Q2 2024 Thryv Holdings Inc Earnings Call

August 1, 2024

Our tiny 24 earnings call all lines have been placed on 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 press star one followed by the number one on your telephone keypad. If you would like to withdraw your question.

Joe Walsh: I want to be clear, I think the biggest impact was when they came in because the way our billing works is sort of a prorated credit thing, and some of them made the move over very late in the quarter, even late in the month and the final quarter. So we only picked up partial billing, so I think you're going to see it correct right away. It's really a bit of anomalous there, it isn't like we threw in some gigantic discount. We are stepping customers over to make it easy for them, and honestly, that's going to give us scope for rate later. We will migrate them to the full rack rate over time, and that'll give us a little bit of a rate lift when we look ahead to the year ahead. But yeah, to answer your question as far as the go forward, we have other specific playbooks that we're running against the marketing services base where we're taking people that aren't exactly at the rate of the unit they're going over to and offering them to make the move over without a big bucket of cold water in the safe price up initially to get them on, get them in the new platform, get them enjoying the benefits, and then we begin to grow them from there. So yes, there'll be more of it to answer your question, your point and question, I'll conduct that, there'll be more of this type of thing as we keep going. We've got a very big kind of zoo base that we're hunting in, and we're finding all the sudden with marketing center much, much higher level of interest to make the migration over. And I also want to point out and please don't lose sight of this, that this decade of small business ass is another year or two further along, and it's much more obvious to people that they should be making this move now than it was even two or three years ago.

[music].

Press Star one again, thank you.

I would now like to turn the conference over to Cameron and Lazard head of IR you may begin.

Cameron: Thank you operator, Hello, and good day to everyone and welcome to thrive second quarter 2020.

Speaker Change: <unk> conference call on the call today are Joe Walsh, Chairman, and Chief Executive Officer, and Paul Ralph Chief Financial Officer, a copy of our earnings press release and Investor presentation can be found on our website at thrive dot com or in the investors section at Investor death, Ryan Dot Com.

Speaker Change: We've acknowledged comments made on today's call and responses to your questions may contain forward looking statements about 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.

Joe Walsh: Thrive has no obligation to update the information presented on this conference call with that introduction I will now turn the call over to chairman and CEO Joe Walsh.

Good morning, Cameron and thank you all for joining us on the call today to discuss our second quarter results.

Speaker Change: <unk> revenue grew by 25% year over year to $77.8 million and within our guidance range.

Speaker Change: That adjusted gross margin increased 460 basis points year over year to $69.

Speaker Change: 7%.

Speaker Change: That EBITDA outperformed significantly growing over 60% year over year to $10 million and ending the quarter with a 13, 1% adjusted EBITDA margin at the highest point, we've reached as a public company I will let Paul I'll get more into the numbers for now I want to dive into some <unk>.

Paul Ralph: Exciting metrics and updates about the business.

Paul Ralph: Once again, we delivered excellent subscriber growth, we were up 52% ending at 85000 clients as we continue to be successful in upgrading our marketing services clients to our SaaS platform <unk>.

Unknown Attendee: Very helpful, thanks for taking the questions. Thanks, guys.

Daniel Moore: Your next question comes from the line of Daniel Moore from CGS Securities. Please go ahead. Thank you, Morning, Joe. Morning, Paul.

Paul Ralph: This milestone is driven by our strategic transition of legacy marketing services clients to our innovative SaaS platform.

Joe Walsh: Joe, you touched on a few of these in the prepared remarks, but can you elaborate on some of the examples of AI that you've implemented and maybe some of those you're developing? And are those tools more critical as a selling tool or retention tool from your perspective? Those are great questions. So what we've done is we are trying to make it look, our base are sort of the dirty fingernails people. We're out there doing roofing, plumbing, electrical work; we're doing body work on your car. We do have dentists and chiropractors; hopefully, their fingers are clean, but we have a lot of service-based businesses, and they're busy doing that stuff.

Paul Ralph: A key factor in the success is our recently launched marketing center, which.

