Thryv Holdings Inc. Q1 2023 Earnings Call

Hello, My name is Chris and I'll be your conference operator today at this time I'd like to welcome everyone to the dry Holdings, Inc. Q1 to 2000 twenty-three earnings call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there'll be a question and answer session.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

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Thank you Cameron Lazard kind of Investor Relations you may begin.

Thank you operator, Hello, and good day to everyone welcomed the thrives first quarter of 2023 earnings conference call.

On the call today are Joe Walsh, Chairman and Chief Executive Officer, Alright, I was chief financial Officer beliefs Vassili.

Chief revenue Lobster drive Australia.

A copy of our earnings press release, an investor presentation can be found on our website <unk> dot com.

And the investors section at Investor That's Ray Dot Com.

Please acknowledge comments made on today's call a responses to your questions may contain forward looking statements about the operations in future results of the company.

These statements are subject to risks and uncertainties, describing the company's earnings release and other filings with the SEC.

There's no obligation to update the information presented on this conference call.

Finally, our.

Our speakers will reference certain non-GAAP names measures, which we believe will provide useful information for investors were.

Reconciliation of those measures to gap will be posted on our web site.

With that introduction I would now like to turn the call over to Joe Walsh.

Thank you Camryn and thank you all for joining our call.

I'm pleased with our queue. One performance our continued focus on optimizing are predictable scalable and repeatable mile to drive revenue growth, while improving the bottom line is evident in our results every success metrics steady for increasing year over year, and showing solid performance versus our expectations.

This gives a strong predictability adorable smart growth, our first quarter SaaS revenue grew 24%, which was at the top of our guidance.

[noise] subscribers ended the quarter at 54000, an increase of 15%.

Over a year.

This is attributable to our best in class software platform and continued strong sales velocity we.

We are seeing each month, yielding better results than the prior month.

Everything from qualified leads the demos to conversions.

It's all up into the right.

Now I've mentioned in the past that we expect a balance between our food growth and subscriber growth and you'll have to forgive a subscriber growth just sort of took off at this period and it's just really going well, we're having a lot of strong uptake. So there will always be a perfect balance between the two but we <unk>.

<unk>, you know a relative balance between subscriber growth anarcho growth.

We continue to set records in user engagement on our staff platform engaged users at the end of the quarter was 45000, an increase of 25% year over year and 10% quarter over quarter.

On the bottom line once again dash EBITDA came in better than our guidance.

We've been getting more efficient each quarter and let me explain how.

First there's a big tailwind at our back more small businesses are adopting these type of SaaS tools, we've mentioned before our business comes in kind of three chunks. The first is.

Making a regular around talking to the approximately 400000 small businesses in our customer base, our zoo, we sometimes call them.

Or more of those feel ready to modernize now and are moving forward in the beginning to adoptees tool. So salesmen very strong into our base secondly, as referrals. Those 54000 subscribers are bringing their friends, they're telling a neighbor the guy there in the bowling League with on Tuesday night, and we're getting.

Increasing referrals and that's a bigger and bigger piece of archive and that means that our cost of acquisition is low on those without having to spend huge amounts of money to get a conversation with an a new business, we're able to work with basically friends and family and so that allows us to have a really efficient model.

We do still have an inbound outbound machine like other software companies do but we haven't had to rely really heavily on that that's part of where the great economics and the improve profitability are coming from.

We're on a journey to be a rule of 40 company.

We believe we can continue to have very strong growth and pair that with profitability.

Turning to our marketing services.

Came in better than expectations, and we continue to see very predictable performance in billings.

Yeah, we've had success in the past of acquiring well run marketing services businesses at fair prices and introducing arthritis software to those clients.

This next one really fits that profile well, we're pleased to announce that we've acquired Yellow Holdings Ltd, known as yellow.

New Zealand bleeding marketing services company for over 50 years.

Yellow has a similar history to our own and that it's.

Basically come out of being the official telephone company yellow pages. This is the old you know.

