Thank you for joining us. My name is Kathleen, and I will be your conference operator today. I would like to welcome everyone to the Thryv Third Quarter 2024 Earnings Call. I will now turn the call over to Cameron Lessard. Please proceed.

Hello, and good day, everyone. Welcome to Thryv's Third Quarter 2024 Earnings Conference Call. Please keep in mind today is November 7, and the company released preliminary unaudited third quarter results on October 29 in conjunction with the Keap acquisition announcement. 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 the conference call. With that introduction, I will now turn the call over to Chairman and CEO, Joe Walsh. Joe?

Welcome to Thryv's Third Quarter 2024 Earnings Call. I'm joined today by our CFO, Paul Rouse. Together, we'll present our third quarter results. Ten years ago, our management team was brought in by the Dex Media Board to do a turnaround. The plan was to take the rapidly declining regional directory publisher, which was declining about $400 million a year at that point, and transform it into a market-leading global software company. Each year since we've made steady progress toward that goal. Our superpower, as I've called it, has been hunting in the zoo, converting directory customers and marketing services customers to our modern SaaS software platform, first with CRM run your business tools with solid success. And recently, we've added grow your business functions. Our success with growth elements has sped up our marketing services conversion. The small miss we had in marketing services this quarter was actually a positive sign. We cannibalized ourselves. These customers are now on our modern SaaS platform, poised to grow with us into the future. We've guided that we will be a 100% net dollar retention company. These customers expand their spend. In fact, we see 10% to 15% growth in the ensuing year after this conversion. As a multiproduct company, we now see many paths to grow customers once they land on one of our centers. Approximately 12% of our customers are now multi-center. This is a key lever to watch in the future. At $350 million in ARR now, our SaaS business is beginning to show 72% gross margins, 12% adjusted EBITDA margin, 29% growth. This Rule of 40 performance was achieved by hunting in the zoo, converting marketing services customers to SaaS. We've shown we can upsell these accounts. We get referrals from our engaged SaaS clients. While it's in the early stages, our product-led growth strategy is beginning to help us meet new customers. And we gained new customers through acquisitions like the Keap acquisition we made last week, which added over 15,000 quality customers. I'll talk more about Keap after Paul covers our financial results.