Paul Ralph: Which empowers businesses to efficiently manage advertising campaigns enhance their online presence and making insightful data driven decisions.

Paul Ralph: This tool is not just a product it's a game changer that positions our clients for sustained success.

Paul Ralph: And a digital first world.

Paul Ralph: Our center strategy is continuing to gain traction with more than 10% of our current clients, having two or more paid centers.

Speaker Change: This is up 200 basis points sequentially and a significant increase of 800 basis points from this time last year.

Joe Walsh: And it's a lot of times when they're presented with a blank page to figure out how to write content about their services or about their products, they just get stumped. They're unable to really move forward. And so one of the simplest things that we're doing is using AI to help them develop content for their landing pages and for their promotional offers and for product descriptions. And importantly for their social posts, which in today's day and age is almost table stakes if you're running a small business. You've got to be actively posting. So we've got our pro editor and some other services that will really guide them and aid them in that.

Speaker Change: This means more clients are experiencing the tangible benefits of our marketing center in growing their business.

Our local sales channel and consistent referrals are effectively demonstrating the value we deliver.

Speaker Change: Turning to our product initiatives, we remain focused on enhancing our thrive AI capabilities to further empower.

Small businesses building on the efficiency and time savings already realized by our clients.

Speaker Change: Our AI enabled customer support now accessible across all centers is designed to assist users by answering their questions and guiding them through our software functionality.

Joe Walsh: They're not looking at a blank page. They're looking at something that's sort of pre-built and formatted. They can go through and edit and improve it, but that's just a lot easier thing to do. So that's been kind of a killer app, and we're finding that people get excited about that at the time of sale. So it is a sales aid, but furthermore, customers that bought long ago when we didn't have that. As we introduce it to them, their level of kind of NPS score or satisfaction with us has risen, and their engagement on the platform has improved. I think they're getting more benefits from it, even though they might have bought two years before we put that in.

Speaker Change: In addition, our social media feature in business center generates engaging social posts captions complete with relevant hashtags and emojis.

Speaker Change: Not only makes the post more relatable and engaging but also boost their marketing signal by increasing visibility and fostering a deeper emotional connection with potential customers.

Speaker Change: We are actively developing and testing several new AI enhancements and are enthusiastic about their potential.

Speaker Change: More on that at a later date.

Speaker Change: With that I'm going to turn it over to our CFO, Paul Ralph to discuss this quarter's numbers.

Joe Walsh: So what we like to say is your thrive just got better, and so that's been a really good thing for us.

Paul Ralph: Thanks, Joe Alright.

Paul Ralph: <unk> into our results beginning with the SaaS SaaS.

Paul Rouse: It's helpful just a quick housekeeping. I assume that the tweaking guide slightly higher profitability and fast slightly lower marketing services that simply a function of your concerted push to convert more customers, or is there anything else going on there? I think that's a big piece of it. I think the margin lift is largely coming from when I described earlier, and that's when you, when you sell a new customer, you have all this cack that comes with it. But when you just add an additional center to a standing account, it just has great leverage, and you're seeing that we're seeing, I mean, month over month over month, really brisk uptake now.

Paul Ralph: SaaS revenue was $77 8 million in the second quarter and within our guidance range.

Paul Ralph: Representing an increase of 25% year over year and up 5% sequentially.

Paul Ralph: SaaS adjusted gross margin increased 460 basis points year over year, and 130 basis points quarter over quarter to 69, 7%.

Speaker Change: We're pleased with the positive impact from the sale of our higher margin SaaS products.

Speaker Change: This progress further strengthens our expectation of exiting the year with SaaS adjusted gross margin exceeding 70%.

Joe Walsh: I think the story you guys going to be writing about a lot in 25 is, you know, this platform strategy is really playing out here and that it's giving them real gross margin lift, real profitability lift. And you know, I've said all along we're driving hard to be a rule of 40 company and you know, I think we can get it strongly from the EBITDA line. We can get a lot there. I think we can run this thing really properly. It's already fully scaled; it's a pretty, pretty big company. Our SaaS business has been profitable for many, many quarters, and that's really beginning to lift now as we add new centers. We've got another center coming out before the end of the year, so it'll be even more product to sell going in the next year.