New Zealand Telecom now spark the official telephone directory of that market and they built a pretty big pretty significant digital marketing services business. In fact, we have over 10000 digital clients there.

And so we're confident that many of these local kiwi businesses will benefit from modernizing.

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This is a relatively small talk to an acquisition in our CFO , Paul Ralph's can share more about yellows financial contributions and are updated guidance.

Or international expansion is a key focus area for us and given this announcement I wanted to invite Elise ball Seeley drives Australia's cheap revenue officer onto the call today. The highlights of success as we've had the Australia market with the prior acquisition of census holdings similar too yeah.

Oh in New Zealand census holdings before rebranding the drive Australia was a leading and highly profitable digital marketing and Directory services company.

We acquired census at an attractive valuation and integrated the company in an effort to reshape the perspectives of S. N b as in Australia by providing an easy to use solution to modernize our operations.

Fast forward to today drive Australia has been a success and one of our top producing regions for SAS Elise has been instrumental in leading the drive Australia business. So with that I'd like to ask a list to join and share more about our impressive progress in Australia at least.

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<unk> 2021, private client Sanchez and Australia within a matter of months, we buy in market positioning that <unk> yellow pages clients, we had strong relationships with tens of thousands of clients here in Australia and that trustees want supported esteem presenting tries.

Building a brand name mask it takes time and my left Virginia trusted position, we were able to accelerate this process.

I'm not getting paid named Mike caught in the background building a brand and reputation more broadly across the Australian market to support us in attracting new clients.

Compensation in Australia. It was not at the same level as the United States well some of that client she's point installation business. The vast majority of them didn't know where to start.

Every small business has problems problems that can't that small business sinus awake at night from getting paid <unk> paint bumped down in <unk> and never getting today sounds football game, we could finally help them and far more encapsulate then just driving lights could I. Please test.

The guy to market prices critical we managed a significant volume of customers and revenue in our marketing services business.

<unk> relationships to have drive conversations we would not doing it at the detriment of our marketing services revenue or EBITDA.

Sales forces already proficient in selling <unk> destroyed their marketing efforts, we introduced drive is a natural extension.

<unk> clients in prepay client experience and actually the relationships <unk> to provide customer loyalty.

By integrating marketing inclining experience, we aim to increase the client base and maximize the last time value each client, we training hardstaff styles change to identify problems and gaps in their client Janice. This approach allowed us to position drive <unk> addressing the most pressing needs of H business.

We're seeing strong N P. S results provide a skull coming trade from Alsace customers at all points of the customer Jannie and volume of engage Jesus is growing each month, where specifically place with the number at the gauge Jesus shelving that our clients are truly embedding the software into the business I'm really excited about the growing.

Number of advocates we have and the strong feedback, they're providing like Tyler and eighth from a popular <unk>.

Drive is like an employee it's like having another person in the business to take the pressure off us.

<unk> tried to Australia has to live in strong performance exceeding okay matrix Alsace performance was incredibly strong exceeding at target for the quota.

And each month with outperformed the price by greater than 10%.

<unk> is now one of the top performing <unk>.

And coupon, we launched App Hot and channel here in Australia, and exciting milestone, which has given us a new channel, which brings drive to market what.

<unk> Saint positive results without first partners signed on and trained in our first partner <unk>.

Working across the number of K tried exercise in Australia. During Q1 has helped us garage bite the recognition and awareness of the thrive brand, especially in K vehicles and has resulted in many partnerships <unk>.

Where exotic marketing Senate will launch in Australia, <unk>, and we will have an opportunity to expand a valued that way until <unk> clients. While it's also increasing the overall customer recurring revenue.

<unk> is primed and ready to launch stays in the essentials in market as they delivered it.

Signatures of just launched <unk> paying the perfect extension for the service segment.

In addition to our success with building the thrive Australia fast pace desk with continued to deliver exceptional results across our marketing services revenue and reached that targets the coupon over over.

Credibly place with the performance of the Australia N B S S, what with being able to achieve unless and cheese and market and what we envisage for the future.

I'll now turn the call back to Joe Walsh.

