Thryv Holdings, Inc. Q2 FY2025 Earnings Call

Good morning. Thank you for joining today's Thryv Holdings Second Quarter 2025 Earnings Conference Call. My name is Megan, and I will be your moderator. I would like to turn the call over to Cameron Lessard with Thryv Holdings. Please proceed.

Good morning, and thank you for joining us for Thryv's Second Quarter 2025 Earnings Conference Call. With me today are Joe Walsh, Chairman and Chief Executive Officer; and Paul Rouse, Chief Financial Officer. During this call, we will make forward-looking statements that are subject to various risks and uncertainties. Actual results may differ materially from these statements. A discussion of these risks and uncertainties is included in our earnings release and SEC filings. Today's presentation will also include non-GAAP financial measures, which should be considered in addition to, but not as a substitute for our GAAP results. Reconciliations of these measures can be found in our earnings release. As a reminder, on this call, SaaS revenue reflects the combined performance of Thryv and Keep. We will only specify Keep's performance when discussing its revenue contribution for the quarter and fiscal year. With that, I'll turn the call over to Joe Walsh, Chairman and CEO. Joe?

Thank you, Cameron, and good morning, everyone. I want to highlight a few key points before Paul reviews the numbers. We managed to navigate through a challenging period. At our Investor Day in December, we identified a challenging situation and investors were understandably worried about our increasing leverage ratio. We faced some accounting pressures due to our publication schedule, which shifted from 18 to 24 months, resulting in fewer directories being published early in the year. Additionally, we decommissioned legacy systems related to marketing services, which temporarily increased costs but ultimately streamlined our operations for the future. There were also hurdles in integrating Keep and final high amortization payments to be settled. We had good reasons to stay focused on these issues, but we've successfully moved past that now. Those amortization payments have been completed, and moving forward, our business will start to see improvements in the leverage ratio during the third and fourth quarters. We have lower amortization payments ahead of us, setting the stage for positive free cash flow in the business. As time goes on, we will start to generate some excess free cash flow that will allow us to make decisions about its allocation. So, remember this milestone—we have moved beyond that challenging phase. Regarding our results, the transition is proceeding very well. We continue to perform according to the Rule of 40, reporting approximately 20% EBITDA margins and over 20% growth in this recent period. As anticipated, our average revenue per user is increasing, currently at about $4,200 annually. We project this to rise to between $4,000 and $8,000 in the coming years. Evidence shows we are making significant progress, with seasoned clients spending around $5,400 per year and clients from our largest sales channel, the U.S. direct channel, spending about $6,000 annually. We are certainly on track, with more products available on our platform and customers purchasing more. We are also seeing excellent advancements in our net revenue retention, which we expect to hover around 100%. This period, it was over 100% at 103%, and the percentage of clients purchasing multiple products has increased to 19%. We're making great strides with existing clients and expanding our offerings. Now, I will hand it over to Paul to discuss the numbers in detail. Paul?

