Q3 2020 Thryv Holdings Inc Earnings Call

[music].

Inc. third quarter 2020 earnings call.

After the speaker's presentation, there will be a question and answer session to ask a question. During this time, we simply need to press star one on your telephone keypad. If at any time you require assistance. Please press star Zero I would now like to turn the call over to.

Okay J. Christopher Please go ahead.

[music] good morning, everyone and welcome to this recorded management discussion of thrives third quarter results by now you should have received a copy of the company's third quarter 2020 earnings release, and Investor supplement, which is also posted on our website at investor.

Hi, Brian Dot com.

With me today are Joe Walsh, our Chief Executive Officer, and President Polo, Ralph The Chief Financial Officer, and Treasurer, and Ryan Cantor, Vice president of product to market.

Before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may.

They contain forward looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.

Thrive has no obligation to update the information presented on the call also.

Also on today's call our presenters will reference certain non-GAAP financial measures.

Now, which we believe will provide useful information for investors reconciliation of those measures to GAAP will be posted on the Investor relations website at investor not thrive dot com.

With that introduction I would like to turn the call over to Joe Walsh. Thank you KJ during today's call, Paul and I will provide detail.

Sales on our Q3 results as well as guidance for Q4 and the full year 2020, we'll also spend time covering our business and market opportunities as many of you may be new to the thrive story.

For those who are new let me take a moment and tell you about what we do here.

Sure and offer some comments about the direct listing we just completed.

So thrive in the materials, we set out on slide number 10 is a great visual that shows kind of the thrive product overview.

Right as an end to end client experience, it's basically an operating platform.

For a small business or on the device they already own.

Cloud, we delivered this great organizing tool and it allows the small business too.

Stay organized to kind of be visible everywhere across the web to get the job to manage the job and to get Cray.

After the job and if you take a look at that visual you can see some of the different pieces that are involved in and driving and allow freedom to operate and.

And it really lets you do almost everything you need to do to run your business and things. It doesn't do we have an app store or an app marketplace.

That you can go to and you can let's say you want to have ecommerce capabilities and you want to sell things on your web site you can just plug in shopify and use it no problem.

Zoom, if you want to use zoom its right there in the App store it for a year accounting you want to use quickbooks in the cloud you just plug it in and.

Fred the T.I.s talk at shares your sales information so it updates everything and what's great about it is it's one log in so all your employees can use it and you're able to keep everybody thinks it sinks up with the other applications that you use. So it's just amazing in terms of labor saving getting organized I've had a lot of the cuts.

But first tell me, it's like it's like an extra employee or two it does so much work.

When you when you think about trying to.

Get your Liftings right all over the web because you're changing your servicing are adapting right now to co. Good it's amazing what it's able to do it just in terms of adapting your small business to the marketplace.

Place, allowing you to keep everybody up to date on your hours in your service offerings and and so forth. So a pretty powerful software tool, we're going to talk more in a little while about how it helps you get paid off I'll come back to that later on but ratings and reviews are really important online. It every time.

If you do that and so somebody it thanks them afterwards and asked for a ratings and review and helps you post that in all the right places social media, it's got to basically a dashboard, where you can manage it or as a service and thrive will actually do your social media postings, so pretty complete front end.

In your pocket all.

The time on the device you already own so very powerful piece of software.

We are the category leader in this thing we basically invented this category that we serve it's an enormous category. It's early it's growing very very quickly now.

But it's it's a pretty exciting time to be doing what we're doing right now with thrive and.

Well there is a.

A visual that that.

I think we have in the deck that we put out that shows cloud adoption slide 11.

In 2018, the cloud adoption index had only about 30% of small businesses using any kind of clouds.

Allowed based software tool thats risen already.

This year to 37 and its forecast over the next two years to reach 60% of small businesses. So we're still really in kind of the second inning of small businesses adopting cloud based tools and one of the really interesting.

Things it doesn't just come out of whack a marketing budget. This really comes out of an operating budget. It's it's really labor saving so it really taps into a pretty large financing source, there and that's been a big market.

Let's talk a little bit about how we go to market.

We started from a standing start five years.

Ago, and grew and about the first three and a half years to $100 million in revenue and 40000 subscribers and that's got to be a record I think for how fast one of these SaaS software businesses can grow and you might wonder how do we do that well we did it because we had a very big yellow pages customer base and.

2000 person sales force and that sales force basically ran out and talk to the small business customers. The yellow pages customers total melt we were doing and 40000 of them signed up post taste.

What we learned as we moved along is that a lot of those small businesses weren't necessarily going to be persistent users of this.

This tool they were too small they were one man businesses you know Chuck at a truck data than is really small businesses. They didnt really have any other employees to communicate with or even that many customers to communicate with and some of those customers and ended up churning out not being the right fit so we develop.

Ideal client profile that allowed us to target a little bit larger companies that have a bigger need for the software.

And allowed us to move a little bit up market in terms of the average selling price and so whats really remarkable when you think about thrives development.

