Q2 2021 Thryv Holdings Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by and welcome to the Q2.2021 earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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The conference over to P. J Christopher Please go ahead.
Good morning, everyone and welcome to this reported management discussion of <unk> second quarter 2021 results by now you should have received a copy of the company's second quarter 2021 earnings release, and Investor supplement, which is also posted on our website at Investor day thrive Dot com.
With me today are Joe Walsh, Chief Executive Officer, and President, Paul Rouse Chief Financial Officer.
Freeman, our vice president of client success.
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 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 this call.
Also on today's call our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors.
A 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 P J.
Good morning, everyone and welcome to our second quarter 2021 earnings call.
Our second quarter results demonstrate strong and continued growth in our SaaS business highlighted by accelerating penetration within our new customer acquisition channels record client retention metrics and year over year client growth.
Total SaaS revenues accelerated and grew.
32% year over year ahead of our guidance and demonstrates that we are executing well against the strategy, we introduced last year.
To us it appears clear that Smbs will move to the cloud.
We feel thrive is well positioned to seize on this opportunity we made the decision to invest in SaaS growth.
Smbs are currently evaluating and transforming the critical aspects of how they manage their business. This has been happening at an enterprise level for many years.
Jeff now happening for small businesses, they're taking those steps are modernizing and it's still pretty early in the game.
From my point of view default businesses are putting their faith in us as they prepare to take that first digital leap to begin to modernize their business a lot of responsibility we try to do a really good job with it.
I spent my whole career working with local businesses I've spent a lot of time now with the pandemic I'm not as much in the field, but prior them in the field, but I can joint sales calls by zoom I'm able to listen to reported sales calls I'm, even more call existing customers and talk with them about how they use the software and where it comes up short.
Any concerns they have any glitches that we have in <unk>.
Big and powerful as the thrive tool is it does a lot there's always something that customers have in mind that it should do better or should do that it doesn't do it so that feeds into our product roadmap and we're constantly tuned in to what our customers have the day. We also have a really cool believe it or not Facebook site, where the.
The power users all get together and talk about how they use thrive and what they do they teach each other there's a real sense of community. All of that is part of what's guided the improvement and part of why you're seeing such high user engagement levels and the product and part of why you're seeing churn continue to fall. So we're making a lot of progress with those local businesses.
And that's making a big difference can.
To finish up my opening comments clients are trusting us as they look to modernize and organize and grow their business. All of this is reflected in our strong quarterly results that we announced this morning.
Given this solid progress we're raising guidance.
Celebration and revenue and billings was driven by strong business performance in the quarter. In addition to an easier overall comparison as a result of the challenging business environment, we experienced in Q2 of last year.
Our SaaS new channels are performing well, we recently hit high teens as a percent of our overall sales versus our traditional sales force and that's about double where we were the same time last year I'll remind you that we expect to hit about half of all sales in the medium term. So youll see that continue to grow as a percentage of.
Sales in.
And our churn hit record lows, we're continuing to dial in our on boarding and time to value. So that we're continuing to bring churn down and that's something that we think makes a big difference.
Feels really good to have customer staying paying and feeling good using the product.
Our net dollar retention increased 18 points year over year to 92%.
<unk> continues to rise $323 in Q2, a significant year over year increase.
Double digit gains in weekly and daily active users we attribute the strength in these metrics to the prioritization of engagement, we've really focused on.
Engagement and we've got teams of people working with customers teaching them and showing them how to use the product.
<unk> is up and the percentage of clients using our core features continues in an upward trajectory. So overall great progress in this last period next I'd like to introduce grant Freeman, our VP of client success.
Thanks, Joe.
Over the last two years, we have really focused on the experience we deliver to our SaaS clients, we know with small businesses. The key to long term relationships is focusing on delivering value quickly. We are intensely focused on having a short time to first value and have no client left behind attitude engaging clients quickly deepening theyre engaged.
Overtime and expanding this debt. These efforts have led to a net promoter score improvement of 100% over the last three quarters and a SaaS monthly churn of two 1% for Q2 of 2021 down from 3% last year in Q2 of 2020.
Our North Star is engage clients engagement starts with how we sell we focus on targeting the right prospects and using a team selling approach for SaaS.
Initially we felt we could train all of our traditional sales teams to be software sales experts, however through learning and analysis, we pivoted and made the decision that all thrive SaaS prospects will work with one of our software sales team experts net only sell software to receive a custom demo of our platform.
The software sales experts keep it simple they uncover the business problem. The client is trying to solve they understand the impact it's having on their business and then they demonstrate how our broad platform and service teams can work with them to solve that problem.