Thanks, Joe. SaaS reported revenue was $115 million in the second quarter and met the top end of our guidance range, representing an increase of 48% year-over-year. Keep contributed $17.7 million in the second quarter. Excluding Keep, Thryv's SaaS business grew 25% year-over-year. SaaS adjusted gross margin increased 430 basis points year-over-year, reaching 74%. In the second quarter, SaaS adjusted EBITDA increased to $23.4 million, exceeding guidance and resulting in a record adjusted EBITDA margin of 20%. This performance underscores the progress we are making in scaling a profitable and durable software business. As we stated last quarter, the return of a strong print quarter helped reverse the temporary cost allocation headwind, with more shared expenses now shifting back to the Marketing Services segment. This will continue to normalize over time, particularly as we transition more print publications to a 24-month cycle, bringing greater consistency and visibility across the business. We ended the second quarter with 106,000 SaaS subscribers, including 14,000 from Keep, representing a 25% increase year-over-year. With a large and established customer base now in place, our focus is on increasing spend per customer by driving adoption of more products and solutions, especially among our high-value clients and larger businesses. This approach meaningfully expands SaaS lifetime value and is a more efficient driver of profitability. In the second quarter, our overall SaaS ARPU reached $352 with Thryv at $340, up sequentially, and Keep ARPU holding strong at $431. We see continued opportunity for ARPU expansion through the second half of the year, supported by our broad platform and our redesigned compensation plan that incentivizes increased monthly recurring revenue. We continue to be over 100% NRR, achieving 103% this quarter. Additionally, clients with two or more Thryv SaaS products increased to 17,000 at the end of the second quarter compared to 13,000 in the prior year. Thryv centers per client also grew to 15% at the end of the second quarter compared to 10% in the prior year, further highlighting the traction we are seeing with existing clients. This kind of expansion, more products, more centers, more value, is core to our growth strategy and is a key driver of SaaS lifetime value. Moving over to Marketing Services. Second quarter revenue was $95.5 million and above guidance. Second quarter Marketing Services adjusted EBITDA was $27.8 million, resulting in an adjusted EBITDA margin of 29% and just above guidance. As anticipated, this quarterly performance is subject to the dynamics of the print schedule, which performed better than expected and returned to normalized levels starting in the second quarter. Second quarter marketing services billings totaled $78.4 million, down 38% year-over-year, reflecting the intentional shift in our strategy as we continue to initiate upgrades of legacy digital marketing services products for clients to our SaaS platform. The decline will persist, but at a managed pace. We remain on track to exit marketing services by 2028, with cash flow lasting through 2030, ensuring strong liquidity as we fully transition to a pure-play software business. We ended the second quarter with net debt down $24 million to $274 million, bringing our leverage ratio to 2.2x, ahead of expectations. Importantly, during this period, we made two additional quarters of required amortization payments, effectively eliminating two years of required amortization under our new term loan facility in just 13 months. So we are paid through until the second quarter of 2026. This achievement enables us to step down to a lower required amortization of $35 million per year going forward, significantly increasing the flexibility within our capital structure. With strong print quarters expected ahead, we anticipate leverage to step down significantly as revenue recognition ramps and cash flow improves. Turning to our outlook for 2025. For the third quarter, we expect SaaS revenue in the range of $116 million to $117 million. For the full year, we are updating our SaaS revenue to a range of $460 million to $465 million. For the third quarter, we expect SaaS adjusted EBITDA in the range of $18.5 million to $19.5 million. For the full year, we are raising SaaS adjusted EBITDA guidance to a range of $70.5 million to $73.5 million. For the full year, we are raising our Marketing Services revenue guidance to a range of $323 million to $325 million. For the full year, we are raising our Marketing Services adjusted EBITDA guidance to a range of $78.5 million to $80.5 million. With that, I'll turn it back over to Joe.

Thanks, Paul. Before we finish, I want to emphasize that we are confident in our direction. The business is making good progress. The slight change in our SaaS guidance is strictly related to challenges within the Keep business, particularly in the demand generation area. We didn't find the economics favorable there. When we faced some pressure, we seized the chance to reduce costs and chose not to invest in those sales since they weren’t profitable in relation to their lifetime value and customer acquisition costs. However, the Keep business is significantly supporting our SaaS operations, and I’ll elaborate on that shortly. Additionally, we’ve increased our SaaS EBITDA target, showing our ability to deliver results in key areas. I want to discuss Thryv for HVAC. We recently introduced this product, created in collaboration with a successful HVAC business. We designed automations specifically for HVAC using Keep's advanced automation tools. Some might criticize Thryv for being horizontal software, which has contributed to our rapid growth to over 100,000 subscribers. Currently, we are deepening our engagement with a focus on specific vertical markets where we have seen the most success, and HVAC is a standout area for us. We've already made impressive sales from this vertical and plan to expand into more verticals, partnering with reputable leaders in each field to map out processes for broader rollout. It's important to clarify that this initiative does not focus on back-office operations like logistics or inventory but rather on the marketing aspect, managing the customer acquisition funnel. For some larger accounts, we are collaborating with ServiceTitan and other back-office tools. We’re pleased with our achievements and look forward to enhancing our vertical positioning. We've received inquiries about our growth post-Zoom. Looking ahead to '26 and beyond, we are exploring various initiatives, starting with a free trial offering for one of our products to drive product-led growth. We're also investing in the new partner channel from Keep, which we believe will yield significant benefits in the future. Partner feedback is very encouraging. We are focusing our investment in the franchise channel, where the Keep tools have proven effective in delivering attractive offers. We also manage an agency called BNI and collaborate with major national brands. We have seen success in this area and expect more progress as we automate some processes for these agency clients using our new tools. We believe we have multiple avenues for future growth and anticipate a smaller portion of our sales will come from our direct channel as we expand into other channels. We’ve also launched a new product, Workforce Center, designed to help small businesses manage employee payments and tax compliance easily. This scalable solution is suitable for businesses whether they hire one employee or many. Most small businesses struggle to find payroll services that cater to smaller teams, but Thryv's Workforce Center is ideal for them, integrating seamlessly into their Thryv platform. We've already seen sales of this product, with small businesses utilizing it to pay their employees, and we see a lot of potential for success here. A broader platform should help keep customers engaged and reduce churn over time, though there will always be some turnover with small businesses. Finally, I want to address our Global Industry Classification Standard, or GICS. Thryv is currently misclassified under advertising within media and entertainment in the communication services sector, not in software at all. This misclassification means Thryv doesn't appear in relevant software industry rankings. We expect this error to be corrected in the future, and I wanted to highlight this issue. With that, let's open the floor for questions.