Let's dive into our results, beginning with SaaS. SaaS revenue was $87.1 million in the third quarter and above guidance, representing an increase of 29% year-over-year and up 12% sequentially. Our SaaS adjusted gross margin has seen significant growth, increasing by 560 basis points year-over-year and 250 basis points quarter-over-quarter to reach 72.2%. This impressive improvement stems from the continued positive impact of our high-margin SaaS offerings, which have driven a 40% year-over-year increase in SaaS-adjusted gross profits. We're delighted to have surpassed our goal of exceeding 70% in adjusted gross margins earlier than anticipated. This success not only aligns with our strategic objectives but also positions us strongly for continued future profitable growth. In the third quarter, SaaS adjusted EBITDA was $10.3 million, above our guidance and resulting in a SaaS-adjusted EBITDA margin of 11.8%. As Joe mentioned earlier, we've achieved the Rule of 40, an incredible milestone for our company. This accomplishment reflects a powerful combination of strong growth and expanding EBITDA margins, primarily driven by our strategic product mix initiatives. In the third quarter, we delivered strong SaaS subscriber growth, reaching 96,000 subscribers, up from 70,000 in the prior quarter. This 13% sequential growth and 45% year-over-year increase reflects a successful execution of our accelerated migration strategy, transitioning marketing services clients to our SaaS platform. As we've consistently communicated, getting these customers on our platform is strategically critical as it creates a clear path to upsell through our tiered product offerings. SaaS ARPU for the quarter was $307 compared to $333 for the prior quarter. This temporary pressure on ARPU is a direct result of our successful accelerated migration strategy as we're bringing a substantial volume of customers onto the platform at introductory price points. While this creates some near-term ARPU pressure, given the magnitude of the customer growth, we're confident in our ability to expand these relationships over time through our established upgrade paths within Marketing Center. We view this as a strategic trade-off that prioritizes building our subscription base and positioning us for long-term value creation. Importantly, we're already seeing early validation in our land and expand strategy. At quarter end, 12% of our subscriber base had two or more paid centers, demonstrating strong product adoption beyond initial entry points. This growing multi-center penetration contributed to a significant improvement in net dollar retention, which expanded to 101% in the third quarter, an increase of 900 basis points year-over-year. These metrics reinforce our confidence in the long-term economics of our accelerated migration strategy. Moving over to Marketing Services, third quarter revenue was $92.8 million. Third quarter Marketing Services EBITDA was $9.3 million, resulting in an adjusted EBITDA margin of 10%. On the time-related impact of Marketing Services EBITDA this quarter, our full year consolidated EBITDA guidance remains intact with no cash impact from this variance. The main difference was the timing related to new client acquisition-related expenses. Third quarter marketing services billings were $105.7 million, representing a decline of 35% year-over-year. Our Marketing Services billings were impacted by the ongoing success in transitioning our marketing services clients to our SaaS platform. Third quarter consolidated adjusted gross margin was 65%, an increase of 480 basis points year-over-year. Third quarter consolidated adjusted EBITDA was $19.6 million, representing an adjusted EBITDA margin of 11%. Once again, we recognized a noncash impairment charge of $83.1 million, $2.29 per diluted share related to the ongoing structural decline of our marketing services business. This is similar to the noncash impairment charge recorded in the fourth quarters of 2022 and 2023. We don’t anticipate further impairment charges. Finally, our net debt position was $307 million at the end of the third quarter. Our leverage ratio reduced to 1.66x net debt to EBITDA, which is well below our covenant of 3x. Our strong financial performance enabled us to generate $27.5 million in free cash flow, which we used to prepay the full year amortization of $52.5 million on the new term loan. This proactive debt repayment underscores our commitment to financial discipline and a healthy balance sheet. Now let's discuss guidance for the fourth quarter. For the fourth quarter, we expect SaaS revenue in the range of $90 million to $92 million. We are raising our full year guidance range to $329.5 million to $331.5 million. For the fourth quarter, we expect SaaS adjusted EBITDA in the range of $9.5 million to $10.5 million, and we are raising our full year guidance range to $33.5 million to $34.5 million. For the fourth quarter, we expect Marketing Services revenue in the range of $81 million to $83 million. And for the full year, the range is adjusted to $479 million to $481 million. For the full year, we expect Marketing Services adjusted EBITDA to be in the range of $125 million to $128 million. For Keap, we anticipate the acquisition will generate approximately $11 million to $12 million in revenue for the fourth quarter, which reflects only November and December as the acquisition closed on October 31, 2024. Keap adjusted EBITDA will be minimal as we initiate the plans to integrate the SaaS businesses. Ahead of the acquisition, one of the key steps that we took earlier this spring was refinancing our term loan and ABL facility. Under the prior structure, which essentially swept all of our cash for debt repayment, we were pretty constrained. The refinancing significantly extended our debt maturities, unlocked financial flexibility to invest in our SaaS business, and allowed us to focus more on accretive M&A opportunities, including Keap. Last week, we completed an upsized follow-on equity offering to fund the acquisition of Keap and further accelerate our deleveraging efforts. We issued 5.7 million shares in total for approximately $76 million in net proceeds. The offering was multiple times oversubscribed with strong demand from new and existing investors. I'd like to thank our equity investors for their support around the acquisition itself and the subsequent financing, which put the company and its balance sheet in great shape to execute our growth strategy. With that, I'll turn it back over to Joe for more details on the strategic rationale of the deal and closing remarks.

