Q2 2023 Thryv Holdings Inc. Earnings Call
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Thank you for standing by my name is Anna and I will be your conference operator today.
At this time I would like to welcome everyone to the trade second quarter 2023 earnings call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply place to start.
By the number one on your telephone keypad.
As you would like to but if you would like to withdraw your question again, Chris start and number one.
Camera law, Sir you May begin your conference.
Yeah.
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Thank you operator, Hello, and good day to everyone and welcome to thrive second quarter 2023 earnings Conference call.
On the call today are Joe Walsh, Chairman and Chief Executive Officer.
Paul Ross, Chief Financial Officer, Brian Kantor, our Chief product Officer.
A copy of our earnings press release, and Investor presentation can be found on our website at thrive dot com.
In the investors section of Investor Dot drive dotcom.
Please acknowledged comments made on today's call and responses to your questions may contain forward looking statements.
The operations and future results of the company. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC.
<unk> has no obligation to update the information presented on the conference call today.
Finally, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors.
With that introduction I would like to turn the call over to Joe Walsh Joe.
Good morning, Cameron and thank you all for joining us on our call today to discuss our second quarter results. We had another solid quarter in SaaS, most notably from a bottom line perspective, as we continue to focus on driving profitable growth.
Painting flexibility and executing efficiently.
Highlights for the quarter were 20% year on year SaaS revenue growth SaaS.
Client growth continues up double digits.
And our engagement trends continue to be very strong one of the things that we're really excited about is we had a goal for the year.
On profitability for our SaaS business, which we've reached already so we are forever to get more efficient, we got a lot more efficient and.
That is something that we're excited about it did cause us to have a very narrow miss on our revenue guidance for SaaS, but.
We're in a very strong position with the way all the elements are coming together and we're confident enough, but we're going to be raising SaaS revenue guidance for the year and EBITDA guidance for the year. So a lot of very strong momentum in the business.
We just made the decision to.
Basically sell fewer of the more expensive sales that come through our inbound channel and made a few other efficiency moves and it's resulted in about a 10 point swing in the EBITDA profitability from the.
<unk> breakeven to double digit EBITDA. So we're really pleased with that we think that really demonstrates the profit making power of this business and the overall control we have over the business model, so pretty pretty pleased with that pretty excited about that.
For SaaS in.
In the past have relied on three channels to drive our growth and I've described that as a third a third and a third so a third coming from the zoo.
Third coming from happy customers, referring people dislike them to our base and then a third coming from our inbound channel that's begun to get kind of out of that perfect third thing lately.
The largest source of customers is the referral bucket because there are so many customers in the happier Xu bucket that are referring people.
That's well into the forties.
Coming from referrals and up in that well more than a third bucket is people coming out of Brazil.
And year to date less than 20%, we now have coming from our demand Gen. Funnels in fact in the most recent period was more like 14%, we really have been cut.
Cutting back on those more expensive sales, we love those sales less because we have to do content marketing in some cases paid marketing and advertising. We're doing webinars denar is all these things to identify these folks and when they come through the funnel, we can't control who they are so they haven't been with us for <unk>.
15 years, they are always established mature businesses, so it exposes us to a little bit more churn risk.
Which in the end makes it a little bit more of an expense of sales so our ability to reduce our reliance on that.
There has been an important element in this drive toward efficiency and profitability and we.
Going to talk in just a couple of minutes, adding now a fourth funnel to our business and we're really excited about.
What that will do.
We've spoken over the last year or so about our desire to implement product led growth.
To generate product qualified leads to use our product to help identify new prospects and new customers to deliver some value to customers before we ask for any money.
And we've been at work now for several years on an important new product that's going to allow us to do that and we are in the process right now rolling out the beta version of our command Center.
<unk> centre is an opportunity for small businesses to consume some of our product get value sort of raised their hand and become a product qualified lead which can then be.
Worked through and managed by our very powerful sales led motion. So we're not giving up on the sales motion, we're basically just adding a fourth.
Very highly efficient funnel to the process and we're really excited about it. It's the culmination of multiple years work and it's really cutting edge technology and so without.
Stealing any more Thunder I want to bring our chief product officer, Ryan cancer on to talk you through a little bit about how command center fits into our playbook and also how we are harnessing generative AI and our business model So Brian .
Thank you Joe the launch of command Center beta today isn't simply a product launch.
Moreover, its a re architecture of the entire thrive platform into a modular and easily expandable user experience built for the average small business owner.
The need for command center arose out of three primary drivers.
<unk>, our close relationship to our users identified that even before payments communication tools are the most primal and initial needs a small business owner has.