Our first question will come from Arjun Bhatia at William Blair.

Congrats on a great Q2 here, especially nice to see the profitability ramp. Joe, you talked a little bit about the vertical strategy just now the HVAC product is out. Can you help us understand how you think that's going to impact the business? Is it going to help you kind of get new customers in the HVAC segment? Is there an upcharge for the vertical capabilities? How do you think that kind of plays out into the Thryv growth story? And then I'd be curious to hear how you're thinking about the roadmap for future verticalization, which verticals might you target? And what kind of timeline should we think about there?

Thanks, Arjun. So within HVAC, we have mapped these automations, and it is an upcharge. You need to buy this automation package. And you've got one of the leading HVAC companies in the country who sort of opened up their processes and shared. So a lot of aspiring HVAC businesses kind of get a glimpse into how the big guys do it and do it really well, sort of the roadmap of where they may want to go for the future is laid out for them and prebuilt in these automations. So you're buying automation, also buying IP, you're buying business processes. So yes, there's a fee for it. In terms of how it will shape our business, I think it will continue to flatter ARPU because you've got people that are standing accounts adding a sizable additional investment. I think it will impact engagement and client satisfaction because it will really help them advance to another level with their business. I think it will play defense for the thousands and thousands of HVAC accounts that we currently have rather than just having a horizontal piece of software; they'll have something that's deeply verticalized. To the extent that they may be called on by other players, it will help us maintain those clients. On the offense side, it gives us a compelling story to tell when we want to try to win new business in HVAC, and we have something really relevant to talk to them about. We've got a lot of wonderful content out there online now, tutorial videos, how to be a great HVAC company, etc., and we're getting a lot of clicks and hits and views and all that, and it's generating leads already. We've actually been at this for a minute, and that's going really well. So I think we will be able to attract more HVAC companies and retain the ones that we have. I think there'll be nice upsell in terms of the ARPU per account. So I think it will benefit the whole category that way. I also want to mention that we have every intention of working closely with some of the back-office folks who spent an enormous amount of time mapping the back-office processes and figuring out when the truck comes in, you load it with Freon, and you put as many filters and wing nuts on it and all that. We haven't done that. That's not where we operate. We operate more from the front end, helping you get customers. And so we will be working with several of these different players that work in the back office and are eager to do that. I think there's white space in the market where we are, and I think we have an opportunity to serve there. As for additional verticals, we're that team that did the HVAC vertical is working on other verticals. We're looking at our own success. We've peered into our 100,000-plus customer base and asked where we have the deepest penetration and where we're having the most success. Let's start right there. So we're really working at our deepest penetrated and most successful classifications and delivering true value and doing it pretty quickly. So I think you'll see us adding more of these vertical applications pretty swiftly. We have several others underway as we speak, and we'll be adding them pretty quickly. If we look forward, say, a year from now, our top band of customers will have these vertical offerings, and we'll be heading further down deeper into the customer base.