Is that we currently sell it through about a thousand.

Our salespeople that sell the marketing services products.

That salesforce has shrunk as the marketing services business has shrunk we variabilize the cost base and yet we still have managed to have very strong.

EPS growth and now we've built new channels, we've got.

And inbound.

Channel, where customers come to us and we service them. We've got a partner channel that we're beginning to build has got a multi location channel and these are all lighting up now.

As well as international we've turned and are beginning to move international as well so.

The growth fuse is definitely.

He led by all those new channels. This.

This is a very large addressable market you're talking about small businesses at the moment all across the US there's reportedly somewhere around 30 million small businesses in the country.

We feel like this is kind of two to 20 employee is like this.

Perfect Sweet spot for us target does a visual on slide 13, you can take a look at we really try to avoid the just the one employee businesses and obviously, a giant enterprises not a fit for us but.

Really up to about 50 employees thrive tools are really strong fit for very very powerful.

Connection.

So.

It's a big addressable market about to get bigger as we as we move out international.

I spent time talking with our customers back when I can go in the field I went in the field and called on the person I I do a lot of zoom conversations with them now try to talk to a couple really every.

Every week or every other week anyway, just about what they're using how they're using it what they're doing and you couldn't pry thrive away from them. It's basically how they do business. It's how they get their appointments that's how they confirmed their appointments. So they don't have no shows it's how they get paid it's how they do estimates invoices billing follow up.

Live in their drive and it updates there.

Cloud payroll tool their cloud.

Bookkeeping tool it really becomes like a right hand that they run their business on so pretty powerful.

Im asked a lot about our direct listing.

I guess, we would assist direct listing.

To come through and I want to just explain why we did the direct listing.

We didnt need to raise any money.

We have a captive DC in our marketing services business that throws off a tremendous amount of cash that we are using to fund the.

They will have the SaaS business and if you think about it.

Our SaaS business really will never raise any outside capital.

The small amount of money that we use to get thrive started we've already repaid with profits generated from fraud. So it really hasn't been a big user of cash we haven't been just throwing money at growth we've.

Can vary.

Very careful about the growth rate, so we really need to raise any money with the direct listing.

It's pretty exciting time for our company, you'll hear some more about some of the announcements that are coming through right. Now. So we don't have that kind of a great time.

This particular approach to getting public was not much of a sister.

Gross auction for management, we Didnt have any big road shows to do there wasn't a lot of fees that we had to pay we did not have to offer a giant discount to all the brokers friends. We just quietly relates to the company and we feel like that over the next period of time, there will be the price discovery that normally occurs in the run up to two.

Mr. IPO will happen for us afterwards, and we're patient about that were not in any big Rush, we've got some.

Supporting shareholders that have been with us for a while that are excited about the company and its future and.

They're supportive and willing to work with us and stay with us. So we didnt really have any big.

Shareholders trying to sell so the direct lifting worked out well for us.

I'd like to just talk for a minute about our new board as part of this transition where we really are putting.

SaaS first and an emphasis on Hsas, we reloading five of our eight board positions and we brought in real.

Domain expertise people, who have got a lot of SaaS software experience.

Who who walk this path and it's been incredible EBITDA, a terrific resource and Theres been a a knowledge graph to really going on right from the beginning not just in the form of board meetings, but they have been meeting with teams in different areas.

Because of of specialty or expertise that they have sharing ideas best practices, making introductions.

So it really has been a boost to our kind of SaaS Q, bringing in this new board.

Excellent.

I'd like to comment quickly on the pandemic this pandemic.

It's obviously affected small businesses all around the world.

For us we have not had.

Much revenue concentration in travel and entertainment dining. These these are not big areas for US we tend to focus more in service areas home services personal.

Artist as auto services Health services legal services these tend to be more our world. So while we certainly have felt the pandemic and.

But there have been effects of it for sure.

By no means has been a direct hit for US as you can see in our numbers, we've come through kind of like flying colors here.

It's gone it's gone well for us.

And.

We have given pandemic adjustments and credits to customers to.

Who were asked to close their business down for periods of time and so on so you will see it in the numbers, but overall, we're delivering plan and cash and EBITDA.

And having.

Really a very good year and depend on mix been a tailwind for our SaaS business a lot of small businesses that knew they needed to modernise hadnt on their list of things to do have we'll get lay up the list now and it's a priority to get their websites sorted out too.

The able to kill.

Communicate with their customers changes in their service offerings their safety protocols to be able to get paid electronically and not have to handle cash or a physical check so.

For the SaaS part of the business. The pandemic has actually been a tailwind and I would say that what it's really done is rather than temporarily boosting demand.

It's really I think permanently structurally accelerated the migration where to to be competitive as a small business.

Really need to have this kind of an end to end client experience platform. The five represents.

Just I'd like to I guess talk about our thrive pay.

Driver pay is our own proprietary payment application, where we work will mostly with service business is think about the tree Guy I think about the plumber think about the locksmith that h. fat Guy the landscaping company all these service businesses.