Speaker Change: First quarter SaaS, adjusted EBITDA was $10 2 million above our guidance and resulting in a SaaS adjusted EBITA margin of 13, 1%.

Speaker Change: Our SaaS adjusted EBITDA was favorable primarily due to the restructuring of our company wide Commission plan that we spoke of previously this year, we streamlined our sales process to prioritize and incentivize the sale of high margin products, while also enhancing.

Joseph A. Walsh: By increasing visibility and fostering a deeper emotional connection with potential customers. With that said, I'm going to turn it over to our CFO, Paul Rouse, to discuss this quarter's numbers.

Ability and fostering a deeper emotional connection with potential customers.

Speaker Change: We are actively developing and testing several new AI enhancements and are enthusiastic about their potential so more on that at a later date.

<unk> to boost spending from our existing customer base.

Joe Walsh: stole my last question, which is just an update on the timing of, you know, potential rollout of the next new center and whether there's likely to be a freemium option for that at least early on as well. thanks again for the color. Yeah, I don't have details to reveal today as far as the exact timing. What we've guided is that we get it out before the end of the year, and I can confirm that that's definitely going to happen. And to your second question, you know we're slowly learning about this freemium thing and how to do it. We are planning to allow customers to benefit a bit from this new offering on a sort of free included, you know, get some benefit from it basis, try before you buy, all that kind of stuff. So there is a plan to do that where it won't just be you have to buy to get some benefit from it.

Speaker Change: SaaS subscribers grew to approximately 85000 at.

Speaker Change: With that I'm going to turn it over to our CFO, Paul Ralph to discuss this quarter's numbers.

Speaker Change: At the end of the second quarter compared to 70000 at the end of the first quarter. This was an increase of 21% sequentially and 52% year over year. As a result of the continued migration of marketing services clients to our SaaS platform SaaS.

Paul D. Rouse: Thanks Joe. All right, let's dive into our results, beginning with Zach.

Paul Ralph: Thanks, Joe Alright lets dive into our results beginning with the SaaS.

Zach: SAS revenue was $77.8 million in the second quarter and within our guidance range. Our staff suggested EBITDA was favorable primarily due to the restructuring of our company-wide commission plan that we spoke of earlier this year. We streamlined our sales process to prioritize and incentivize the sale of high-margin products while also enhancing efforts to boost spending from our existing customer base.

Paul Ralph: SaaS revenue was $77 8 million in the second quarter and within our guidance range, representing an increase of 25% year over year and up 5% sequentially.

Speaker Change: <unk> decreased to $333 due to promotional pricing discounts and the timing of billing for many customers who were on boarded in the last month of the quarter. As a result, we received only a prorated portion of their billing, which negatively impacted our <unk> for the quarter. However.

Speaker Change: SaaS adjusted gross margin increased 460 basis points year over year, and 130 basis points quarter over quarter to 69, 7%.

Speaker Change: We expect <unk> to recover in the second half of the year as these customers are billed for the full period and we continue to upsell additional centers to existing clients and exploration of promotional pricing.

Paul Ralph: We're pleased with the positive impact from the sale of our higher margin SaaS products.

Joe Walsh: And we're learning that when you deliver value to a customer before you have to, they have to give you any money, it just starts things off on a nice foot, so we're kind of excited about the way that will unfold.

Speaker Change: Second quarter seasons, net dollar retention was 94% an increase of 500 basis points year over year.

Speaker Change: Moving over to marketing services second quarter revenue was $146 3 million and above guidance, primarily due to the strength of digital revenue above expectations.

Unknown Attendee: All right, thanks again. Thank you.