Perfect. That's super helpful color. I appreciate that. And then maybe I want to touch on the guidance for a second. I know you mentioned the revision on the SaaS guidance is mostly due to the segment of the Keep business. But when we look at what's implied in the back half on an organic basis, it does imply a bit of a slowdown. Meanwhile, when I look at the Q2 results, both from an organic growth and profitability perspective, clearly, there's good momentum in the business. Now you have verticals rolling out, you have Workforce Center, you're just getting going on a lot of the cross-sell initiatives that you launched this year. So how realistic maybe is the back half deceleration on an organic basis that's incorporating into the guidance? And maybe are you being conservative there? Or what would have to happen in the business and the demand environment for that back half outlook to come to fruition?

Yes, Arjun, Paul still works here. So, there's always a tremendous amount of thought put into everything that we put out. So, he's assuming we catch a cold, get the sniffles, fall down, sprain an ankle, like everything between now and the end of the year. So we want to be conservative. We want to view the numbers we give you guys like we're writing a check so that you can count on them and build on them. So, we're excited about a lot of the momentum we have going on in the business. We really are. I can't point to anything that we're worried about, to be honest with you.

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

I wanted to focus both of my questions on the SaaS business in general. Joe, can you elaborate on your comments regarding the Keep business and the customers you might be moving away from due to unprofitable contracts? How should we interpret where you are in that process? Is Q2 the lowest point? Do you anticipate these reductions will continue for another quarter or two? If I annualize the Q2 Keep revenues, it comes out to about $71 million, compared to the $75 million trough you expected when you acquired the business last fall.

Yes. Look, the Keep software is amazing. The Keep people that we acquired are amazing. Their go-to-market motion had some challenges. I mean, they had been in a revenue decline for more than just one year before we bought them. Even towards the end, they were selling at a fairly low lifetime value to CAC ratio in their direct channel to keep revenue up where it was. As you are very well aware, we recently passed our pinch point and the sort of tightness of our plan. We just looked skeptically at those unprofitable sales and asked if we really wanted to invest in those right now. When our overall numbers rock on the Thryv side, did we really want to buy more of these sales? We just made the decision not to invest. We could have put a few million bucks into the demand generation business to equal that number, but it would not have been a good ROI on cash in the short term. What we are finding is tremendous interest and success with Keep software through the Thryv sales force into the Thryv customer base. Using these sleek automations and the solutions launch pads on customizing those for particular verticals is an absolute hit. We're just getting started and it's gaining immense traction in our sales organization. The ARPU is appealing. It's a good size one. It's margin-rich. We are really, really pleased about that. One of the things we were super excited about in buying Keep was their very successful partner channel. It's still a good partner channel and still successful, but when we showed up day one and said we're here, they were mad at us. They said, 'We haven't been getting love. We haven't been getting innovation. We haven't been getting investment. You owe us right now.' So we're working to deliver on a lot of the API hooks and other technical things they've been waiting for a while. I have a lot of enthusiasm for what happens in '26 and '27 with the partner channel, just not happening quite as quickly in '25, because they are taking a bit of a wait-and-see approach. So, we are really pleased about Keep. I would make that acquisition again every day of the week and twice on Saturday. It was a great transaction. Keep's own revenue-producing model had been challenged, and we chose not to pour money in to fill in that hole. However, I am very confident of what Keep will do over time in terms of adding revenue to our business. One of the other promises we made for Keep was that we could deliver $10 million in cost synergies that would boost our EBITDA this year. We exceeded that by a significant margin. The cost synergies were captured right away, and the revenue synergies are coming, just slightly delayed. This was a business decision made to ensure we preserved every dollar for debt repayment. As Paul shared earlier, we're ahead of our debt repayment schedule. We pushed that off the table as an issue now. Not only does our amortization drop substantially, but we're actually paid way into next year already. So, we can take the debt issue off your list of worries for Thryv.

Got it. Helpful, Joe. And then if I look at the organic prime business in the quarter on the SaaS side, my numbers are correct. It looks like your customer count actually contracted by 4,000 quarter-over-quarter. I know this is a year where you're focusing on cross-sell, upsell and existing customer expansion. I guess, is what we're seeing there in the business this kind of a one-quarter item as you focus on those existing customer expansions? Or are you seeing something else in the business that's maybe not offsetting some of your natural churn with new customers coming in?