It sounds like.

Working using square as perfect for them, where you're coming in you are buying newspaper in a pack of gum and your swiping your card and it's a seven dollar transaction. There is a little tiny see on it. These guys are often taking payments for two or $3000 when the right getting a payment and so a lot of the payment solutions.

Frankly charge too much and are just too cumbersome, they really don't want to be forced into kind of the credit card world.

And so what we've developed we've tried pay is this low friction offering designed specifically for the service space small business and.

Got really attractive.

So thats could be the first thing they are going to notice it's great for scheduled payments like memberships or re occurring Cesar, yes. The guy Moser long you know couple of times, a month and just charges you a recurring payment every month or even installment payments.

We've got because we've got such a big service team behind it we handled.

Dispute assistance.

Things like card on file where every time you come in for your Yoga thing interest charges. The card. So that you don't have to necessarily you deal with the hassle paying each time. So it's a really flexible solution that we developed specifically for our customers and.

Sign ups are coming in.

Rapid periods, we just launched it just.

We could a half ago or so and it's moving very quickly.

People are signing up we're seeing payments coming over the platform and we think that this will be a big part of our growth and development and if you look at slide eight.

You kind of see the way we think about.

Same marketplace.

Driver pay is essentially like a freemium offering it's it's something that even somebody hasn't yet bought thrive can you comment on private pay.

And there's 15 million business addressable market very big market, there and we make a little something through on each transaction. So.

Back to Standalone thing and then ill it introduces them to thrive as a brand and as a software service and then we think that there's a chance to really grow the thrive customers. Just continue at that slide at the bottom of that slide you see held by thrive and that's the.

The parent child relationship we have with a platform.

On that lets you manage.

Many many thrives for a multi location business or for a a regional or national franchise. You can use thrive to operate each of those local businesses keep track of their revenues and you can use this hub as a master kind of control panel.

Walter So keep an eye on and on the whole thing.

So.

That's kind of a quick sense of what we're doing there with thrive.

And with driver pay and I, just want to say that we call. The company thrive the emphasis the focus is to grow the SaaS business our mark.

Services business is an amazing business.

Been around for a very long time.

Very cash generative, it's a very predictable with a lot of forward visibility business and it provides reliable cash flow that we're using to fund and drive the growth of our thrive business. So it's really a perfect match.

Bridge and we.

We have had.

I think a really great year, so far this year and as we look forward to next year, we see the SaaS business continuing to accelerate.

So with that I'm going to wrap up and I'm going to turn the call over to Paul Ralph's Who's going to take you to take you through our.

Financials Paul.

Thank you Jeremy.

Before we begin I'd like to point out that while we will be talking about revenue during this call.

Due to the global pandemic. The company has temporarily issued to certain customer credits in the second and third quarter, which.

Masks, the true year over year comparability in.

In both SaaS and marketing services.

During the third quarter. The company has recognized pandemic credits of $7.8 million provided to customers most impacted by COVID-19.

The company has reflected these goodwill adjustments as a reduction to revenue.

Now I'll start with our SAS segment third quarter, SaaS revenue increased 2% year over year.

When adjusted for temporary pandemic credits SaaS revenue would have increased by mid.

Chuck single digits.

As Joe mentioned, our latest SAS offering has experienced strong demand in 2020, the demand for cloud based tools has shifted there are independent and we are expenses tailwinds in this segment.

We have refined our idea.

Client profile to focus on large small businesses and this has resulted in lower churn and higher average selling price.

All this is proof that smbs now require SAS management tools more than ever.

And thrives end to end client experience platform is serving those new.

Moving over to marketing services.

Third quarter revenue decreased 28% year over year.

As we have said marketing services is a naturally declining business, we must thoughtfully managed this business to a higher margin, while we cross sell marketing service.

Print and digital clients into our SaaS platform and generate cash to support our growing SaaS business before we continue I'd like to remind everyone that our print product has a contract like that usually exceeds one year.

We target 15 months applications.

Service and these longer publication lives provide the twin benefit of eco friendly reduce paper consumption and margin lift due to decreased costs. However, the byproduct of a 15 month cycle is the year over year comparability is impacted due to uneven this.

The timing of when same directory publication revenue is recognized within a given year given this complexity, we will now provide billing data.

On a quarterly basis. This is provided in the slide deck available on our website you will see on slide six at the unevenness of revenue Rec.

Ignition does not show up in our billing.

As a matter of fact this graph will show that our billings are actually quite steady turning now to profitability total company adjusted EBITDA for the third quarter came in at $69.3 million, resulting in a minute.

Adjusted EBITDA margin of 28.8% this decline in our second quarter margin is consistent with expectations given the method of revenue recognition previously mentioned.

Fewer directories were published feet.

Free cash flow for the third quarter was 73 million.

Just so far year to date, we have generated a $158 million in free cash flow, which is in line with our expectations set at the beginning of the year. Despite a pandemic leverage based on net debt to EBITDA.