Rob Oliver: Your next question comes from the line of Rob Oliver. From there, please go ahead. Great, thanks. Good morning, Joe. Yeah, the center strategy appears to be playing out nicely for you guys. I was wondering if we can get an update on command center, and also, as you think about sort of the cadence of center rollouts over the next, you know, couple of years, how should we think about that? I mean, I know you spent a lot of time with customers here.

Speaker Change: Second quarter marketing services, adjusted EBITDA was $49 1 million, resulting in an adjusted EBITDA margin of 34%.

Speaker Change: Second quarter marketing services billings.

Speaker Change: It was $125 5 million.

Speaker Change: Representing a decline of 28% year over year, our marketing services billings were impacted by the ongoing success in transitioning our marketing services clients to our SaaS platform.

Joe Walsh: Pretty tuned with the opportunity, there must be certain things within the platform that are percolating up that have your folks excited. So how should we think about the cadence of, you know, incremental center rollouts? And then I had to follow up to work Paul into the conversation here. Yeah, so I see. The biggest thing I would add is that we do have some really strong demands for the market from our customers to do more stuff. Now some of that they can achieve on our app store, our marketplace, and connect up with other things, but we have designs on filling some more of their needs, and we've been working for a couple of years in the back office on those.

Speaker Change: Second quarter consolidated adjusted gross margin was 69% an increase of 220 basis points year over year second quarter consolidated adjusted EBITDA was $59 3 million, representing an adjusted EBITDA margin of 26%.

Speaker Change: Finally, our net debt position was $339 million at the end of the second quarter.

Speaker Change: Our leverage ratio was 196 times net debt to EBITDA.

Joe Walsh: And as I mentioned, one is done and about to be revealed, and another is really far along and about to come. So we're still pretty comfortable with that centering year guidance that we've given. The one thing I want to hasten to add is that these opportunities or these problems that we're solving are not all the same size. So every one of them isn't going to have the exact same pricing as Business Center did or whatever. I mean they're going to be bigger one than smaller one. There's going to be some that are really kind of game-changing and some that are smaller as we go along.

Speaker Change: Which is well below our covenant of three times.

Speaker Change: Now, let's discuss guidance for the third quarter.

Speaker Change: For the third quarter, we expect SaaS revenue in the range of $82 million to $84 million. We are reiterating our full year guidance range of 326 million to $329 million.

Speaker Change: For the third quarter, we expect SaaS adjusted EBITDA in the range of 9 million to $10 million.

Paul D. Rouse: Moving over to marketing services, second quarter revenue was $146.3 million and was above guidance, primarily due to the strength of digital revenue above expectations. Second quarter consolidated adjusted gross margin was 69%, an increase of 220 basis points year over year. The second quarter consolidated adjusted EBITDA was 59.3 million, representing an adjusted EBITDA margin of 26%. Now, let's discuss guidance for the third quarter. For the third quarter, we expect SAS-adjusted EBITDA in the range of $9 million to $10 million. And we are increasing our four-year guidance range to $30 million to $32 million.

Speaker Change: And we are increasing our full year guidance range to 30 million to $32 million.

Joe Walsh: It's just as we keep building out the platform. We can't make them all exactly bricks that are the same size.

Speaker Change: For the third quarter, we expect marketing services revenue in the range of 94 million to $97 million.

Joe Walsh: So I would underscore that you asked about Command Center, which was the center that we got out late last year, and I would describe that first one that we got out as V1. And we're working like crazy, iterating that into the V2, V3, and improving it. We've had good interest in it, but like a lot of brand new software products, especially cutting edge things, and it's very cutting edge what we've tried to do there. There were a couple of sharp edges that we've run into that we're working our way through. So it's developing, we've got lots of signups, lots of people using it, but it's not currently as good as I want it to be or we're developing as fast as I want it to, and our product team are working really hard and engineering team are working really hard on some refinements and some perfection. Now that we've been in the market with it for a while, customers have really given us direct feedback about it.

Speaker Change: And for the full year.

Speaker Change: Range has adjusted to 485 million to $492 million for the full year, we expect marketing services adjusted EBITDA to be in the range of $128 million to $131 million.