Thank you <unk> and thank you for the amazing job you've done a bleeding drive Australia you know.

Each time, we enter a new market, while these new international markets, we expect two to three years.

Of investment as we get that market setup and Australia is no different you know we've been we've been investing in the last two years. There. We expect in 2024 drive Australia will will be contributing positive EBITDA positive cash flow and so we're just about at the end of the investment period and the losses, they're making.

This year actually relatively small.

I'm Gonna turn it brought in the international to just a little bit to talk about Canada, you in Canada, we didn't make an acquisition we've gone in just Greenfield building and so they'll probably be a full you know three or so your investment cycle. There. We're talking single digit millions not huge amounts of money that we're investing in the profitability of the U S.

This is <unk>.

Able to carry that small investment and similarly, with New Zealand there will be an investment for a coupla years as we get it set up but it'll be reduced because we made the acquisition of.

Yellow, which gives us a zoo to hunton, and we'll give us lower cat and and make it a more efficient market entry.

So with that and now like to turn the call over to our CFO fall Ralph to discuss our first quarter financial results.

Paul.

Thank you Joe as a reminder to listeners we're going to focus on one or two seconds <unk> and marketing services, which includes results from domestic and international operations.

We feel this is more beneficial in modeling and understanding the business additional details between domestic and international for each segment can be found in the appendix section.

Investor presentation, Okay, let's jump into the results beginning with the first segment <unk> revenue was $59.9 million in the first quarter representing growth of 24 per cent you're over here and at the top of our guidance.

Subscribers totaled approximately 54000 at the end of the first quarter, an increase of 50 per cent year over year.

<unk> increased to $379 in the first quarter represents eight per cent growth year over year.

Turning to the bottom line first course S. Adjusted EBITDA, whereas negative 204000, and the head of our guidance as Joe described in his previous remarks, we have been emphasising productivity and assess business and chirpy efficient growth managing or spend.

Dinner, new acquisition channels I'm excited to announce that alright U S. <unk> business has achieved positive EBITDA.

For the past four quarters. Additionally, negative EBITDA contribution in our international markets can be better than expectations, which resulted in our overall EBITA being near breakeven.

Marriage by the strength, we are say in the U S and by the success of International investment efforts and believe we are on the path to becoming a room 40 software company. We are confident that are strong growth and profitability will continue to drive our success in the years to come.

First quarter, Susan <unk> dollar retention was 91 per cent and unchanged first the prior quarter as a reminder.

<unk> dollar retention represents clients that have been with us for over one year with the rollout over additional centers like marketing Center. The company is on the path to achieve 100 per cent N. P. R. My.

By providing our subscribers with a better experience additional centers can help to increase customer satisfaction and loyalty.

This can lead to clients renewing their subscriptions upgrading to higher value packages and recommended the company to their friends and colleagues.

We also believe by addressing these factors, we will keep churn well, while generating new revenue streams via new centers to offset the cost of customer acquisition, which leads to higher N D. R.

Moving over to marketing services first quarter revenue was 185.6 million, which came in better than expectations due to timing and ship it or print publications from two to into Q1 in both of our U S. In Australia markets first quarter marketing services adjust.

<unk> was $58.7 million, resulting in an adjusted EBITDA margin of 32%.

First quarter marketing services billings was $193.4 million, representing a decline of 21% year over year. Please note. This metric now includes billings for a video holdings for 2022 comparative period.

First quarter consolidated adjusted gross margin was 66%.

First quarter consolidated adjusted EBITDA was $58.5 million, representing and adjusted EBITDA margin of 24 per cent.

As previously discussed these measures were impacted by revenue recognition and a marketing services segment around the timing and shipment of our print product.

Finally, I would.

That position was 451 million in the first quarter.

Our leverage ratio for the first quarter in accordance with our credit facility.

It was just under 1.5 times net debt to EBITDA and well below our covenant three times.

The company generated an additional 27.2 million and free cash flow and the first corps and pay 35 million towards our turmoil.

Now, let's turn to guidance.