Before scheduling on the calendar they will E mail about dates and times to meet before accepting credit card payments they will test the amount due.
Conversational Commerce is how most small businesses operate initially and how most continue to operate today.
Command Center meets these business owners, where they are not just where we want them to be command center supports native integrations to Gmail outlook, Microsoft 365, Imap email Facebook Instagram native phone voicemail and texting along with a free web chat client.
It covers all the ways today that our business communicate with their customers unified not only in a single inbox, but in a single conversation.
Number two we wanted to reduce the time to first value and eliminate friction for the small business owner to get started with the thrive platform with less disruption to their day to day business.
<unk> business centers, CRM is magnificent with thousands and thousands purchasing adopting and integrating it into their day to day with commitment.
We see the results of our products had on these business owners everyday but for every business owner, who has this commitment and drive we have identified others, who simply need a simpler entry path.
Command Center. It takes just a few minutes to set up a.
Our simple sign up using existing logins for Gmail or Facebook and you are communicating with your customers in less than a couple of minutes <unk>.
Multiple threads in different channels are seamlessly combined into a single conversation with each customer, bringing in all of our moment to the user.
This is ties them to continue to connect more channels more email and more accounts every contact every conversation is suddenly building a robust business on our CRM for them in the background ready to be unlocked when they are ready.
Number three business center had a growing and box and it was often the first feature to be adopted and it carried the most usage of any feature with over 7 million conversations happening in 2022 and $4 million already year to date in 2023, yet like all growing platforms, it had challenges and needed in.
Overhaul to operate seamlessly with native email and include features and capabilities, commonly found in other E mail clients or messaging applications.
To meet our user feature requests command center was born.
Demand Center brings native E mail into a chat like experience it brings pinning and labels found in other platforms inside our inbox.
It creates a visual experience with attachments and Centralizes all of the files, both send and receive across any channel into an iPhone Media Gallery like experience Command Center presented inbox that looks like Gmail operates like an iPhone with the convenience features of slack and all built for the small business.
And it is available for free forever, and an all new freemium model.
Paid plans are available per seat to properly scale with the financial size and maturity of the small business and those plants start at 20% and $30 respectively in the United States per seat for a plus and a professional plan with these plans offering additional channels more call minutes and even more features the <unk>.
<unk> Centre Beta program is available in the United States, Canada, Australia, and New Zealand Command Center turns virtually all facets of customer communication into the rhythm and convenience of the text messages you get on your phone so imagine you're a business and you open your phone you open up messages.
The tax is any prospector customer trying to contact you all in one easy place presented in a uniform chat like experience.
This is a modular approach since you've been following the company we frequently state that each small business owner is unique with individual needs.
The re imagine the command center navigation enables the thrive platform to grow and be customized to meet each business owners wants needs and aspirations and with command center. The thrive platform can be customized to meet this need of individuality and improved personalization.
By focusing on reducing friction of use pricing it on a per seat model and creating easy avenues for expansion and customization. We believe the launch of command center and the platform re architecture presents a clear path to sustained net dollar retention improvement in the coming period as volume materializes against the overall size of our existing business.
Furthermore, we believe the frictionless adoption of command center via online channels presents a potential force multiplier for our professional sales force, who can be made more efficient by reducing the time, they spend sourcing new business themselves and replacing it with qualified users in their local community ready for a local representative and to upgrade their experience.
Beyond just command center, we are seeing the pace of innovation and platform improvements increased nicely in the first half of 2023 on average three new major improvements were released every week after slowly rolling marketing center out in the first part of 2023 more marketing centers were sold in June .
All of Q1, combined and we will soon have a couple of thousand active marketing centers sales marketing center as a single platform that helps small businesses navigate all the complexities of modern day marketing web.
Websites, Google business profiles paid advertising campaigns offline call tracking and more these are all just various ways consumers seek out and find small businesses and marketing center helps each business owner know in real time, which of these efforts is working and which ones aren't.
Sales are also accelerating due to additional product enhancements, we launched integrations with next door Wip Dot com Yahoo, and yet to enable paid profile enrichment that is fully integrated and controlled inside the platform. We also just announced expansion of marketing Center integrals, Canada, and Australia, coupled with the addition of a new hire.
Tier of marketing center at $299 a month.
We are now offering both a plus at 199 and a professional version at 299 months.
It is important to state that our focus on centers will also bring an expected higher gross margin at each center is being designed to deliver north of 75% gross margins.
Across the rest of the platform innovation also continues earlier this year, we launched our integrated signatures that and since then thousands of E signatures of Vincent enzyme drive mobile device readers and tap to pay this helped deliver 30 plus percent quarter over quarter growth in Q2 at about 60% year over year growth year to date.