Speaker Change: As a helpful Guide you can model EBITDA margins to be in the mid teens in the second half of the year.

Speaker Change: Now I'll turn the call back over to Joe.

Joe Walsh: Thanks, Paul.

Joe Walsh: You will have noticed that our <unk> was down a little bit this quarter I wanted to just mention that that's a part of a choppy metrics, we see as we're transitioning this business from one business to another.

Joe Walsh: Some things happen in clumps. So you can't always draw a perfect straight line on these things.

Joe Walsh: But we have a defined process for.

Speaker Change: We're growing these customers, where they're getting tech touch theyre getting automated follow ups, they're getting sales contacts and we are in fact seeing our seasoned customers.

Joe Walsh: So I expect that if you go back and you look at Marketing Center, it didn't take off like a rocket when we first rolled it out either. It's now our number one selling product. It took us a minute to kind of get it dialed in, the product itself and to get our way of marketing and selling it dialed in. We're sort of in the same phase right now with Command Center, but I just want to remind you that what Command Center will do as it's perfected in V2 and V3, and we look ahead to 25 and 26.

Speaker Change: So in the mid teens and that's happening because they are using the product and with usage comes more see buying more signature packs more add on.

Speaker Change: By upgrading to higher levels of software. So they can access more of the AI element. So we are seeing.

Speaker Change: Teddy conveyor belt of growth once our customers get in an embedded down and we haven't defined kind of automated process, it's working and it's not happening by chance. So.

Joe Walsh: It will be out in front as kind of a wedge product, collecting new customers.

Speaker Change: Please don't worry about <unk>, we've guided was going to go from about 4000, a year ago about 7000 a year.

Joe Walsh: You'll be building a new zoo. It goes out into the world and it offers you an experience with Thrive that lets you not pay anything, try it, play with it, work with it and have Thrive in your life, Thrive brands, Thrive product and after you see the benefits you can get from it I think there's a conversation that we can have. So I'm sometimes asked what happens when your zoo runs out? You guys are going to someday run out of your zoo if I project out how fast you're going through it. In 2031, you'll run out of zoo animals to go bring in.

Speaker Change: Thats still in place, we're still tracking with that sort of result, even as the number bounces around a little bit and I think even this year, you'll see it begin to trend back up. So also a part of the reason that we're able to upsell customers as we have more products to sell that we've been we've been building and improving the products, adding more impact and you can expect as we finish.

Speaker Change: This year going into next year, and we're adding more products, so there'll be even more product to sell as we move forward.

Speaker Change: Another question, we're often asked us.

Speaker Change: Might we do any M&A.

Joe Walsh: Well, we're building that new zoo through Command Center. So it is a long-term plan; it's not something that has to happen this quarter. We're looking more in the fullness of time. And if you look at around the industry at other, you know, PLG plays, a lot of them did take a couple of years to dial before they just took off, and we're in that mode here. And, as was asked in an earlier question, we're thinking more about sort of PLG elements, even as we develop new centers going forward. So being thoughtful about using product as a marketing tool, I guess to bring us product qualified leads as we move along.

Speaker Change: Frankly with our prior.

Speaker Change: That structure, we were really constrained in the new one does begin to breed some flexibility into our world as time goes by and we believe that M&A is at least now doable.

Speaker Change: <unk> been able to begin to look at some things that could add some interest going forward.

Speaker Change: So just to wind up here, we had a really strong start to the year and we are on track for our SaaS revenue account for over 40% of our consolidated revenues in 2024 and as I've said previously as we look forward to 'twenty five it will be more than 50% and so during 'twenty five we'll actually are.

Rob Oliver: To that answer your question. Yeah, that's a great color. Thanks, Joe. I appreciate that.

Speaker Change: SaaS business will be bigger than our marketing services business. So we're pretty excited about getting to that milestone.

Paul Rouse: Paul, a question for you just, you know, to go back to the ARPOO topic.