We've long admired Keap as a company. Their automations have been around for a long time and are well used. They are an interesting combination of simple yet powerful, and they work really well. I've gotten to know Co-Founder and CEO, Clate Mask, over the last seven years or so. We met initially at a conference, and we stayed in touch, talked about the developments within our industry. And over the last sort of three years or so, we've been on again, off again talking about this deal and potentially Thryv acquiring Keap. We're really enthused about what Keap does for Thryv because it helps us with one of our main goals, which is moving a little bit upmarket. We deal in the very small business group, and we still have many businesses with very small employee counts, and we'd like very much to have more employees, a little bit bigger small businesses. These automations are what larger small businesses with some managers are looking for to provide benefit. We have many of those in our current customer base that we feel we can sell these automations to. We think there will be a real revenue lift that comes from having the automation on our deck being able to sell those into our customers. This will flatter gross margins and net dollar retention, and it will really drive growth in 2026 and beyond. They also have a partner channel, which is something that we've attempted to build but not been nearly as successful. Keap has hundreds of certified partners and strong influencer channels. Their primary way of acquiring businesses is through this partner channel, which they execute extremely well. We're excited about the idea of putting Thryv's full product catalog on the table for those resellers and partners to market to their base. Those customers will be able to benefit from the growth-oriented products that we have at Thryv. So we think there's real synergy there. Keap's product and engineering team will increase the size of ours by about 50%. We have a lot of respect for this group. They've done incredible work. We deeply examined their products and the way they operate. They've got a solid team. This should enhance the capabilities of our overall product and engineering team and improve the pace of our roadmap going forward. We acquired 15,000 quality customers from them. That's a real plus. We add over $80 million of revenue, and they're going to generate more than $8 million of EBITDA this year. So it also boosts the size and scale of our business. There are some synergies to pick up in the combination; we're looking at around $10 million of synergies. As we look ahead to December, we have an Analyst Day coming where we'll discuss more about how Keap and Thryv fit together and our model for the next few years.

Wonderful. Joe, wondering if you could just elaborate on the Keap automations that you highlighted. Just any more details on exactly how those help the SMB customers. And then I'm curious, if you look at the current base of Thryv SaaS customers, what mix of those would be at the high end of that SMB that would be a good fit for that cross-sell?

The automations began as important marketing automations. They eventually evolved to include service operations, sales, recruiting, hiring, onboarding, and all the repetitive tasks you need to execute in a business. These automations bring consistency, precision, and excellence to operations. It's somewhat like mad libs; a recipe that is designed to help manage business needs with simple and intuitive processes. They guide customers from initial contact through nurture and follow-up. They're not so complicated that you need a consultant to implement them— most users can navigate with just a bit of effort. In cases where additional support is needed, Keap has a solid internal team to assist. Small businesses may struggle to justify large software expenses due to limited revenue, but as businesses increase revenues, investing in automation becomes attractive as it saves time and improves service quality. We believe a significant portion of our 96,000 current subscribers will benefit from these automations, ensuring higher customer satisfaction. This also serves as an upsell path for us while keeping customers from moving to higher-end services like HubSpot or Salesforce. We're restructuring our offerings to attract customers with higher revenues, facilitating further growth.

Joe, when we think about the product here going forward, how much of this is going to be just integrating the Keap platform with the traditional Thryv platform? Or will you take more of a true single platform approach, rebuilding its functionality on top of your current operations?

We're going to fully and completely integrate everything together. We have approximately a 200-person product and engineering team. Keap has around a 100-person product and engineering team. We're looking to combine and enhance our teams with increased investments. Product development is our top priority; we aim for best-in-class offerings that are interoperable with existing tools in the market while ensuring seamless functionality. Initially, we will implement interoperability using APIs before completing deeper integrations.

Got it. Helpful. Your marketing services business has seen more customers convert to your SaaS business than maybe what you expected at this stage of the cycle. How should we think about those conversions going forward? Are the last two quarters an anomaly or is this rate right moving forward?

We've been very focused on transitioning our customers faster than expected. The pace of conversion has outstripped our plan from a year ago. Many of our marketing services clients came looking for growth solutions—tools to help them generate leads and enhance their visibility. Our tools strive to assist them in growing their businesses, and the feedback has been positive. We expect the transformation process to accelerate due to our enhanced offerings since those who are moving over to SaaS tend to experience stronger margins. Historically, these clients spend 10% to 15% more after transitioning, demonstrating our capability to foster growth and help them navigate their digital journey. This model positions us well for continuous growth in the coming quarters as more clients transition to our platform.