Finished at 1.4 times.

End of the third quarter.

Which is now the fourth consecutive quarter net leverage was under 1.5 times as defined by our credit agreement.

We feel confident about our leverage profile, considering we had $30 million in share buybacks earlier this year.

We've always focused on generating free cash flow to responsibly deliver value to our debt and equity holders.

Over the last five years, we paid around $1 billion of debt and returned around $500 million to shareholders, Let's turn now to guidance for.

Full year 2020, we expect SaaS revenue.

$128 million, representing flat year over year growth when compared to full year 2019.

It implies SaaS revenue of $33 million for the fourth quarter, representing and.

The anticipated year over year increase low single digits we.

We believe Hsas will end 2020 with a solid.

Run rate and momentum is building in the 2021 for the full year 2020, we expect marketing services revenue in the range.

Ranger $955 million to $965 million. This implies marketing services revenue in the range of $190 million to $200 million for the fourth quarter.

Again period or over period comparable really our reported revenue is still.

Started by significant publication timing differences.

The best way to think about the marketing services segment is a predictable low 20% decline on an economic basis.

For the full year 2020, we expect adjusted EBITDA in the range of.

$358 million to $363 million, which calculates to a margin of 33% for the full year 20, Twond and implies fourth quarter adjusted EBITDA in the range of $58 million to $63 million now I'd like to turn the call back over.

We are the chip.

Thanks, Paul so.

So as you can see we're on plan with the development of our SaaS business.

I want to just make a comment about how we got here. We went from a standing start to 40000 subscribers in our SaaS business, because we had a large sales force and a large customer.

For base, and we went out and offer to that customer base in the meantime, more recently weve now begun to build new channels, where every customer that came in the beginning was really cross sold out of our marketing services base as of this writing as of today more than half of all the customers coming over.

Ransom for Hsas are new new Hsas, they are coming in through inbound marketing, they're coming in through our partner channels are our resellers, they're coming in from our multi location franchise group.

In some cases, they are still coming in from the traditional salesforce, but they are using software to open the account and they may.

Sure cross selling back to marketing services, but more than half of all the new clients coming in today, our new new.

It doesn't mean there is no penetration left in the sort of marketing services based that will continue but we grab the low hanging first 10 or 15% very very quickly.

Oakley each time, we make an acquisition like when we bought it.

We saw more than 10% of their customer base boom come in right away and if you see us making future marketing services type acquisitions, you can expect pretty rapid penetration as we go out and offer thrive, but importantly drive has its own sales channel.

Now that are beginning to develop and it works beautifully back and forth between marketing services, but it's beginning to stand on its own two feet a little bit with its own sales channels that are growing and developing so when we expressed confidence about building momentum with our SaaS business and 21, we have really good for forward visibility.

On the scaling that's going on with our inbound channel our reseller channel our multi location channel and the productivity is rising out of that the traditional channel just because the software is so much better but we've got so much positive word of mouth high client engagement and the customers who are already using it they are referring.

And your friends and it's just coming along so much easier today than it was before so the business is functioning beautifully together. So I just want to wind up here and just say that the building momentum that we see carry through 21, and we believe we can scale it and continue to accelerate it.

So with that let me just open.

It up for questions.

We'll be glad to answer that we can operate.

Operator.

At this time if anybody has a question. Please press star one on your telephone keypad.

And that is star one on your telephone keypad. Your first question comes from Arjun Bollea from William Blair. Your line is open.

Well, gentlemen, and hope you're all doing well.

Hi, Thanks for taking my question.

First wondering sharen.

Joe you talked about this a little bit in your in your prepared.

Remarks, but I would love to maybe dig into the macro environment, a little bit in the tailwind that is generating.

I know, there's this obviously a macro theres some challenges.

Because of the economy.

But theres also businesses digitizing for the first time, so if you can share.

Maybe a directional sense for how some of the gross customer add metrics are trending that would be great and then the second part is maybe just talk a little bit about the capacity.

We have internally to onboard new customers and.

And how you're ensuring that those customers are successful on thrive and how you're handling those resource allocation decisions.

Sure be glad to thank you very much margin for the question.

So.

You actually.

In the way you asked the question you touched on the answer and that's that.

Small businesses feel an urgency now to modernise.

To move.

Move online to have a great site have a great mobile site.

They feel a real urgency to be able to.

Communicate changes in their current server.

Use offerings other hours.

Based on.

It changes as coal that is rolling along as lockout Lockdowns impartial lockdowns are moving through and so on there is a need to update that and thrive beautifully does that to them.

They can get paid electronically they can.

<unk>.

Yes, a follow up with customers.

All contact list that could make it arranged delivery.

If they previously had people come into their stores to buy they can now do E commerce by going into our App store and plugging in Shopify and just doing some E commerce that way so overall.

Now.

Where we are in a situation where there is a much stronger.

The demand for small businesses in the past when the economy was roaring pre cobot, we would sometimes get feedback from customers that would say look I know I need to do that I got to get around to it I just.

