, less than 1% of our customers had more than one center. By the end of this last quarter, it was 8%. I expect that to grow significantly each quarter moving forward along with improvements in ARPU and other metrics.

And Joe, you kind of have touched on it a little bit, but can you speak to the new technology leadership? With Rees Johnson coming on board, are there any significant changes to how you're thinking about your center strategy or tweaks to the rollout plans with new leadership in place?

I don't have anything to report on that now. We brought in a world-class executive. He's come from significant companies like McAfee, Symantec, Forcepoint, and he's incredibly accomplished. I'm proud that someone of his caliber would want to join us at Thryv. He sees the scale and success of the company and recognizes how undervalued it is. He has been impressed with what we've developed within our software. Like any new executive, he's bringing new ideas and improved strategies, but for now, our direction of building out this extensive platform remains the core of our strategy. We're experiencing a lot of success and will continue to build on that momentum.

Our next question comes from the line of Daniel Moore from CJS Securities.

Just wanted to go back to the well-defined strategy of accelerating conversions from Marketing Services to Marketing Center. As we look at billings in Q1 for Marketing Services, it's down 24%. Is that a good proxy for continued declines? Would you expect that to accelerate? And just talk about your ability to maintain the line on margins as that does.

Good question. We'll continue to guide you guys because we know the way revenue needs to be recognized at the time of publication. We'll keep providing prescriptive guidance so that you understand how this is moving. We've adjusted down the guidance a little for the year because we're having so much success converting customers. Paul, do you want to jump in and provide your thoughts on how they should think about it longer-term or how they should consider margins?

Yes. There really needs to be a paradigm shift in how we think about this. I think we should move away from looking at margins solely from Marketing Services to examining cash flow and EBITDA from the entire business because there are high margins on the SaaS side. So as we raised our guidance and EBITDA on the SaaS side, that growth will continue. Continued declines in Marketing Services will coincide with growth on the SaaS EBITDA and margins, resulting in healthy consolidated EBITDA. We need to focus on the full picture rather than just Marketing Services.

Makes perfect sense, Paul. I wouldn't—I couldn't agree more. That leads to my second question, which is about your confidence that we're approaching the trough for consolidated EBITDA in terms of the lines crossing. Given the updated guide for fiscal '24, do you think you can hold that line or start to grow in '25 and beyond, or are there shifts in the publication schedule that could impact that again in '25? Just to clarify, I'm not looking for outward guidance, but just trying to understand where we are regarding those lines crossing and the overall trajectory.

Paul, do you want to take that?

Yes. That’s what we aim for. It's critical that we look at the publication schedule and what's happening because while cash flow remains strong, there could be fluctuations in how EBITDA is recorded due to the schedule. But we're getting closer each year, focused on getting back to growth. I'll simply answer it that way as we haven't detailed '25-'26 to put a marker in the ground yet.

Yes. I would just add that I realize it can be challenging for people observing Thryv or those investing to see our metrics. They don't always move perfectly upward; sometimes they bounce a bit while we're transforming this large business. However, if you step back and look at the trend over time, you'll see a rapid transition. Small businesses that previously weren't in the cloud are moving in quickly now. We're the category leader in that transition. Our Do-It-All Small business software is gaining popularity, and that's where future investment focuses. I appreciate your insights, Dan.

No, that was it. And clearly, the transition is accelerating in the right direction. Just trying to set the expectations bar appropriately.

All right. Thank you. I think that wraps up for us.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.