<unk> sold using this approach are much more highly engaged right out of the gate data shows when a client is sold via team selling approach, we have 15% more clients active and drive on a daily or weekly basis.
During onboarding after our initial effort, where we share it all things that drive could do all the time and often quite frankly share too much.
Pivoted and now we stay focused on solving the business problem that led the client to purchase our platform in the first place.
Our thrive support specialist to begin onboarding by configuring the software for the clients use case and starting the process of coaching them to use our price software platform to solve their issues and.
And our year to date transactional NPS score for our Onboarding team, it's a plus 86.
Once we have solved the problem that led them to purchase. They are then assigned to client success partner you know modernizing our small business is the process as such this success partner will focus on looking for opportunities to help the client improve their business operations by demonstrating how the software can be used to solve various business issues.
This leads to clients deepening their engagement in our platform over the course of time.
These efforts have culminated in an 11% year over year improvement in monthly active users by our software clients, but even better we've seen daily active usage increased more than 40% year over year.
Our support team is available 24 hours a day seven days a week. In addition, we have a complete blueprint of orchestrated tech touches for example, catered E mails and push notifications full of content strategically designed to be delivered to the client when they need it further deepening engagement and usage.
The investment we make post sale to ensure that clients engage with our platform as a differentiator and will lead to continued success, serving small and medium sized business.
All our engagement efforts are built on our perpetually improving award winning software platform.
I believe Joe was going to highlight a few of those wins in just a moment.
We remain focused on understanding what clients like and what they don't so we can constantly improve the functionality of our software as well as the user experience, we deliver and with that I'm going to turn it back over to Joe. Thank you grant.
I have to pause here and just give grant and his team some drops they've done a really good job of.
Focusing on delivering value to our clients and you can see that statistically and the NPS scores that have risen and in the just steadily declining share. So we consider that now a real core strength of us as a company. So thanks for that grant.
I wanted to take just a minute and talk about census, our Australian acquisition. Obviously that acquisition was made very recently, we've been localizing and piping together thrive for Australia, we've already got a few customers on the product using it we've had some really good client engagement client satisfaction training is going all we're beginning to see some.
Sales now this is definitely a.
'twenty two 'twenty three story and I don't want to get People's expectations going that it'll ramp straight up but it is beginning to build we are in market with it now and doing a lot of work on product and on local marketing more to come on that but look for that day to be at 'twenty. Two 'twenty. Three story is that Phelps and unfolds another new area for us thrive.
Hey.
As announced the drive a standalone freemium app and that's developing very nicely. We're pleased with progress that we're making there. We mentioned recently I think that volume for thrive pay well surpassed $30 million in the second quarter continuing to build very nicely and the average transaction size is still over four.
Hundred dollars, which is I think pretty impressive.
In June <unk> pay actually became our number one payment platform, we're sort of like Switzerland, We put everything on the platform and wants you to be able to use whatever you'd like to use and so there are currently five payment processors on the platform and thrive moved into first place is number one so we really feel like we're doing a good job of even where customer.
We have a choice to use something else and look lets be honest there are a lot of software tools out there that forced you to use their payment tool and.
Net is sometimes not that popular with the small businesses.
Fact that were being selective as number one I think is impressive so.
With that let's get to Paul Ralph and have Paul will take us through the financial results for the quarter Paul.
Thank you Joe.
As Joe alluded to it's been a strong start to the year and we are excited to share our results with you.
Okay.
Now turn to the U S business segments, starting with the SaaS second quarter 2021, SaaS revenue was $41.4 million, an increase of 32% year over year.
Second quarter, SaaS billings were $43.4 million, an increase of 39% year over year.
Increase in SaaS billings as a result of pandemic adjustments, we issued in the second quarter of 2020, which suppressed SaaS billings.
Second quarter, SaaS arent too was $323, a significant 39% year over year increase when compared to $232 in the second quarter of 2020.
Second quarter SaaS churn was two 1% a 90 basis point improvement year over year.
And a 40 basis point improvement sequentially.
As Joe and Grand alluded to earlier this is a record low for monthly churn. This dramatic improvement as a result of shifting our focus to an ideal client profile and a more engaged user.
Moving over to marketing services.
Second quarter revenue was $202 million, a decrease of 26% year over year.
Second quarter marketing services billings were 204 with $9 million, a decrease of 20% year over year.
As is consistent with previous calls we are providing billings and additional operational metrics to give our investors better insight into our operational performance.
The billings data will show, a very consistent and steady decline in our U S. Marketing services segment, which is shown to be lumpier on an accounting basis, given the 15 month lifecycle Derek.
Directors.
This is provided in the second quarter Investor supplement available on our Investor Relations website.