This is going really well I just I'm, so busy I'll have time.

And all sudden there they have a little bit more time on their hands and a real urgent need to do it. So that's the environment thats crossed with the fact that they're scared they are uncertain about the future.

The compromises they've had to make in many cases have caused them to have reduced revenues and so.

Not as robust and environment and there is.

Okay degrees in some cases are really.

Were really struggling so.

Can I would definitely say mixed tailwinds, but also just.

A difficult environment and as we go into this this period that we're in now with I guess, the 144000 cases yesterday or whatever.

Thats, causing.

A bit.

Bit of a pall over things and.

Causing people to be concerned about.

About the environment. So we are as we scale up our new channels, where we are seeing gross adds continue to rise each month, we're pushing up has got a model on a plan, we're just kind of.

Turning the crank and scaling that up.

Adding order inbound efforts, putting on more SDR building out those those team and as I mentioned quickly in my prepared remarks.

The standing salesforce or traditional Salesforce, that's out there selling marketing services, having more and more success.

Productivity because quite frankly.

Up to version five point I think one with the product, we keep adding more and more releases with the actual software getting better and easier to use.

So that there's there's a word of mouth demand that people are excited about what it does and it's just an easier product to sell it was.

Say.

Year, and a half ago, just much much better.

As far as your question about Onboarding.

In all honesty, when we when we first started.

And I told you we would we sold that initial 40000 very very quickly.

We did not have a robust.

Onboarding process, we did not have.

Have a super slick automated widget that just let's just sign up and come through.

It was a little bit labor intensive and our big marketing sales marketing services Salesforce did that work they kind of handheld customers and got him through it and Thats, how we did it but we didnt have an on boarding customer success.

Team and ongoing customer success team really staying in touch.

King building working in the way that we have created more recently and so one of the things that we're seeing now with.

Really great Onboarding widget really great Onboarding.

Teams that that have a cadence and follow up.

That have personal touch they have tech touch and then we've got a a client experience group that stays within after that initial on boarding.

Thats really help customers use more of the modules more the features of thrive drive does about 20 thing.

And a lot of our small businesses will use three things are for things are seven things.

They know the more we get them using the stickier becomes.

We find that once they get to about four of the of the different elements they pretty much never leave us. So our client experience group really we'll talk to a customer using two things about how they could implement that.

Third the fourth in the pit.

And that's been enormous and we have a pretty significant plan to to invest in and grow those.

Those those client services groups.

In.

As we grow the customer base and even potentially a little bit ahead of growing the customer base, because we really realize how important that is.

We also frankly have been amping up our investment in the product itself beefing up.

The attainment of our roadmap and kind of pulling that forward.

To innovate the product.

We are keenly aware that we are in pole position here, we are the clear category leader in the niche that weve sort of created.

In carved out here and we know that there will be others, there will be people, who want to come and compete with us either coming out of a vertical or maybe even.

Software company kind of coming down market are coming over so we don't think we'll have it unto ourselves forever here, where we're conscious that we need to really innovate the product.

We continue to invest and improve it so.

Hope that was going to answer your question.

Yes that was great color I appreciate that and then I know, it's still early on driver pay but it seems like a very exciting part of the business. So would love to hear how you're thinking about.

Hi.

How are you thinking that business might scale up and what the contribution might look like.

And next year in a few years right more medium to long term and thus far and maybe.

If there is a particular type of customer that's adopting it.

Just just where are you seeing the traction so far I know where.

We're just.

Maybe a few weeks after some books and launch but forward looking a year some of the earlier commentary.

It is just a few weeks so I think 16 days, if I remember correctly.

We've had hundreds of sign ups already and we're seeing transactions processed right away by customers, we're seeing really.

Really significant volumes. So it's it's definitely kicking in and being used you ask a great question, who did we build it for.

We built it for all of our customers, but we have a particular niche.

Niche as a business with service based businesses. These are.

The roof or plumber.

Locksmith landscape.

Tree Guy you know all these service businesses.

And they tend to take pretty large payment.

From their customers you know think of like if you're doing a roof and you maybe pay $3000 upfront and then you know.

Another $3000.

When the jobs completed or something like that these are big payment and these businesses.

It is we want to take the payment electronically.

But they don't want to take it on a credit card because the credit card fees are so high and so what we pay allows them to do is.

Provide that great service that great electronic payment no they've got the money no they've got it right away have confirmation.

But for.

For a much smaller fees. So that's really kind of we designed it for those guys.

And so.

So far so good as far as how we see it going we think it's going to be kind of.

Premium.

Offering.

Where where.

Customers that have not yet.

Right could come in and get drive pay one of the things. We did just a while back we were doing some when we added payments to the platform we put.

Square and strife in some of these other tools on there.

We were doing some of our online marketing, we ran some keyword advertising in and around the the search term.

Payments for small business.

And we found that there is a massive click flow. There. This small businesses are constantly looking for a better and more efficient way.

Assess payment and.