Paul Rouse: I know Joe told us not to worry about it, but I guess our job in part is to worry a little bit. So, you know, you did mention that you expected ARPOO would be better in the second half. It's been down four quarters in a row when it kind of accelerated down this quarter. You do have some, I think some easier comps coming, but just wanted to get a sense for what gives you the confidence that we should see that ARPOO start the head back up.

Speaker Change: With that I'll turn it over to the operator for questions.

Speaker Change: Thank you the floor is now open for questions. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Paul Rouse: Thank you. Yeah, this is a number of things like, like Joe mentioned, a lot of the drive, you're working to move these customers over a meter, I change in our commission plan to drive the number of center sales. And you see the effect here with the number of ads we've had. And, you know, like it always, everything comes in the last month of the quarter for bonuses. So there was a big push to bring those clients in; a large majority of them came in partially in the year in June and so on. So, naturally, as you get a full month of billing coming out in July, August, September, she makes the ads, ARPOO is going to naturally rise.

Speaker Change: Were called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question. We do request for today's session that you. Please limit to one question and one follow up. Thank you we will pause for just a moment to compile the.

Speaker Change: Q&A roster.

Speaker Change: Your first question comes from the line of arguing with tier.

Paul D. Rouse: Another question we're often asked is, you know, might we do any M&A? And frankly, with our prior debt structure, we were really constrained.

Speaker Change: With William Blair. Please go ahead.

Speaker Change: Perfect.

Paul D. Rouse: The new one does begin to breathe some flexibility into our world as time goes by, and we believe that M&A is at least now doable. And, you know, we've been able to begin to look at some things. So that could add some interest going forward.

Argun Tuter: Thank you and very nice to see the accelerated transition.

Paul Rouse: So, we are confident that this was, this is a temporary thing. Would be start heading north on our proves you move out into the second half of the year. So, yeah, I wouldn't be concerned about that. That's going to be coming back.

Argun Tuter: For marketing services.

Speaker Change: One thing to start out with Joe I think usually when I look at your SaaS performance in any given quarter, if you could comment.

Unknown Attendee: Great.

Speaker Change: Above the midpoint of your guidance range I think we were slightly below this quarter was there anything outside of our two dynamics and the transition.

Unknown Attendee: Thanks, guys. I appreciate it.

Unknown Attendee: Thank you.

Unknown Attendee: Your last question comes from the line of that comments from the Riley Securities. Please go ahead.

Speaker Change: Prior to this quarter in terms of the SaaS performance.

Unknown Attendee: Hi, good morning, Joe.

Paul Rouse: Paul, thanks for taking my questions. Joe, I just really had a question around the potential leverage we could see in the sat segment. I mean, nice to see the adjusted even a guidance raised there for this year, but how are you thinking about that potential leverages as you exit this year and going to 2025. It seems like we're potentially getting to an inflection point where adjusted, even on a consolidated basis, could be maybe remaining steady or potentially moving up from these 24 levels. Oh, that's such a good question because I mean, look, you're a student of the industry, and so am I.

Joe Walsh: Well look I mean, these metrics are always little noisy as we work our way through.

Speaker Change: <unk> five will actually our SaaS business will be bigger than our marketing services business. So we're pretty excited about getting to that milestone.

Speaker Change: You've asked me and others have asked whats the environment like.

Speaker Change: We've said, we broadly sell to a different customer or customers are the folks in the world that do the.

Paul Ralph: With that I'll turn it over to the operator for questions.

Speaker Change: The nasty things in life, the things that the guys at fixed broken things and not a lot of optional things, but they are certainly feeling the challenging environment and we are seeing.

Speaker Change: Good strong sales volume because we are riding the unstoppable wave of small business adoption.

Joe Walsh: If you look at some of these other companies that have platform strategies where they've added that. Second product, third product, fourth product, you really start to see, you know, an overall margin list that come through, and we're seeing that now come through in our SaaS business. And as we look at our own internal models, we look at the fast growth of EBITDA out of SaaS, replacing the melting iceberg EBITDA that's coming out of marketing services. I don't think I'm allowed to give really finite guidance right now. I don't think that's what you were asking for.