Second quarter thrive International revenue was $60.9 million measured in Australian dollars, which reflects a $36 million Australian reduction in revenue as a result of acquisition accounting on a reported basis drive international revenue was $46 nine.
Yeah.
Turning now to profitability.
The consolidated business.
Second quarter adjusted gross margin was 67% a decrease of 260 basis points when compared to the second quarter of 2020. The decrease in adjusted gross margin was primarily driven by the decline in revenue from our marketing services segment.
Second quarter total adjusted EBITDA was $96.8 million, resulting in a total adjusted EBITA margin 33%.
Second quarter U S marketing services EBITDA margin came in at 41% and drive International adjusted EBITDA margin came in at 35% as a result of the adjustment related to purchase price accounting.
Finally.
We repaid $88 million in our term loan b in the second quarter.
As previously communicated our capital allocation priorities for the year was to focus on debt repayment and we feel we are making good progress.
Now, let's update guidance, starting with the U S segments, given our continued momentum in the U S. SaaS business, we are raising our 2021 revenue guidance range to $157 million to $160 million, implying a year over year growth 'twenty.
1% to 23%.
For U S marketing services, we are raising our 2021 revenue guidance range to $752.770 million.
As mentioned on previous earnings calls U S marketing services EBITDA margins will be consistent with prior years on an annual basis.
For <unk>, we do expect continued EBITDA margin compression, primarily as a result of our investments we are making in engineering sales and marketing.
With thriving international we are maintaining our guidance for the remainder of the year.
Please see our second quarter Investor supplement posted on our IR website for additional information.
I'll now turn the call back over to Joe.
Thank you Paul.
As you can see we increased our guidance and we did so because of the progress we're making with the product our product is getting better the software that we're selling is strength ahead of where we were a year ago or 18 months ago and it's been acknowledged in the marketplace. Just recently <unk> crowd and Cat Tara gave us some.
Pretty exciting accolades, we were cited as easiest to use higher user adoption for small business.
Overall best support most likely to recommend by small business easier set up among small business and overall and easiest administrative functionality and this is from people that are using the software. Its the only people who can give those those ratings and reviews. So we're really proud of those I think they they show the progress.
That we're making in that type of engagement. We've also been shortlisted for the SaaS Awards for the second year best ask product per customer service CRM. So the marketplace is acknowledging what's happening here.
We obviously have a big and really powerful sales force selling power magazine's cited US London 50, best companies to sell for again this year.
That's something that our sales force take some pride in.
We were included in the Russell 2000.
Which has as you know many many benefits to stabilize for the company and drive additional volume and it is just the beginning we've just just entered so.
Full effect is still taking place, but we're excited about that.
Some of the other initiatives that we've done this year, we had our launch pad America, which was a partnership we did with Mastercard Intuit ADP and a few other sponsors to help small business that are starting up.
Like promulgating, new startups, and helping entrepreneurship is very much on message or not only to drive company, but also our thrive charitable foundation.
So making really good progress there.
I want to wrap up I guess by just mentioning the fourth wave COVID-19.
It's certainly a concern for everybody in the world and for the market I'll remind you that we.
<unk> performed very well during the worst of Covid over the last year, our customer base tend to be service based businesses.
Florida, just trucked right through it and we really don't have as much in.
Dining and entertainment.
Travel and high end retail thats less our market so.
We're certainly concerned and keeping an eye on things we are pretty bullish on how we think we'll do even even if things get a little challenging we have proved to be pretty resilient last year.
So with that let me turn the call over to questions. So operator.
And as a reminder, if you'd like to ask a question simply press star one on your telephone keypad.
Our first question comes from the line of Arching Bhatia with William Blair.
Perfect. Thank you and congrats on the great results and the growth acceleration.
Joe and maybe maybe this one is for grant as well if he's on the line, but I would love to dig in a little bit more on the <unk>.
Improving net retention rate and the churn rates coming down.
If you can maybe just give us.
An overview of the drivers there and then maybe just just to follow up on the client success team do you feel that you invested enough in that client success organization or is there more that you can do to actually increase that proportion of users that are daily and weekly active versus those that are monthly.
<unk> still in your customer base.
Yeah. Thanks, that's a great question.
Net.
We assembled a new board September <unk> of last year, they did a deep dive into our software themselves. They also hired Gardner.
A thorough review was done.
Net our December Board meeting the conclusion was made debt.
We werent investing enough and growing this thing and so we were green lighted a some.
Some additional money.
Essentially we are given a license to instead of making double digit EBITDA margin with our SaaS business.
To run it a little closer to breakeven and just kind of reinvest some of those dollars and so at that time.
Les it out a plan for how we would use that money and we've been implementing in as this year has gone on.
And I'd say that.