We aren't just focused unusable features but as engagement than the prior platform continues to grow it is equally important that drive takes the proactive steps to ensure our users and their data remains safe and secure.
In Q2, we successfully rolled out and have universally enforced that every user inside the platform is now protected by multifactor authentication.
The other area thrive has been focusing on is generative AI through the end of 2022 and early parts of 'twenty three the product team invested hours and hours and speaking with our users about practical ways generative AI tools could improve the product and to help them in their day to day <unk>.
Our focus initially is when to use generative AI and using AI to help create the right content blocks at the right time.
Today, we are leveraging generative AI to create AD copy headlines keywords and add groups inside marketing center.
<unk> is used in the creation and publishing of our professionally designed websites in the near future. We are excited to bring AI to our social media module aiding small businesses and the creation of better content, we plan to bring it to a review management section to help small businesses with suggestions on how best to respond to online reviews and to our new inbox to aid in.
And our response times many of these items are in various stages of development and testing, but our most important guiding light is never to simply use AI for the sake of AI, but instead to ground each improvement each dedication of resources towards the capability. They will make a difference to the benefit of our small business users. We have an exciting roadmap ahead with continually.
Improvements to all of our centers and apps and I look forward to sharing with you in future periods with that I will turn it back over to Joe.
Thank you Brian .
Command Center is our new front door.
It's how you will enter our company. It's how you enter our product. It's the idea of a platform with multiple products. The entry point is command center. So if you have business center. You'll also have a command center to a marketing center. You also have a command center and what it does is it frees us up now to sell marketing center.
Two antibody we can use it as an opening product up until now we've been very deliberately very carefully ramping marketing center.
And.
Only selling it relates to customers that already have a business center.
And it's.
It's moving along nicely we're at about 4000.
Marketing Center annual run rate in the most in the most recent month is building nicely but.
The sort of Velvet ropes come down now and rather than only being able to sell into the business Center universe. You can now sell antibody a marketing center with the advent now of command center as our new front door.
Command centers multiple years of work coming to fruition.
Today.
Going out in the market right now and we think that it really is transformative in terms of using the product.
Prospect for ideal customers and then based on their usage behavior. They identify themselves as people that we want to spend time with.
And assist in their digital journey and that will be a really good use of our salesforce is time we.
We will call. These product qualified leads as they reach a certain point of value consumption. So really pleased with this fourth funnel, that's very efficient fourth funnel that we're adding to our machine and it's part of how we see growth accelerating as we go into 'twenty, four because rather than selling one center in one country where.
Now in multiple countries and we are now selling multiple centers. So theres many more vectors of growth that will allow us to.
Lean into that and expand our growth we've talked before about we see ourselves as a rule of 40 company. This is part of how we get there is these additional products, which have been multiple years in development that are finally there.
Last comment I'll make Ryan touched on generative AI, we have approximately 3000 employees. So we have all kinds of different functions and departments across our business. Our leadership team are looking to leverage generate AI right across our business and find additional efficiencies and fund additional search.
Officers and superior products and superior.
Service delivery that we can give to our customers and we're seeing it in little and big waves right across the business. So it will help us become more efficient as we as we look forward.
I think at the time, we get into the numbers, but let's hear from Paul Ralph Paul.
Thank you Jill and good morning to everyone on the call.
As a reminder to listeners we're going to focus on our two segments SaaS and marketing services, which includes results from domestic and international operations.
This is more beneficial and modeling and understanding the business additional details between domestic and international for each segment can be found in the appendix section of the investor presentation.
Okay, let's jump into the results beginning with our SaaS segment.
In the second quarter, we continued to execute on the plan, we announced on our fourth quarter call to gear towards efficient growth in our SaaS business said differently, we want to grow profitably.
Quarter revenue grew by two five.
5 million sequentially to $62 5 million.
Or 20% year over year, and just below our guidance range.
As Joe laid out in his opening remarks that improvement in SaaS. Adjusted EBITA was driven primarily by optimization of operating expenses, particularly sales and marketing expenses associated with our new acquisition channels, our SaaS adjusted gross margin of 64.
Five 1%.
64, 2% in the prior quarter, representing a 90 basis point improvement as a result of our focus on selling to higher margin marketing center to our install base of business Center clients with marketing Center now freely sold on a standalone basis with the launch of.
Command Center, we do expect to see incremental gross margin improvement in our SaaS business as we move into 2020 for SaaS subscribers totaled approximately 56000 at the end of the second quarter, an increase of 12% year over year SaaS ARPA.
<unk> increased to $377 in the second quarter and represents 5% growth year over year and relatively flat on a sequential basis as we have communicated on the previous call. We are experiencing some new clients activating at lower price points.