It really really realize that that's that's a big area. So we think that we will be able with driver pay to sit in.

That stream and really use it as a customer acquisition tool.

That will sort of fatten up the pipe of people coming our way, we haven't rolled that piece out yet right now drive pay it's just her drive customers, but early and 21, we'll be rolling out.

That next leg of that that that kind of freemium offer if you.

You will and we think it'll give us a much bigger.

Market of people coming to us and then obviously once they are using dri pay we can talk with them a little bit about the benefits of implementing thrive and help them run their business as to your question about how big it could be.

We've got some some slide where and they're showing what we think the kind of.

Central addressable market is the name of it.

Dick.

And that Tam that we are discussing there is just the us as well.

We've discussed I think a.

A little bit in some other conversations were hedging out.

Now international into that market is there too, but just in the U.S. and big.

Big addressable market, but then there is a lot of payments and payments flow and people want to do it contact list they want to do it digitally.

Wanted to instantly and they wanted to conveniently and they want it confirmed.

And all of that happened with thrive today. So we think it could be pretty significant and as you can imagine we do.

Good ball kind.

As big for each transaction that comes through and yes that could be a very significant source of additional revenue.

Kind of sort of Fintech revenue, if you will for.

The drive platform I.

I think the thing that the team has the most excited about it.

Is we think it will tree.

Trigger even much higher levels of engagement in our already high level of engagement clients. Because if you are getting paid from thrive in driver pay your likelihood of canceling your software subscription goes way down I mean, it just made it that's how that's how you do business and that's how you're getting paid so we think that that's really.

Maybe sort.

Sort of the killer aspect, but we're not underestimating.

Just how big the payments piece could be.

Great Yeah that sounds sounds like a great opportunity.

One of the things you touched on.

And that was.

Positively surprising to hear was that half of your customers are coming in from some of your channels mix. If you could just talk about why.

Where which of those you know between inbound and partners and multi location, which is the most which you think is the most important and where do you see the grid.

Greatest opportunity to kind of lean in and invest more.

Kind of brought in that that top of funnel and get more.

Drive more customers to the thrive platform.

Well I first want to admit that were late to the dance.

Most.

Excess companies.

Don't have.

1000, plus person sales army in a giant customer base. So they have to do that from the very beginning in our case, we didn't do it at all we just focused on serving our existing customers and serving our existing salesforce. So we came late to the party to try to set up.

Inbound machine and I must say.

You know it was if it was something that as we said about it we were really trying to create a machine like you know what.

Okay level machine, where if you put this many leads in the top of the funnel. This is what came out the bottom it took us a little while to get that dialed in but throughout this year, we really have dialed that area.

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Very very.

The predictable and very Projectable, and very scalable and so.

Where we are today.

Is you asked which is the most important piece I think without any question. The the inbound machine that we believe is the most important piece thats. The piece that we think we can scale very very.

The large and.

The.

The inputs are.

Some some paid demand gen at the top and then we are.

Our content marketing game.

Again fairly new at we weren't doing a lot of that over the whole five years, but we're doing a whole lot of.

But now and we're really getting on our game and get good at it and we're getting more and more kind of.

Free traffic and free mentions coming our way coming out of the content marketing that were now doing so I would say the centerpiece of this is the inbound machine.

And we have a plan.

It just looks out in time.

And where were just scaling that inbound machine each month, there's a certain number of additional leads that were that were investing and making sure come into the top of the funnel and there's additional SDR is talking to them servicing them working with them. We're doing we've got sort of quotas around how many demos, we're going to do each month and that's.

Converting through to sales and it's in it.

We're right on plan and that's part of where our confidence.

At scaling through 21 and beyond.

Comes from is that that machine.

Turning quickly to our our reseller channel or our partner channel.

Here too.

We have been learning there and.

Making really great strides this year and we have more and more.

Partners that are now successful and active and selling on a regular basis and we're figuring that channel out to our ideal partner is.

We wasted time with them.

Partners that maybe weren't our best partners in the beginning we're just learning we now sort of dialed in who are good partners are learning continues there, but thats significant also.

And then they are multi location and franchise.

This is.

I had a.

A very large.

Franchise.

Owner and they're off to a consultant to the industry.

Fran worth tell me that.

This is the Holy Grail is the way you described it you said Youre your your hub that sits on top of.

Thrive, it's that kind of parent child relationship, let's a franchise or the guy that's running the.

Thanks, keep an eye on.

The marketing and the business flow from all the different franchise outlet and believe it or not one of the things if you're running a franchise timing issue. It's making sure you you get your override or you get your your fee or your commission is sometimes the franchise can do business.

Uh huh.

Don't get to see when they are working in thrive you can sort of see the whole thing and so it's really.

He call it the Holy Grail and of course that was flattery I love hearing it and we've only been at that I mean, you can count in months, how long we've been at that business and we are sign ups are coming right through now we literally have hundreds.

And then some of them are international already and we've got a big funnel of additional franchise is about to come through at our thrive connect which was the last two days.