The priorities were engineering, we've added a lot of engineering talent, so our roadmap of.
Product improvement has really begun to accelerate I'd say, we're just beginning to see that lately. It wasn't instead it took time to hire the people and get them going.
And in product and marketing, but one of the other areas that was very important to us and very big was to begin the muscle build that client experience team and it's led by one of our most talented executives grant Freeman and he's.
On the call so I'm going to talk a little bit about it but it wasn't like on December 2nd he all of a sudden had a big powerful team. It's taken some time to build it and we train. These people for so long, it's a long time before they actually hit.
Hit the phones and hit the zooms and start helping so.
We are really beginning to feel the full brunt in the full power of that now.
I just wanted to commend grant and his whole team because.
I really focus them on.
Bringing churn down.
And they did and they've done it they've consistently done it is continuing to come down at the beginning to actually eclipse my expectations now.
And now the next thing I've sort of asking for US Okay, Thats really work on the whole client experience gig from.
From building usage.
As you just asked about to also monetization. So grant can you amplify a little bit how we're approaching.
The CX activity.
Yes, absolutely Joe.
So the first thing I'd like to say is that we're definitely already seeing some results from the investment and that will likely increase that as we progress into the year as we get more more staff onboard and continue the hiring and training process.
I think theres a couple of things that are important to mention the first one is looking at initial onboarding, we've tweaked that a lot over the course of the last 12 months and now we have a very simple and singular focus and thats. During the initial onboarding, achieving a very fast time to first value and what that means to for our clients is truly understanding the problem that.
They're trying to solve in their business the impact that that problem is having on their business and staying right. There during initial onboarding them until they feel that that initial problem has been solved.
And then having the client success team come in after we've already solved the initial problem and saying hey, listen there's ways that the sulfur can do more for you such as X Y and Z like others in your industry to take advantage of thrive force. So I think it's really a combination of getting them entrenched in the software initially for what their sole purpose was and then deepening that engagement over time and our team is very.
Very adept at doing that right now and that's obviously, having a positive impact on the churn that was shared today. So.
So I don't know if that answers your question or if theres a follow up.
No. That's very helpful. And then I would just just in terms of how this one maybe for Jerry but how do we think about the net retention rate and the churn going forward right is there additional room for that to improve right. We're in the low nineties for the retention rate.
Certainly a nice sequential improvement on both that debt metrics and return metrics, but do you see opportunities within the base, where you think that can continue to get better or are we at a point, where you feel pretty good about where it's at.
I feel very good about where it's at but.
And the progress has actually come a little quicker than I thought it would or is that I've told people that it might.
I remember before we get too hopped up about about revenue retention, we're working with small businesses. This is not enterprise software. So we're not dealing with big corporations, where we can then go from department to department selling into it and have 130% revenue retention something that's never going to be the deal here.
Because of the client base that we're working with but I have said that I thought we could over time lift revenue retention all the way to 100%, maybe even a tiny but beyond that if.
If we can keep churn nights and tightened LOE keep high engagement.
And our product roadmap has the resources to keep coming we've got some really blockbuster product initiatives that we're working on that we think will just continue to drive <unk> the money that each client spends with us.
And give us more opportunities to grow those so.
Yes, I'm very pleased.
Almost pinch me a little bit surprised where we are so quickly.
Really honest with you.
I have said and I'll say it here again.
But in the medium term, we think we can work our way all the way to 100.
I don't want to promise anything more than that but because we are dealing with smbs, but I think theres more in the tank and if you look at the <unk> progress, it's sort of tips you off to what's happening there.
Wonderful well.
That's great to hear and last one for me.
If I can.
I noticed you expanded your free offerings. This quarter I think there was a new.
Invoice generator, maybe maybe amongst some other tools that you launch into your into your free tools.
Tools that are available to small businesses what impact are you seeing from from having those free versions out in the market. I know payments also has a has a free app that customers can use but I would love to hear maybe just what youre seeing on the.
On the top of funnel as Smbs look to digitize and what they are.
What impacted the free solutions that you have out in the market are having on that new customer acquisition.
Yes, so we can find people out there online who are interested in automating and improving their business either by paying Google non fortune.
Get them one at a time or we can provide some organic free tools that allow people to improve their business that somebody who is trying to find how to do better can can sort of find online and use.
So we were sitting around we've got teams of people sitting around thinking about every which way we can help small businesses and help them improve and.
In the process of doing doing that were sort of capturing people who've raised their hand, who were interested in modernizing and improving their business.
And so not all of them.
Come into our funnel and work their way through and become paying drive customers. Some are too small or too nearly I think we've talked about our ICP sorry, excuse me our ideal client profile.
How.