Joe, can you touch a bit on how you think about the go-to-market motions evolving with the two companies together? Are there differences in your approaches? Also, what about pricing? Will you sell as one SKU or separate SKUs?

You have pinpointed a key aspect: distribution. Keap possesses a well-established partner ecosystem that is highly effective. We aim to leverage this framework to offer the full catalog of Thryv and Keap products, which will greatly benefit partners by increasing their service offerings. For Thryv, access to Keap's products will allow a broader range of offerings to our existing customer base. Conversely, Keap will gain access to our sizeable sales force, bolstering their direct sales efforts. While it will take time to see immediate results, over the longer term, this distribution capacity will be transformational for both firms. Everything regarding pricing will be determined in collaboration with the Keap team; we're focusing on listening to our partners' needs at this stage.

That’s helpful. Regarding the core business and Q3 strength in your SaaS offerings, the NRR number came as a surprise. Can you detail what is driving this uptick? Should we expect variability in the SaaS net retention rate, or is this the new baseline?

I predicted we would stabilize around 100%. Now that we're there, I do expect it to remain close to that moving forward. The beauty of having 12% of our customers at two or more centers contributes significantly to net dollar retention, which should continue pushing that number higher. We've fully scaled our business, and as we continue adding additional products, margins improve rapidly. Customers migrating from marketing services to SaaS show 10% to 15% increased spending shortly after moving over. This dynamic enforces a robust floor for NDR and ultimately positions us well for sustainable growth. It’s unlikely we drop back into the lower 90s; this is a steady 100% NDR story.

In Marketing Services, should we expect another decline in EBITDA next year related to the timing of book publications similar to last year? And what is your confidence regarding consolidated EBITDA growth in 2025, including Keap?

The marketing services decline may accelerate as we transform clients to SaaS products. Revenue recognition timing due to our printing publication schedule can be tricky. I will defer further financial guidance to Paul.

Indeed, the first quarter of next year should see a decline due to the aforementioned print schedule. We aren't ready to guide on the entire year yet, but it will be important to monitor those changes.

Super helpful. Then how should we think about annualized free cash flow pro forma for the acquisition of Keap?

Paul, can you take that one as well?

We're not prepared to guide on 2025 at this time.

Looking forward to the Analyst Day coming up! One question for you, Joe. You've made a lot of valuable acquisitions internationally. Given the cost of international growth, what opportunities does Keap's presence bring for expanding in different markets?

We're excited about expanding further into Europe and other viable international markets. Keap has 20% of its revenue from these regions, with established partnerships already in place. This acquisition streamlines our entry and growth in these markets without the necessity of major purchases like previous entry strategies in Australia/New Zealand. We believe that we can capitalize on this presence significantly.

That's helpful. Could you clarify the ARPU situation? You mentioned it continues to be under pressure while noting strength in SaaS ARPU. Can you elaborate on the contributors to ARPU pressure?

We've provided some insights in our investor deck regarding ARPU metrics, separating ARPU for local sales which has remained stable and has even grown slightly. The lower ARPU numbers during our migration stem from legacy technology platforms due to our transition efforts. We're implementing new marketing center structures to encourage an easier entry point that spurs an upsell opportunity later. The migration of our marketing services clients is more cost-effective for us, leading to lower initial revenue numbers but fostering future growth potential.

Can you discuss the gross margin progression in the core Thryv SaaS business? What's the right way to think about the pace of margin expansion as you see momentum on multicenter adoption?

At our last Analyst Day, we indicated a goal towards 75% gross margin, up from the low 60s at that time. As we scale and mature as a SaaS company, margins will continue to rise. The addition of Keap will further improve these margins. We plan to provide updated guidance on gross margins at the upcoming Analyst Day. I don’t foresee any decline; the current momentum will likely yield increased margins. Looking forward to seeing everyone at the Analyst Day.

That concludes our Q&A session and today's call. Thank you, everyone, for joining. You may now disconnect.