We feel strongly this allows the company to drive additional spend and MTR expansion per client has declined grows with us and we can attach additional centers to each client.
Second quarter season, net dollar retention was 89% a decline of 200 basis points versus the prior quarter.
With the rollout of new products like marketing Center in command Center.
And that that physician was for $130 million in the second quarter of a leverage ratio for the second quarter in accordance with our credit facility was 1.6 times net debt to EBITDA and well below a covenant of three times the company generated an additional 16.5.
And free cash flow in the second quarter and paid 17.5 million towards our terminal.
Now, let's turn the guidance, we are raising our full year <unk> revenue guidance.
A range of 258, two $260 million. We are also raising our full year <unk> EBITDA guidance in the range of 7 million to $8 million for.
For the full year at 2023, we are maintaining our outlook for marketing services, which is revenue in the range of $653 million to $663 million and adjusted EBITDA in the range of $187 million to $190 million for the third quarter 20.
Twenty-three, we're guiding SAS revenue in the range of 66.52 67 million and.
<unk> adjusted EBITDA loss in the range of $3.5 million to $4 million. Please.
<unk> no <unk> business will be carrying more overhead and the third quarter due to operating expense allocations as a result of lower marketing services revenue due to the timing around print revenue recognition as you can see from our full year guidance <unk>.
<unk> returns to positive levels as the operating expense applications returned to normalize levels for the fourth quarter.
For the third chord of 2023.
We expect marketing services revenue to be in the range of 114, two 119 million and marketing services to deliver eight to 9 million and adjusted EBITDA.
I will now turn to call back over to Joe.
Thank you Paul.
Two three will have optically lower revenue and EBITDA because of the revenue recognition, but cash is not affected.
We said at the beginning of the year, we will pay down about $100 billion of debt of the year that was before we bought New Zealand as.
This moment, we pay down 70 million year to date, so we absorb the New Zealand acquisition pay down $70 million of 100.
And in Q3 cash will continue very very strong.
So we're having a really good year on cash cash is right on plan and the revenue recognition anomaly isn't something you should be concerned about when you think about the the balance of the year in queue for revenue and EBITDA start roaring back in and and 24, they really <unk>.
Back.
One item just to make a note of is that in Q3 <unk> will carry more of the general overhead you know a portion of Paul salary of mine, a little bit more general overhead and obviously two four and as we go into next year marketing services comes back and carries more of its share of the overhead.
I wanted to be clear about this we have meticulously communicated this over the last year I don't think there's anybody to follow this company that doesn't expect this little air pocket that was made up of our transition to 18 months books that innovation has been genius for us in terms of delivering.
Revenue and EBITDA, it's been incredibly good for the environment. It's good in all ways, except for this little air pocket and everyone knows about it. So if it's any kind of a surprise to you you haven't been paying attention.
Let me turn to talk about New Zealand.
We acquire New Zealand at the beginning of April they are right on track. They are performing to plan that we had in the acquisition integration is is moving along at a nice pace integrating them into the greater drive and the next month, we launch staff in New Zealand. So we're really excited about that and.
Local folks in New Zealand, a real excited about getting going there.
Two years ago, we bought Australia, and we said at that time that there would be three years of investment investment of EBITDA investment of cash flow to get that set this up and fully scale and those are gonna pay close attention to notice that.
Sure It is actually making money on the sash business. This quarter I mean, it's already coming along so you know fill up for the full year it'll be you know closer to a push and as.
As we finish up this year going into 24, it'll be making money. So about a year ahead of schedule actually delivering at the bottom line that business is goin' amazing customers are using the product, it's scaled up significantly now and brand awareness as high customer satisfaction by our employees.
Really engaged there are periods, where Australia is our number one region now it's incredible how else going there. So really pleased with that and feel like we can build on it and New Zealand.
I'd like to wrap the call by giving one final little fun news item. We were recently named best companies to sell for there's a top.
<unk> top 50 list, where in the top 10, so we keep climbing higher and higher in this list and we're really proud of the fact that we created an amazing environment for sales professionals, we call them business advisers to practice their craft within our company and now that's something that we're super proud of so.
So with that let's turn it over to.
The operator operator.
Thank you at this time I would like to remind everyone in your address.
Ask a question.
Then the number one on your telephone keypad.
<unk> just for a moment to compile excellent rescue.
Yeah first question comes from the line <unk> <unk> <unk> <unk> <unk>.
Your line is open.
Perfect. Thank you guys uhm, thanks for taking my question.
Joe maybe I'll start with you. So the the first one just when we think about where are the businesses today, where you're saying maybe some inbound marketing challenges. It seems like that was the big driver behind.