Some businesses can be just too small really.
We're there to kind of not ready but.
Certainly these.
Various organic tools are bringing a lot of additional folks into our funnel.
And helping us keep our cost of acquisition in line.
Perfect. That's very helpful. Thank you guys for taking the questions and congrats again on the quarter.
Okay.
Your next question comes from the line of Scott Berg with Needham <unk> Company.
Hi, everyone. Congrats on the great quarter, and thanks for taking the questions.
I wanted to start with the.
The first <unk> increase in the quarter that had a nice accelerating step up how should we think about the puts and takes around net increase dry pay obviously had a good quarter not sure how much of that is driving the increase versus just the continual shift up to larger customers.
Okay. So I mean, there is there.
There's a lot of pieces to it.
We have people buying additional.
Seats, we have people.
It's an upcharge to have a HIPAA compliant version of thrive.
We have some sort of managed services that fit in and around it that we sell that help you with social posts and different things like that.
<unk> is a big component of it right.
<unk> has exceeded all of our expectations inside the client base.
We're going a little slower outside the client base would drive pay freemium.
Just kind of taking baby steps there kind of crawl walk run we don't want to get ahead of ourselves, but image client base I mean it.
It's gone from the fifth.
Selected option to the first and the half a year it's been incredible.
And people are switching to it which we're really excited about.
That's a big part of it.
Yes, so those are some of the components.
Excellent and then Youre your.
Your SaaS client metrics increased year over year for the first time.
In several periods I guess, where do you think you are in the evolution of migrating from some of those legacy customers to those larger customers are we in a period, where we can see consistent year over year client growth.
And that metric or we still kind of maybe bouncing around plus or minus until that that.
Legacy cohorts still gets a little smaller.
Yes that legacy cohort is definitely still kind of like to think of a mouse moving through the snake I think its still moving through the snake for sure if that completely out yet.
But.
Grant and his team have done such a wonderful job of bringing churn down.
That.
It makes it pretty easy to move forward.
<unk>.
We have guided that we think that we can.
Double or more than double our.
Our number of subscriber base in the medium term and we're sticking to that so we definitely feel comfortable.
It's a big total addressable market.
Really just now building the machine to go get it.
I'll remind you we we got kind of lucky when we started we just we had this giant group of friends I call I'd say kiddingly call them to do.
There are people that we could go talk to in a gigantic sales force ready to go talk to them. So we didn't have the challenges with other software companies have I'm trying to kind of build a machine to go get it we're building that machine now and with great success, we're making really good progress that those new channels increase.
Increase pretty much every quarter with a higher percentage of our revenue.
Now coming from them and it's we're making cookies were just.
Methodically expanding all of those activities so I.
I guess in summary answer to your question I guess youre trying to kind of work your model. There. We do believe that we can grow the client base, we don't see declines in our future not to say, we couldnt have.
Little bit of a surprise.
One quarter, where it's flat or something like that but we don't expect it to go backwards and even what we expect it to be.
Again March forward.
Excellent and then last question for me. Thank you in that backdrop, obviously that and other SaaS metrics were extremely strong in the quarter.
There was a slightly weaker comp or accelerating on the business side I think.
Business acceleration was pretty pronounced there your guidance for SaaS revenues in the second half imply effectively flat revenues from the second quarter level. Both in Q3 and in Q4 I guess what are you seeing on the macro currently that gives you maybe a little book that a pause or hesitation on guiding the second half revenues little bit high.
And then what you saw or experienced in Q2.
Yes.
Well.
Look we're a new public company. We are just a couple of quarters then.
<unk> raised our guidance.
I guess you are asking why didn't we raise it even more.
We really we really want to deliver and we don't want to disappoint anybody ever.
We see some giant black cloud.
We just thought it was appropriate to.
If we were in the high teens to move it up into the low twenty's. It seemed like the right way to go we're not trying to telegraph.
A brick wall in front of us or something like that.
Look the marketplace. This summer.
There's a little bit of a yolo feeling you only live once.
Out there.
A lot of our customers, who hadn't taken a vacation for.
Almost a year and a half or taken some time off.
And even some of our reps who hadn't taken really anytime after taking some time off so.
We've had some softer weeks this summer, but nothing nothing.
I'm, particularly concerned about I mean people only have so much money and time that they can take off in their livers can only take so much fun. So.
They're going to be getting back to work and.
Not overly concerned about that.
So I think it's just an abundance of caution on our part just trying to.
Make sure that we don't disappoint you guys if I'm honest.
Excellent congrats again.
Thanks for taking my questions.
Thank you.
Question comes from the line of Rob Oliver with Baird.
Great. Thanks, guys for taking my question, Joe I wanted to ask about <unk>.