We did it this week on Tuesday, and Wednesday.

Drive connect 20, which was the second of our Big annual conferences. This one was virtual the attendees.

These were more than double the attendees from last year, a large portion of the attendee base where franchises.

We had a bunch of franchise tracks.

Explaining how drive Homeworks, how five works for franchises and there were throughout the two days there were a number of franchise tracks we had.

Well really notable franchise speakers there we had the staff signs.

Joe is there actually the framework guys were there as well we had a we had a bunch of different franchise people. So we're building strong relationships in that area. We are being very well you there and I don't mean to make it sound like Burger King is going to go adopt drive. This is this is for development.

Some say franchises baby with.

Three or four or five locations up to maybe 150 or 200, it's the kind of smaller rapidly growing franchises, but the first franchise. We signed up is adding locations left and right. So we're just getting steady growth out of that one is they just keep adding locations. So thats been in we're seeing.

More and more come through so franchise multi location, we think we'll be very big just because we've built such a.

Apparently holy Grail application for them so.

We expect strong growth in each of those areas and as we enter new markets and by that I mean internationally, we intend to unfold the kind.

A new channels I just described.

Right from day, one and not wait till we will penetrate customer bases and then and then have those new channels unfolding.

Perfect. That's very helpful and last one for me and I'll cede the floor maybe for Paul can you just talk a little bit about the guidance.

And what and particularly on the SaaS side, what kind of visibility you have and you get into the fourth quarter numbers that you put out in terms of how much just.

Already contracted how much is in backlog.

Cetera.

Hi.

From like like Greg Joe explained.

We are starting to ramp up and we're starting to build out our channels. So we're feeling pretty good about the future.

And it's not quite like a backlog like.

Doctors backup stops going to come out to the future a true every every day, we are building and building so you're going to see a slow steady bill.

Build with thrive as we build out and as you can see from the chart seed or.

Joe is increasing and our churn is going down so thats very helpful. And also our Salesforce continues to sell the product very effectively.

And as Joe mentioned on the different channels, we are starting to see a slow build.

Each of those channels and as as we mentioned and as you know we.

We relate to the game and we're building our for our muscles doing the work out to get there. So I don't have a specific backlog information to give you, but we're we're very optimistic about where things are heading and it and we expect it to continue to cut steady growth.

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Got it Okay fair enough congrats guys on the on the direct hosting and it's great to see the growth in the Sac numbers. Thank you for taking my questions.

Thanks for asking.

Okay, and if anybody else. That's a question. Please press star one on your telephone keypad again that is star fine.

Your telephone keypad.

Your next question will come from John Slater from cheap peak capital.

Financial plan.

Hey, Joe This is John Paulson asking.

Good question Hawaiian.

Great Joe.

Very exciting to see the focus on Friday, we really created something very meaningful here and.

Necessary for the small business in them.

You are too version 5.0, now and Im sure more to come on that.

Look at the valuation.

Mrs. Excited is we all know software companies trade at much higher multiples than than we do but play by combining the two companies together.

The whole company only treats a 2.2 times EBITDA.

Now it's hard to time pure plays but when I look at Hubspot, which is.

Public.

As a company and not necessarily the same as thrive, but they try it with 15 billion market cap they traded.

You know almost 17 times 20 sales 200 times EBITDA.

Hi, trades, it only 0.6 times sales.

It would seem that you know thrive really.

By combining it with a business that's declining.

Low 20% a year.

I don't think you'll ever get the valuation that thrive deserves. So my question is why not spin off the thrive the essay as A.S. business second have evaluation Thats multi.

Sales greater than the total valuation for thrive today.

And the and the marketing service will probably continue to trade at the same valuation.

More or less to two to 2.5 times cash flow.

John.

Hi.

Your your be dropped off there.

If you if you come back it feel free to interrupt me I'm going to kind of go ahead.

Respond to your question and your comment and then.

Like I said.

If you could.

Reconnected just interrupt me if you have more question to add to that.

I, just I just want to say that.

The the whole company today is valued.

Based on.

The cash is generating says that kind of a DCF model and the gloomy.

That.

And very pessimistic, one and that's okay. I mean, we were pretty patient about this we're not playing this game for no.

November of 2020, or even this quarter or even this season, we're worth taking much longer term, we think those are.

Really very big opportunity here. This this will be the platform that small businesses around the world use to run their companies. It we've got a big.

Marketplace, App store, where lots of tools are busy busy jump.

Jumping on our anti and right.

Turning in order to connect with rising and drive real.

John you back.

Hello.

And so I really as a platform.

Business, it's not just a little tool or a little niche thing, it's very big and so we're thinking much bigger.

We're about where this goes and think of a rocket taking off you know it days attached to the gantry is it for a while as it's coming up and you know there probably is a time out in the future.

Four years from now where it may make sense to separate these businesses, but the two best.

This benefit tremendously at the moment from the attachment and we're not.

You know overly concerned that we havent crystallized that future value today, we're just focused on building an excellent platform for small businesses and the valuation will come.