The fast revenue coming in a little bit lighter than you you had forecasted but your race pull your guidance for the year can you give us a sense for what you're seeing in Q3 Q for developing that we should see that not new revenue on the on the south side picking up what what what's given you the confidence Sir.
Oh, Thanks for the question origin, while we're we're going from selling you know really one center in one country.
Kicking it wide open selling three centers and all of our countries and we're seeing a really strong acceleration. So let me walk you through it.
<unk>, we we brought out marketing center at the very end of last year right before Christmas and we began selling it in a fairly limited way initially and.
And we had honestly we had planned to ramp sales a little more quickly, but we weren't satisfied with the feedback we were getting from the very early customers, who we're finding a couple of edge cases, and things we needed to work on our sales force was still kind of getting it dialed in but over the last number of months we've.
All of that and marketing centers really caught a lot of momentum we mentioned it in the prepared remarks.
As recently as this last month running at more of like a 4000 annual run rate and wrapping quickly so.
We are confident that the that the ramping that's going on in marketing center alone will carry us over the revised guidance for the year, where we actually raised guidance for the year keep in mind that we were only selling marketing center two business center customers and only in the U S.
On a very kind of you know.
Curated basis, very very carefully now that we have the momentum that we do we have a product where we want it to be.
You can sell marketing center to anybody.
He doesn't have to be a business that our customer can be it can be the lead product and you can also sell out Australia, Canada and 30 days in New Zealand. So we've kick that wide open that would add onto that command center, which.
Hundreds of sign up to come in all ready just in a very brief period that with all the data out has already been sales one of my dreams.
Have sales, while I'm sleeping and that's already happening, but we're already seeing these things come in so.
The trends for the underlying business center continue to be very strong and.
So I guess hidden a little bit and.
The noise of the numbers was he a business center is actually a little bit ahead of our plan.
So we're very confident that we're gonna.
Be able to deliver this raised guidance for the year and we're really proud of the profitability that we've generated we think that that is it.
Really important thing to deliver at this point is the bottom line.
Got it thank you drops.
Sorry can I can I please online.
The the the announcement around the command center is really interesting and they go to market a product let growth dynamic there something new or for for you that were that were saying if if that's successful would you consider doing.
A premium go to market motion across business on our marketing.
And drive this you know get more sales in your sleep.
[laughter] great question [noise].
That is my dream on sleep at night.
We designed this <unk>.
Very innovative product and I think you're going to get to see it tomorrow, right, where do a demo.
Design. This this product.
As as a freemium as the kind of tip of the spear and it's been more than three years in development of.
Of investment of 100, plus engineers and product people working at this building it.
It's been a major list and I think when you see just all the.
Threads it pulls together in one place for a customer you are going to be.
The business center is a much bigger it's a CRM, it's a much bigger it's a much more difficult thing to offer for free because a lot of the effort involved by both.
The small business that comes on and by thrive to get them set up an onboard it.
Is is populated into CRM is getting everything set up it's it's more of a.
Business process change so it's.
It moves the needle more if you if you go ahead and bite the bullet and do it but it's it's not something that you could say here take it for free and give it a spin.
You're not going to spend the time to populate the CRM and do all the steps you need to.
So this new command center actually.
If you <unk>.
Except the free command center and get get using and it actually begins to sort of build you CRM. If you think about it because.
Because you've got all of that.
Inbox stuff coming in to the building a record of who your customers are and all that so it's a beautiful onramp. So.
We're not planning at this time to add a premium or a <unk> motion to the other centers the on ramp into the product will be command center, but it will take what was kind of a two lane highway coming into our company and make it a turn lane massive interstate to the number of people that will be able to have go off of Connor.
Sensation with will will.
Will broaden tremendously with the advent of command center.
Thanks origin.
Okay. Next question comes from your Bank.
<unk> and company.
Okay.
Hi, everyone. Thanks for taking the questions here.
Two here first of all.
Oh, you sound really excited about selling the new modules into the new <unk> in.
Back to your base and obviously new customers, how do we think about how you're going to prioritize for marketing spend to do that I know you pulled it back on the marketing through some of the new inbound channels in the quarter, but knowing that some of these products probably require a little bit of spending to those alpha channels. How do we think about kind of your priorities are.
Marketing those new modules versus just solving the core apply for today. Thank you yes.
Yes, well.
Well, let's start with command center, which rolled out.
Two days ago I guess.
In beta.
And we've had hundreds of sign up that we've had some people upgrade already it's off to a really good start.
Dark without really any promotion. This is just our own employees, telling people about it and sharing it I think.
Our plan is to run it in beta briefly and then do a bigger market launch after labor day with.