To that you mentioned.
Net debt that big base of customers that you guys have insight into which is really I think a differentiation.
From some of your competitors.
Is 40% still the right way to think about that in terms of the conversion.
In terms of customer adds and then can you talk a little bit about what you saw there in terms of conversions this quarter.
Yes, so thanks for that yes, I do think it's a big.
Way that we are different because.
A lot of those businesses.
Just weren't ready they thought we were the cloud where you talked about the cloud what's the bringing in the cloud.
When we came out there to talk to them over the last couple of years and.
They are much more interest at a much more ready and we're continuing to see even people who gave us the heisman.
Maybe three or four years ago are now.
Really engaging and beginning to talk to us about it. So we do think that there will be.
Continued deepening and further penetration into that base for sure I'm asked every now and then are you done have you hit the Max and the answer is we have not.
These businesses are dynamic the marketplace around them is dynamic.
We're continuing to further penetrate them.
But I do want to make a point here and it's a really important point that that sales force out there.
Our business advisers, we call them, they have a very close and deep relationship with our clients and.
About two thirds of what they are selling are coming from non Xu non customers.
They're getting through mostly through referrals and their community.
So they're doing a really good job with serving their customer and the customer is really happy with driver to feel like they're doing a good job for them.
Those customers are referring their friends and saying can you help.
Saturday morning, Golf Buddies bread.
Who is.
Got defense company can you help them out and that's where a lot of our sales are coming from.
Is it sort of spreading virally out there through those guys. So.
Even though it's an installed base of customers in our installed base of sales force.
It is acquiring a lot of new customers for us that we're not reaching through our advertising or any of our marketing activities. They are just coming virally through happy customers.
And I'm happy to report that that seems to be picking up.
Great that's really helpful color.
Thanks, Joe and then.
Paul just one for you as well maybe a follow up to Scott first question.
So it sounds like really the ideal customer profile strategy is really paying off for you guys in terms of both.
<unk> lift and the churn decline, which is great to see.
It sounds like there may be are some still some.
Those non ideal client profile customers that are still in the mix.
And just curious as you look at the churn numbers and again.
Joe rightfully doesn't want us to get too excited but at the same time. It does look like maybe you guys are still overturning a little bit now because of some of those customers that are still likely to churn out how should we think about that thanks guys.
Paul.
Okay.
Yes.
I'm not sure how to answer that question directly since such that.
Okay.
Direct financial numbers, but churn is improving where we're doing a better job just by grant explained to Joe explained so.
Think we're getting to.
Sort of a steady state with the term we're experiencing so if we were going to model out.
And keep it in that range.
Great Yes, Paul.
If I can just hop in on the back of that I know.
Lots of people listening to this call are trying to turn to their models.
Yeah.
I'll, just reiterate I think the days of us going backwards.
Behind us.
There was.
No.
We were an attractive being there for a minute because we just we just had to fight off some of that stuff that we had sold before it is not completely gone and we're not completely past that but we have enough powerful momentum with all the new things that we're doing in the <unk>.
Progress that we're making that I think we're on the growth side of the equation and that should be accelerating going forward and again I wouldn't rule out maybe a surprise flattish quarter, but I don't see us going backwards anymore Ics going forward on subscribers at this point, there's just too much growth momentum.
I appreciate all the help thanks guys.
Youre Welcome. Your next question comes from the line of Zach Cummins with B Riley Securities.
Yes, hi, good morning, Congrats on the strong results and thanks for taking my questions.
Joe can you talk about a few of the other drivers of your new acquisition channel I'm. Just curious if you could give us an update in regards to resellers and maybe what youre seeing on the franchise side as well.
Sure be glad to.
The biggest piece of it is.
The inbound machine and.
We were asked earlier about some of the tools free tools that we have out online to help us identify customers who are interested in modernizing their business, that's driving a lot of traffic.
To our site, it's identifying a lot of prospects that obviously, we cookie and we follow around and send messages to and all of that and so it's bringing a lot of the interest in part of the market to us which we are.
So we're really excited about and feel good about.
And.
That those those leads comes down the funnel and they are coming to an ever larger.
Group of STR.
Sales development reps and demo people that we've been steadily scaling now.
Throughout the year and so it's a bigger machine and therefore, obviously, it's yielding bigger results as time goes by so that's kind of math.
There is a funnel and you get so many in the top and so many of them convert to a demo and so somebody that was by and we're just we're working that process and that's part of what gives us confidence that we're going to be able to just continue to push our way forward that I would say that's at the center of that I'm going to jump over to franchise.
Franchise team has done really well they've had a bunch of contract wins this year.
And they typically signed multi year contracts typically three year contracts with escalators in them.