Some of the conversations we've had with a few of the.

Yeah, that's an analyst and so on they start talking about some of the parts, where perhaps somebody will began to view the hidden gem that sitting inside of.

This big company and say gosh, that's a direct quote one of them said you know the you are 100 plus million dollars.

Our SaaS business like.

As like a mini unicorn.

It's worth more than the entire company and.

I don't really.

On an expert on valuations I'm, an expert on trying to help small businesses. So thats, what I'm focused on.

I do think that there will be a re rating as dr. continues to.

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If you grow and accelerate I mean, if I'm really honest we grew so fast we had to kind of digest for a minute. There we had several quarters, where that will drive didnt grow.

As we were kind of changing strategies moving up market.

We sold a lot of customers, we probably shouldnt have sold initially that we noted.

Any better and we had to kind of work those through work those off but now we've got a very tight ideal client profile, we know exactly who we should sell we're disciplined about selling those people were finding they onboard and use the software and we think we can really build on this space and we see it in our engagement we see it in the number of people using the.

Upper logging in every day, we see in payment volumes, we see it in automated marketing automation campaigns that are going out every day, we can see we've got a tool that allows us to watch that so in summary.

You are right there probably is an opportunity down the line to separate these businesses, but.

So my prediction is that we will benefit a lot.

Over the next few years by them being together.

And that there will be.

In expansion of people began to kind of see through that it'll be a little bit of some of the parts type valuation that will likely occur.

Okay and.

And if not then that might that might push us to do it sooner, but I think.

I think that will happen and only time will tell you Joe.

Joe can you hear me now.

Yeah, you're right, they're long unclear okay. Good.

Agree with you.

That Tom.

Probably this is very exciting but.

No I don't think you'll you'll ever get the valuation.

Maybe some pickup as long as prime as a part of a business thats going to chronic at 20%.

And the thing is as you or what are your advisor said the value of product could be as much as a whole the viability of the essay it as a business of thrive.

I could be equal to.

The total value of prime the total value of promise around.

The.

Billion with only 300 or so with equity I.

I mean, you could potentially get a two three times four times increase.

In the equity value by spinning off trial without.

Spinning off the S.A.S. business without affecting the total value of the price today and the benefit as you say you are in a very competitive market and there's a lot of people with enormous resources and and they can tap the equity markets to raise money very easily to fund the growth and bye now.

Having that.

Tool and being at a disadvantage in terms of the cost of capital.

You know it is it's like competing against Hubspot and others with your hands tied behind your back so I think separating the two and I must say separate today, but it should be something on that that for.

Not a year something in the.

Perhaps the next year or year timeframe.

I think we'll give you a lot greater flexibility in a much greater.

Cost to capital to pursue the growth that you are targeting.

Well I mean, you you make a really good point and.

I respect your experience and perspective, you also have been a great backer of this thing to be.

To be fair.

We will take that.

And think about that.

John we are running the company today.

As though we're going to split it tomorrow.

We're running.

The marketing services business as a fast business.

As you know two were tracking them that way, we're running them that way, we're thinking about them accounting for them that way and we're really working toward and eventual separation because we do see that problem.

And it May you may be corrected.

It will make sense for us to do that at some point and.

I'm going to take very strongly or.

Your your advice and congestion and and perhaps.

Perhaps perhaps we should do it sooner than we were thinking.

I have no further questions in queue at this time I turn the call back over to Mr., Joe Walsh for closing remarks.

Thank you very much operator.

I just would like to say couple couple couple of closing comments one there was a question there.

A couple of minutes ago about.

Forward visit.

Ability.

The business does have a pretty good forward visibility just that's the way we've been building.

The machine on the SaaS side.

We know what we're investing in the top of the funnel. We know how many leads were targeting for the month, we typically hit that number almost exactly every month and it just kind of math as you.

Bring it down and.

The close time from when we initially talk to those customers when they close it's not super long, but it's not in that we have a good sense of it and we have very good forward visibility here.

Certainly for the fourth quarter and even into the beginning of next year and the momentum is building and.

We are.

Really confident in that building momentum and excited about seeing the growth returned it to our software business.

I am also aware that there are a number of people on the line who are not allowed to ask a question.

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Sure well sorted reasons and I would just encourage you to.

To reach out to our IR team they are ready ready to answer those questions would love to help you.

If you're modeling are working on it. This is our first call as a public company. We realize we're people are just now becoming familiar with us.

That familiar with our story it does require a little work is you got to get your head around.

Two businesses not one.

But we promise it will be worth it we think that theres.

Terrific future here, you've got a very seasoned management team has been doing this for a while and we're excited about this we really believe in what we're doing we think that.

This the SaaS business will.

Not just in valuations, but in revenue will dwarf the rest of the company in just a few years.

According to the plans that we've laid out so.

Thank you everybody for listening and we'll look forward to updating you on our progress.

Next quarter.

Thanks to everyone for joining today's conference.

You may now disconnect.

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