Some earn media and promotion and advertising and all that stuff at that point.
To kick it off and get get the word out there. We do believe it's a sort of a self discovery product that has the potential to really go viral to be honest with it because it delivered so much value for no money I.
I mean, the key element here is it.
The best available product in the marketplace and it doesn't cost anything.
And so yeah.
You can you can get in there and accomplish a lot for your business without spending any money at all so we think that that is really the key if not a very real marketing heavy thing.
As far as marketing Center goes.
We are we are experiencing stronger and stronger demand that better the salesforce understand we've had Australia.
Yeah.
Hanging in the balance Scream and give it to us with us and so we have done that now this week given it to Australia and they've got a backlog of people that are interested in it. So we think we'll see a nice surge in sales from there as well.
So overall, if you think about it the way you think about it for modeling standpoint, we're we're not going to.
Spend any more than we have budgetary to plan for the year, we are going to redirect some of those resources into some of these messaging around these these new elements, but that was our plan all along to be honest with you.
Got it very helpful. And then Paul from a follow up question. Your season churn did picked out two points as you noted.
One quarter, certainly not a trend, but youre churn order. The prior four five quarters was amazingly consistent, especially as the macro changed a little bit how should we read the two point changes that just something.
Specific in the quarter should we expect it to bounce back maybe it's macro obviously, we're all see the macros, so don't need to make too big deal out of the macro necessarily but just try to help us understand that maybe small difference here in the quarter.
Oh season churn is flat.
And.
So does that I think that's the issue trying to address here right.
Paul I think he's gone for net dollars retention.
Oh.
I think this is a temporary thing because we had.
A slight delay in or not a ramp is <unk> from should we expect that marketing center, so that pulled down a little bit and we're expecting marketing centered gives us a perfect opportunity to add additional products and particularly with command center, the new front door.
We're going to see.
Net dollar retention head towards 100% fairly quickly with this new innovation.
So we were expecting that the bill we're not concerned about where it is it's not a trend refractory expected to reverse and go the other way.
I would I would just echo and add all of that.
This is really the beginning now.
You can sort of mark it down and circle. It on your calendar. This this quarter sort of the beginning now all of our net dollar retention journey, because if you think about it other than some very small add ons, we didn't really have anything else to sell to a small business. When we went in we were using expensive sales channel.
The big demo and we were making the entire sale at the time of the sale. So it wasn't really a lot to add on and soft economic periods people weren't buying it's big or even a handful of downgrades of people that were.
By maybe the good better best said by the best and then downgrade a little bit out of economic sphere reading all the headlines. So we had we had a little bit of headwinds there.
You start now and you look at our business that we now have the ability to go in and make an initial sale and go back and add additional meaningful.
Very high margin software centers, not just little signature packages or.
Other small add on this is a very significant change so from.
From here forward, you're going to see our net dollars retention.
<unk> to that 100 that we've guided you all along on.
We now have the products to sell.
Excellent John Martin on the calendar I look forward to this whole a seizure on that congrats to talk to you guys. Soon I know you did I know you wrote it down [laughter].
Your next question comes from the line.
Okay.
Okay. Thanks.
Hey, Thanks, Good morning, everyone. I appreciate you taking my question just.
Alright, I mean, you guys talk a lot about the fabric business I. Appreciate the call you provided in the prepared remarks around both growth and <unk> just wanted to dig into this a little bit more so ARPA growth decelerate again this quarter. So curious to hear more about the customer buying patterns and maybe what has changed since last course last quarter. Excuse me are you guys seeing a greater impact.
Act on from the macro on spending or customers, Florida upgrade so just just to call around that would be helpful.
I've got a I was going to drive you a little crazy here with.
Feedback right from the Street.
We did and I and I can see that in the last earnings call that we had and then some of the.
A little bit of more cautious behavior on the part of our small businesses they attended to.
Be a little bit more cautious about making a purchase they tended to think in terms of savings and value and spending less and are are good better best we definitely saw.
A little bit of movement tour people buying.
Good as opposed to the better of the best and we saw that in our data we saw that in the average new to sail that came in we saw that and caution to add or add ons people are saying well. Let me let me see if I can get along for a little while without it I'll I'll think about it later, so people were a little bit more cautious for sure.
Now here's the lightning bolt.
With the Wholesales leadership team last week talking about this topic.
They agree that we're seeing that lift we're seeing that began to change.
And the conversations is sort of seat of the pants feel.
Small business morale and expectations about.
The coming month and year look like are better now than they've been over the last nine months or so people are seeing the.
The.
The headlines in the so the end or nearing the end of the interest rate tightening cycle, they're seeing inflation backing off their supply chains have improved in some cases completely healed.