And one fundamental fact.
The early sales that we had from last year.
That base has grown by about 20% just as they are naturally added franchises and so on so we're just really bullish on this one we think it's going to be.
A big part of our success they love hub.
Tool that we developed for them that sits on top of drive.
So.
Really really really bullish about what thats going to look like.
Kind of a slow build because it's a long sales cycle. It takes months typically to get one of these closed there's a lot of testing and so on but once they come in and we get a really high engaged.
Net group and steady growth out of it.
On the partner channel the reseller side.
I don't have as good news to report there I'd like to tell you that we're great at that and we figured it out.
But we're not where we are seeing sales out of that channel.
But we're we've just got more work to do to figure out how to kind of protect our selling and marketing model there.
And we.
We've been refining and working on who are ideal kind of reseller is.
It just has been slower progress there so I'd love to tell you we're great at everything.
I have to be honest with you, we're just not doing as well at that one and if we can get it figured out and we've got some initiatives going I think we may.
I think it could be another big leg of growth for us.
So far it's sputtering, along a little bit.
Understood. That's very helpful. I appreciate the additional color around that.
In terms of our food.
Really nice to see the increasing here again here in Q2.
I believe that your average.
Monthly subscriptions somewhere in the $350 range I am just trying to get a sense of how we should think about the continued growth in our two versus maybe more client adds in terms of driving growth going forward.
So I mean.
I would just give you a kind of per perspective, you guys. All typically follow up spot about them they get $10000 from each customer.
They tend to work with some fairly sophisticated small businesses, but they are nonetheless small businesses.
$10000 a year for those customers and we get just over 3000.
So there's quite an additional scope we think.
To meet more needs I mean, the customers that I've talked to that we meet with that we spend time in our little Facebook group with and so on.
They have many other needs and we think that we can meet many other of those needs and they like us They trust us they enjoy working with US they are on a journey of modernizing their business they're willing to.
Do more stuff with us and so we've got quite a robust roadmap of additional things that we are developing and that we are doing that we think are going to.
Wow us to.
I would expect that youre going to see <unk> continue to grow.
Some of the really dramatic growth you've seen so far is some of those early small our do it yourself sales falling out which just on the math is bringing our <unk>, but as you've pointed out we're not even yet at our midpoint unit, which is our most popular seller.
So it's definitely been held down by that so I would expect if you're modeling I would model that <unk> to keep going up that's how we're modeling it.
Understood I appreciate that and Paul just one final question for me in terms of the purchase accounting adjustment per census, should we think of that as more of just a onetime thing here in Q2 that should normalize in the back half of the year I'm just trying to get a sense of how we should think about that from a revenue and.
Also from a margin perspective for thrive international.
Yes, that's exactly how to think about some one time.
It will not affect the third and fourth quarter.
Understood and I guess, just one final one around.
This sensitive side of the business it sounds like some promising early traction there. So how should we think about just the adjusted EBITDA margin profile for that business. I mean, I know you are making incremental investments there, but still fair to assume something around the 40% area.
Yeah, I think yeah, I think Thats fair, yes.
On a simple well thanks again for taking all my questions and congrats on the strong results.
Thank you.
Your last question comes from the line of Daniel Moore with CJS Securities.
Yeah.
Thank you for taking the questions and obviously congrats on the momentum.
Maybe just one or two in terms of expectations for SaaS margins for the remainder of the year, obviously, given the strong results.
In marketing services, you've got plenty of flexibility to ramp investments, but do you still expect to run SaaS closer to breakeven or maybe a slight loss for the remainder of the year.
<unk> there.
Well you're right on it you haven't you haven't you.
Your question is perfect.
It was a big decision to.
Make those investments this year and I have to say they are paying off we're really really pleased with.
How we deploy the money.
Yeah.
Yeah.
Hello.
Okay.
I think my ear Bud scrapped out sorry can you hear me.
We can now.
Yes, I'm sorry, it debt.
Those pods only last so long enough.
Anyway.
Your question is right on it is really good.
We were yes.
Last year, our SaaS business was trucking into the double digit EBITDA margin land. So you know it has the ability to make money and make a lot of it we made a decision with our new board to invest in growth.
Run the thing a little closer to kind of a breakeven.
And let it sort of use its own juices to accelerate its growth and grow faster and we do not plan to make it a big loss, making business and run it at a huge loss.
But I have to tell you in all honesty, we are a little tempted to push the envelope.
And let it slip.
Flipped slightly into the red because.
The growth initiatives are really paying off they are working really well.
And we actually have a board meeting later today, where we're going to be kicking this around a little bit with our board for their guidance and so on but.
I had previously told you that think of it right around zero and.