Reaffirming prior full year <unk> revenue guidance in the range of 257 to 259 million, but upgrading our profit outlook for the full year as follows.

<unk> 2023, we now expect slash EBITA and arrange a 2.5 to 3.5 million, which we previously guide to as turning profitable whole breakeven for.

For the full year 2023, we.

We are increasing our outlook for marketing services, we now expect revenue in the range of $653 million to $663 million <unk>.

And adjusted EBITDA in the range of $187 million to $190 million.

This upgraded guidance for marketing services reflects our recent acquisition in New Zealand, which we believe will contribute around 10 million and reported revenue you can find additional information related to our 20th twenty-three guidance in our press release, an investor presentation available online.

S communicated on our last earnings call, we expect to ship fewer print publications in the third quarter of 2023 and due to the accounting treatment it will.

Pack the third quarter results. However, this does not pack free cash flow.

And our ability to retire desk and we expect a very high cash flow conversion in the third quarter for this reason, we want to point investors to our marketing services billing performance and operational metrics in our Investor presentation, which show steady performance for many historical periods.

We realized the nonlinearity over a print is a bit complicated and we tried to provide as much information as possible to be transparent.

I'll now turn to call back over the Joe Thank you Paul.

So I guess, it's sort of the headlines here for today's call I'd like to underscore a couple of things the profitability of our SaaS business is coming along a little faster at a little stronger than we expected and that's really owing to our great model. The fact that we've got 400000 existing customers that want to talk to us.

We were able to have a conversation with and help make this journey you know in modernizing their business and they're bringing their friends, they're introducing us to referrals at an ever faster pace as our subscriber base gets bigger they're introducing more and more referrals. So it's sort of a self regenerating model.

[noise] marketing center launches going well, we're just in the early days of that obviously, we just began at the very end of last year, but sales are coming along nicely. Our sales organization is really learning how to talk about the product and how to how to do it the best possible way. We've got some early successes from customers that are excited about what they can do with marketing.

Center, So I wore to come on that later, but that seems to be percolating, along really nicely.

Sort of the final couple take away for that I would offer you as our norstar isn't engaged user and more and more small businesses are running their businesses on drive and you can see it in the huge gains were making an engagement and that is a great leading indicators what revenues got to look like in another year or two <unk>.

Dogs are eating the dog food this is working.

And I think the final proof point of that is looked at subscriber growth you know, 15% subscriber growth, they're coming in almost as fast as we can sign him up and get them onboard I mean, it's it's really outstripping our expectations, even it's been very good and that's because the software so excellent and making such a big difference for small.

Businesses so.

So with that we'll wrap the call up and I'll turn it over to the operator.

Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.

First question is from Rob Oliver with Bird your line is open.

Great. Thanks, guys. Good morning. Appreciate you taking the questions I hate to Joe one I'll start with you Yep strongly subscribe or front you mentioned that you also alluded in your prepared remarks to kind of you know working towards that balance between subscribers and <unk> just on the <unk>.

You know dropped.

Dropped below 10% and I'm just wondering like is that just a function of the economy and people you know kind of starting out with a smaller bite at the apple or maybe being a little bit slower to upgrade is it because people were waiting for some of the new products or it'll help us just to understand that and then I had a quick follow up.

Yeah.

I think it's probably a mix of things I mean, our our customers we've talked about them before.

They're very resilient you know small businesses are are are average client been with us for more than 15 years on the marketing service. Besides so these are the really old line established businesses not new starts.

You know.

So they they don't <unk>.

And we brought it out in kind of a.

Quite a big market and we feel it will accelerate very nicely as we open it up more broadly, but it you know it's it's it's all new product and it's been a bit of a learning curve.

So in terms of how you should see it flows through the numbers, which I know is what you're trying to get to.

I think you'll see.

Positive positive cash flow has been has been communicated very clearly and so it really it really wasn't a gigantic ship for us because it was happening naturally the scale of the business was getting to the point and the referral contribution remember our cost of acquisition on referrals is really pretty low.

Rather than making you know.