And the situation around labor for a small business is somewhat better than it was it's not perfect, but it's it's definitely better than it was.
And so.
Small you heard it here first the small business morale.
Meter of of our sales organization has definitely pick up more towards the green.
In the very.
Talking about it in the recent weeks literally.
And so I can't point to a lot of data that says that yet but.
That's definitely the case and I spent some time yesterday, just talking to customers I talked to US customers every week I met with half price Hot tubs yesterday.
Who has a business center, our main piece of software CRM and added a few months ago.
A marketing center and they are actively running campaigns on it there's a very very savvy business owner.
Actually I was meeting with the <unk>. His name is Jim got a tech.
<unk> background to achieve real.
The dashboard and so it's very intuitive.
Easy to use and.
Got direct feedback like he's not letting go of his marketing center. He thinks it's like a game changer for him.
So.
Talking to him he said business has been picking up.
I'm not gonna say, it's passed but it's definitely better definitely things are better for us and we're getting better feedback. So there is a little feedback from the street.
I I appreciate it very good detail I really appreciate that also.
Also follow up question just congrats on the the New command center offering it sounds like this can be a really nice kallis for the marketing center. So just as we think about your investment opportunities. How do you internally view the trade off between investing an additional centers in marketing existing centers relative to driving international expansion of potential M&A effort, just any color now.
I'd be pretty helpful.
Yes that is such a great question, because that's really the choices that are in front of us at this point.
And we have I think guided you guys and we are still on that page.
We're very far along and work on that center and are planning for sure. Another center next year. So.
I think that cadence is baked into.
Are spending or investing priority and I will tell you that we internally now for the last.
Probably about three years have prioritized investment and <unk>.
Engineering and product above all else like that those needs needs to be met that's the most important thing because we're playing with a three or four touchdown lead we're way in front of.
Anybody else serving small businesses.
Where are the gold standard brand, where the aspirational brand.
We have the lowest churn the highest clients satisfaction the broader set of service offerings. We are the platform for small businesses and we don't want to blow that by.
Being chintzy about our investment and innovation. If you look at the number of innovations that we've delivered for business Center forget about the new centers, but just improvements in business Center.
We radically overhaul the whole invoicing.
Technology that we provide and now it's up 70% year to date. So I mean, you know.
We keep making improvements around payments, we added a swipe or and a few other really important things that our customers are asking for and payments are up more than 50% year over year. So I mean, we're we're engineering and product first Guy that's really where we're focused.
So after that what's the next priority I think expanding as important to US I think we Wanna, we hired an international President we've been lifting weights and training in the gym working on GDP are doing all the stuff we need to.
Big push internationally and as you look at 2024, I think that's sort of the posted that were on our forehead. Let's go we're going to start pushing out into more geographies and going faster in that area is.
As far as big spend on marketing, we have a really skilled CMO Tammy cannizzaro and she is really good at.
All of the.
Sort of guerilla warfare, the surround sound of of marketing without spending huge amounts of money and shift on wonder so far for us in terms of.
Making all of that more efficient.
And she's only been with this year. So we expect big things from her and she's got experience and is and is prepared to to really soft and the beachhead internationally as we push out into more markets I think the success of Canada that we're having.
Falls a lot on the scale of that marketing team and what they have been able to generate.
Great I appreciate all the caller and thanks for taking my questions.
Thank you for the questions yet.
[laughter].
Okay next question comes from the Arena.
Some families security.
It's open.
Hi, Good morning, Thanks for taking my questions. Joe can you just talk about the SAS adjusted EBITDA improvement during the quarter.
What was really driving the decision to pull back on some of that marketing spend and see that efficiency really flow through and now that you have additional products offer how.
How does that change your approach due to some of your inbound marketing efforts as you go forward from here.
We've just added the.
The fourth funnel the.
The most efficient funnel.
And that's allowing.
Small businesses.
Discover our tool without any help from us download it and get real value from it like meaningful value from without ever talking to US no demo no no explanation no meeting no marketing no nothing.
They can then self upgraded and just write within the tool that can go ahead and upgrade themselves. We've had a couple of do it already just in the data that we're already seeing those sales slow and not sure if I was asleep or not like to check but.
Definitely coming in.
So.
We take this fourth funnel is.
The most important thing that we've done in the last four or five years, adding this fourth bottle and we think it opens up the marketplace to us in a really important way.
As far as delivering EBITDA.
Out of our SaaS business.
For better or worse, you guys know this you know all of our words.
We're SaaS company that actually carries a little bit of that.
And that has become a little bit more expensive lately and.