Yes, you are correct about the theme. In 2025, we expect our client base to remain approximately the same, with substantial gains coming from an increase in average revenue per user as we introduce additional SaaS products to existing customers. We plan to upsell and engage customers more deeply with tools like the automations we've mentioned. Our guidance indicates that we'll increase revenue from about $4,000 a year to $8,000 a year, and we are currently at about $4,200. Sales from our direct sales channel are closer to $6,000, providing insight into our direction. While we plan to bring on more customers in the next few years, if we focus on our current 100,000 clients and raise their spending from $4,200 to $8,000, we could effectively double our SaaS business during this planning period. We are optimistic about capturing a larger share of the market and see numerous opportunities ahead.

Our next question comes to the line of Jason Kreyer with Craig-Hallum.

All right. So, Joe, you made it through this financial pinch point. You talked about the financial flexibility. I was just hoping you can unpack that and just talk about the opportunities just given better profitability, lower amortization liabilities. I think all of that will equate to better free cash flow. What kind of financial flexibility opportunities do you have with that better free cash flow generation?

I will share this answer with Paul. I'll start, and then I'll let him talk about how he thinks about it. Yes, most corporations have some capital allocation decisions that they make. They sit around the room and say, should we allocate the money into share buyback? Should we put it into debt repayment? Should we invest more in marketing or whatever? We've only made two decisions and they've just left them stuck there for the last few years, which is to invest hand over fist in our product and cut everything else and pay down debt. That's pretty much what the last several years have been. And so yes, we're excited about now that we're past the pinch point, we can begin to make some new decisions. We can invest in adding salespeople. We can put more demand generation into the market. We can tell our story more to our customers. We can do more marketing. With such a mispriced share price, we can buy back stock, and that is on the table. We have a share buyback authorization. We've not had any cash to action that. But we now have the ability, authorization, and money to do it. So those are some of the options. I don't want to get too deeply into exactly how we will play all that right now. But with the share price where it is, that's certainly something we will think about. I'll let Paul comment on any thoughts he has on it. Paul?

Yes, I'll stay in my lane here. Those strategic decisions are really Joe's. I just want to let you and the market know, we're still focused like a laser beam on repaying debt and deleveraging. You'll see that as a move up, too. We'll continue to focus on that.

Does that answer your question, Jason?

That answers my question very well. I appreciate that. Just a quick follow-up for me on Marketing Center. If you can just talk about the growing client appetite there and maybe the success you're seeing with new products in market. Curious if you can maybe shine a light on what those new products are, how you're finding ways to engage with customers that have that greater appetite.

We have been in business since 1886, linking buyers and sellers together through the Yellow Pages. That's the background here. That went on to be online Yellow Pages and all manner of digital marketing. Our company has experts in everything to do with search engine marketing, SEO, and all these different things. We have a massive network of directories for which we monetize their traffic. We hadn't fully been leveraging all of that and were almost running away from it while focusing on helping people run their businesses with our CRM software. We've recently woken back up to the fact that helping small businesses grow is a big deal, and it's an area that's our birthright. We are really, really good at it. So our Marketing Center answers the famous question by John Wanamaker, 'I know that half of all my advertising is wasted; I just don’t know which half.' It lets you know precisely which things that you're doing are working online, offline. For successful businesses and smart people, that want data to track their progress, this delivers that. We've newly coupled that with some of our other offerings that help build lists, drive leads, and meet new prospective customers that are interested in what you do. We've struck gold. We found a hit on our hands. Our focus has been on Marketing Center and some powerful add-ons that leverage the assets of our business. I really like where we are. I think we fit nicely in the market alongside those who have been deeply involved in back-office operations. We can partner with them while we manage the front end, keeping customer orders full and keeping existing customers active. We're superb at all that. If you want to track when we apply chemicals, that's great; we fit in there perfectly. We like where we have landed.

Our next question goes to the line of Zach Cummins with B. Riley Securities.

Congrats on the strong quarter. This might be a question pointed towards Paul. But can you speak to just the outperformance that we saw on the SaaS adjusted EBITDA margin side? Is there any sort of one-time benefit in this quarter? Just wondering in terms of second half versus the guidance that you put out there and maybe potential upside on the margin realization front?

Yes. Thanks, Zach. Good question. We had a really strong print quarter. So, as you know, our allocations work based on revenue. If you have a strong print quarter, the allocation is going to be stronger towards Marketing Services. I would love to see 20% each quarter going forward, but quarters will be lighter in print for the third and fourth. So, the allocations will shift back, weighing on SaaS. There will still be strong quarters, but I wouldn't expect a 20% margin going forward straight for SaaS.