We're very tempted to push it a little further and run it at a tiny loss I want to underscore that this is a choice.
And if we do that it'll spell faster growth.
Six <unk>.
Eight months nine months 10 months later as you put the money in and get it out later.
And this is not some big cash assuming business are loss, making business, but.
It is quite tempting, there's a land grab going on out there.
<unk> businesses are way more ready for SaaS software now than they had previously been.
And we're feeling very tempted.
To push so.
That's the thought process going on inside I hope that's helpful. As transparent as I can do for the moment.
No that makes all of a sense in the world just trying to get the expectation set and then on the there's been 10000 questions on <unk>, but how do you think at this stage about pricing do you see an opportunity in the medium term to raise pricing on your good better best offering or will <unk> be really just driven by mix and usage.
We have no plans right now to raise the price.
I guess.
We feel like we're really we really really like our price like where we are.
When we finally find a real ideal client and we finally really tell them our story, if they've done their homework and they looked at the options they come back and they say to us why.
Wow.
This is such a great value we hear this all the time I mean, if you were to add up the point solutions that it would take to equal a thrive. If you went out there and you bought them Ala Carte and they're out there. All these different point solution you'd have to spend about 15 to $1800 a month to try to equal abroad. So we think there is really really good value there at the <unk>.
Time, a lot of these.
Mall developing businesses are that are coming up for them that feels like a heavy lift 354, $500 a month I mean.
So we like our price, we like where we are.
We don't right now have a price increase in mind or one on our roadmap.
We're planning to.
No.
To drive that are too through add on sales additional offerings additional seats, all the different things that come with more usage.
And that's our current plan.
Not saying that our price wouldnt be possible and we've had that discussion one of our board members is kind.
Kind of persistently brings that up and we take it around.
Well right now I mean, I think about our customers who've been with us for a few years. This drive has gotten.
10 times better for the same price it just keeps getting better and better and better we have these little communicate I've just got better and then they tell them why or how.
So we're trying to just wow them with value right now.
Have really low churn and really high engagement, we hope and we think that's the right strategy.
Again, we got one one board member raises at every meeting and debt.
Suddenly have an annual price up here or at least some kind of pricing regime. So I talked about in the boardroom, but right now that's kind of how we're thinking about it.
That's perfect lastly, just before we jump for Paul.
It's self evident but that <unk> the deferred purchase price accounting adjustment that was not added back to get to the EBITDA number consolidated correct.
Right.
And then.
On a free cash flow basis.
Just curious what your expectations are around cash generation for the back half of the year.
Okay on your first question I was on mute.
Net.
It's not added back so that's an add back if you wanted to get to where it was without purchase price accounting. So it is not in our reported number.
Just to think about I guess I'll answer it this way if you're looking at debt repayment.
Likely pay down debt in the range of an addition for the second half in personal.
$60 million to $70 million.
Yes.
Got it okay. Thank you again for all the color and congrats on the momentum.
Thank you.
And at this time I'll turn the call back over to Joe Walsh for closing comments.
Thank you very much appreciate it listen guys. Thanks for all the questions. They were really good and I think help tease out and illuminate the story a little bit.
Place, we feel like we're making good progress right now got some good momentum a lot of what we've been working on the last few years is really coming together with usage and engagement.
About our priorities for the kind of the back half of this year.
It is continuing to doggedly stayed focused on user engagement.
Trying to help more of our clients light up more features and become even happier even more engaged that seems that bring us more referrals. It seems to be just the.
A great way to go in and it makes us happy to see them using it the way they are.
I think driving that that cloud adoption.
Out there within the base is big bringing the unclouded onto the cloud just sort of the missionary work.
This integration is ongoing and going really well.
Lot of questions on that but it's going really well.
We really expect that sort of 10 ish percent.
The census clients over the course of 'twenty, two 'twenty three will become SaaS.
SaaS customers. They have about 100000 customers. So that's you know I don't know a 10 day 10000 additional subscribers that will be coming from the air and make US a category leader in Australia. We're really excited about that we already have some customers on drive in the market.
The satisfaction and engagements with great NPS scores have been great.
Training has gone well so.
Yes.
Beginning to light up maybe even a little bit ahead of plan. So we're really pleased and excited about that more to come later.
And then capital allocation for the moment, we're pounding away at paying down that debt.
We're making really great progress Paul just mentioned just how much we're going to pay back here in the second half so.
Paying down debt has been a big deal for us so.
Anyway.
Thanks, everybody for your interest and your support we really appreciate it.
Excited update you again soon thank you.
Thank you, ladies and gentlemen that could call for today you may now disconnect.
Goodbye.
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From an income.
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Okay.
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