Paul Ralph's working with me very conservative he loves this cash.
And so there is a real drive toward efficiency in our organization and making sure that.
That everything we do is profitable and shifting our emphasis toward higher and higher margin activities.
And I think showed great promise I mean, how many companies do you follow that.
Have a 10 point swing.
EBITDA line, we're pretty we're pretty proud of that and we hope that you are impressed by it and.
And you can see the the profit making power of this business.
Understood and my one follow up question is really just around the dynamic for customer growth versus <unk> expansion.
Customer growth has really been kind of a stronger portion here in the first half of the year, but.
How do you anticipate that dynamic will really sort of normalize as we go over the next 12 to 18 months.
It's funny.
These things never.
Run perfectly in sync.
What I would anticipate is you're going to see <unk>.
Take the baton and jump back in front of a little bit going forward I think as.
As we begin to have multiple centers to sell people, we have more to sell now I mean, it was hard for our six figure, earning professional salesforce to really make a very big sale of our software before because we really just had one.
Yes, one software element and a handful of small add ons.
We now have the ability.
With what Ryan is incredible product team have created to go in and sell a pretty big suite of software to these customers and there's even more add ons to sell them. So.
You can actually make a bigger sale today. So it may not be instant it may not hit and one quarter, but when I think about like looking out over over 2024, I would expect that.
<unk> will catch a bit and start to really move now because we have something to sell.
Got it well thanks for taking my questions and best of luck with the rest of the quarter. Thank you very much.
C B S.
Or something.
Well. Thanks for that question I was hoping somebody would ask some detailed questions that Ryan cancer or head of products with us I am going to ask Ryan to sort of tease out what's different between the free version and what you get when you start to upgrade Ryan.
Sure. Thanks, Daniel or premium version is fully functional and a free forever plan. The main limitations between the premium and paid plan starts with the number of channels you can connect so our current free offering available on line allows you to connect up to three channels, if someone could activate a phone.
<unk> as one channel at Gmail at the second channel and even AD video for video calls and video meetings as a third channel, but if they want to add that for China could be E. Mails, Facebook Instagram that would prompt them to upgrade to one of the paid plan So channel count as one primary.
Limitation on our team chat capabilities inside command center, we focus on message retention.
So 30 days retention is included so for real time collaboration with your team members.
Going on right now in this period no problem teen chats, a great collaboration tool. If you want to unlock historical messages you would need to upgrade to one of the prepaid plan.
And lastly, we include an allotment of minutes currently we provide 60 minutes voice.
Voice and video calling for a month.
Important to note that someone does have the capability of buying additional minutes without having to upgrade their plan. Our pricing study suggested that minutes alone we're going to be a catalyst.
For people to upgrade to a pay plan with that becomes another revenue opportunity for us as well and again, we think from a premium perspective that single largest fleet that we're focusing on the premium is getting someone from free to paid using a variety of low friction methods to do that hopefully that answer your question data within a couple of different avenues inside of commands.
That will drive them to upgrade.
No that's helpful. As we said hopefully.
See that in action Tomorrow.
The the other for me is obviously the longer term guide that you laid out the analysts investor date looking back in positive meaningful inflection.
Higher and growth is fiscal 24 with the rollout of command Center in marketing Center is that where you expect to see that inflection point from teens twenties to something much more meaningful.
Yes.
Like just yes like that you got it exactly right.
We spent a lot of time with you I know you understand the story.
This is the moment, where drive up shifts into a higher gear, where we're not selling in one country. One product were selling in many countries many products and so it gives us both real scope to grow our food that gives us real scope scope to grow net dollar attention now that we have something else to sell.
And it gives us a very sharp point on the spear with this very broad application of the Freemium Command center, which lets us meet tens of thousands of new businesses, who are interested in modernizing but not necessarily ready to dive in for full business transformation, they're not out looking for a CRM. They are just trying to kind of.
Their way along and.
We will reach for a pretty high piece of fruit on the tree when we were going after.
Selling the CRM as the first sale, we now have got a lower lower hanging fruit. We can go get which we think will really broaden the funnel people coming in so.
Resoundingly, yes, we see ourselves as a rule of 40 company, we see our growth which for this year is circa 20%, we see that really meaningfully reaccelerating into higher levels. As we go forward and we see us continuing to run the business as a positive EBITDA business. So you start doing the.
Math on that and you can easily see how you can.
Get to rule of 40 or in into that zone.
And we don't think that that's years away, we think that's 24.
As this stuff beds down and gets Goin'.
Alright look forward to.
Seen it in detail small thanks again.
Okay. Thank you.
<unk> concludes today's contents.
Thank you for telling me.
Disconnect.
Okay.