Understood. That's helpful. And Joe, just with the press release this morning around Workforce Center, can you delve a little into maybe some of the early feedback you've been getting from some of the early users of the product? And how should we think about the ideal customer fit and who's going to be really interested in this product within your customer base?

There's a whole world of PEO people working with businesses—especially small businesses—on payroll, but they become less interested when you don't have many employees. When you're below 25 employees, there's just not a lot of options out there. Our customer base mainly consists of these 5 to 15 employee businesses that sit below that radar. Their dream scenario would be to have one platform they could use for everything, and we're delivering on that. We're seeing overwhelming evidence that the more of our SaaS products they buy from us, the less churn there is. So if they add Workforce Center, their propensity to churn drops significantly. That's how we thought about it. Similar to ThryvPay, it's a convenience for customers. Workforce Center is the same. I don't foresee a massive revenue stream from this—it's not going to rival Marketing Center in revenue. It's more a convenience that we were able to create with a cool UI and plug into our existing solutions to make life easier for our customers. We've seen many customers already on it. We brought it out in alpha earlier this year, had a beta, and it's now live. We're out selling it, and we have customers on it and paying their contractors and employees, and they're happy with it. They've given us feedback about additional features they'd like to see. We're off to a good start with it, and I would consider that a minor positive. We may even think about guiding you a little bit on it headed into '26, but there's not much revenue modeled into this. Any revenue generated will be a positive surprise.

Our last question will go to the line of Matthew Swanson with RBC.

Congratulations as well on getting past the pinch point. Maybe on that, when you think about what you've learned in this period of efficiency, how do you think that impacts the areas you want to focus on investment in 2026 when you get more flexibility? Basically, where are some of these areas that you've been able to gain additional leverage? And then where are the areas that you really want to double down on?

Look, the one place we never cut is on the product. We continued to invest heavily in product engineering, product improvement, and making it more interoperable with other products in the market. That is something we couldn't slow down on. However, we did skim on developing some of our sales channels. We limited our international efforts. We held back on the amount of energy we put into our franchise channel. We're super excited about several initiatives we weren't able to invest in due to the pinch point. We will be focusing on those channels and marketing moving forward. Our marketing team is like the Maytag repair people, just waiting for us to give them some budget. We’ll begin to do just that to begin marketing our product again. I doubt you saw ads on TV for Thryv during the final 4, and we really haven't done much of that at all. So honestly, there are many opportunities where we can use a bit of funding to go on the offensive and get us on our front foot. The last several years can best be described as being on the back foot—cost-cutting and trying to get through this challenging period. I believe we are moving to the front foot now and beginning to expand into the market.

Yes, I appreciate that. Between SaaS adjusted EBITDA margins, ARPU, and net retention, we’re starting to get a glimpse of the power of the transition platform. But I want to focus specifically on multiproducts. I know retention improves with that. What is the key strategy, I guess, in improving that 19%? Is it about the product fit in terms of getting more centers out or is this more about investing in go-to-market efforts to make sure your customers know about the products?

We've invested in modernizing our go-to-market efforts, investing in data scientists to improve those efforts and sales technology. Just a few years ago, we were leaving sales reps to their own devices without direction. Now, when they wake up, their laptops tell them who to call and what to talk about. This is next-level from where we were just two years ago. Our go-to-market team, now working closely with the data scientists and marketing teams, are directing our sales force on specific plays against specific businesses with detailed offers. We’re only in the first inning of this, but we are seeing tremendous success. Our marketing team is doing account-based marketing in preparation for those sales plays. As a result, our customers are made aware of offerings like Workforce Center before our sales reach out. I expect that the percentage of customers that have more than one SaaS product will steadily increase, which will in turn strengthen our net revenue retention and reduce churn. This is the play for us. It's no small feat to acquire over 100,000 customers. Now our goal is to leverage that. If we maintain the 100,000 we currently have and expand ARPU from $4,200 to $8,000, we could effectively double the SaaS business. We are bullish on our future opportunities.

Thank you. And with that being our last question, we'll conclude the question-and-answer session as well as today's conference call. Thank you for your participation. I hope you have a great rest of your day.