Speaker Change: When presented with the choice of good better best.

Speaker Change: They are opting for the lower priced.

Speaker Change: Options.

Speaker Change: As far as I'm concerned, we're getting them on our platform, we're adding subs we're moving forward.

Speaker Change: <unk>.

Speaker Change: And we have a system to grow those customers.

Speaker Change: Sort of a defined process that they go through and for season customers, we see double digit.

Operator: Your first question comes from the line of Arjun Bhatia. With William Blair, please go ahead.

Speaker Change: <unk> growth from those guys that we see them really moving forward. So.

Joe Walsh: You just wanted to kind of talk about it for a minute. I think at a high level. But yes, the way we're thinking about it is that the growth of EBITDA coming out of the SaaS business will form a replacement for the gradual decline of the melting iceberg part coming out of marketing services. So we're sort of reaching that nadir in the process now. And, you know, again, I don't think I'm authorized to step in front of Paul and give EBITDA guidance specifically, but directionally, you got it exactly right. We're at that moment now. The other moment that we're at is the, you know, as we just another, I mean, number weeks here, you know, we finished this year at 40%, and as we go into next year, you know, we'll cross over and the SaaS business at the revenue line will be our largest source of revenue.

Speaker Change: I think you.

Speaker Change: You would ask the others had asked me what's the climate it.

Speaker Change: It's not fantastic.

Speaker Change: But we also I want to hasten to add we are not.

Speaker Change: We're not selling to the new startups, the new businesses, we don't we don't sell.

Speaker Change: Honestly, we don't want them.

Speaker Change: We're looking for businesses that are more established either from our base or referrals out of our base that have been around for a while so anyway I think I think Arjun, it's not a frothy environment, where people are just going yes give me the big one.

Joseph A. Walsh: Well, look, these metrics are always a little noisy as we work our way through them. You know, you've asked me, and others have asked me, what's the environment like? You know, we've said we broadly sell to a different customer. Our customers are the folks in the world that do the nasty things in life, the guys that fix broken things and not a lot of optional things, but they are certainly feeling the challenging environment, and we're seeing good, strong sales volume because we're riding this unstoppable wave of small business adoption.

Speaker Change: They're they're kind of moving moving a little bit more cautiously.

Speaker Change: But as you can see we are still making steady progress, adding new subscribers and this trend is still playing out.

Speaker Change: Alright, Yes, certainly makes sense I appreciate that and then.

Speaker Change: One.

Speaker Change: As these customers do migrate over and you see this this kind of acceleration.

Joe Walsh: It'll be our majority business. And, you know, we're looking forward to hopefully being bumped up against the metrics of, you know, other excellent SaaS companies out there and sort of joining the SaaS league tables. And we think we show up with some pretty, pretty kick-ass metrics. You know, we've mentioned before; we believe our net dollar retention, which is in the mid-90s now, will rise to 100. And we think that doesn't stop that far away at the rate we're selling additional centers now. We think that's coming, coming now in the medium term. And so, that sort of hole in the boat from a metrics standpoint will be gone.

Speaker Change: The number is.

Speaker Change: <unk> clients.

Speaker Change: Have I also have a lot of them are coming into marketing patterns as you pointed out but when you think about when.

Joseph A. Walsh: But when presented with the choice of good, better, best, they're opting for the lower priced options, which, you know, as far as I'm concerned, we're getting them on our platform, we're adding subscribers, we're moving forward, and we have a system to grow those customers. Honestly, we don't want them. We're looking for businesses that are more established, either from our base or referrals out of our base that have been around for a while.

Speaker Change: To get to that one year, Mark and are growing 15%.

Speaker Change: When you're targeting that expansion is it do you want them to grow.

Speaker Change: Their usage of marketing center and expand within a particular product do you want them to cross sell into business on our own.

Speaker Change: What is your what are your expansion priorities as you kind of.

Speaker Change: Grow this this big influx of customers what you are seeing MSR side.

Joe Walsh: Our gross margins are strong and rising now, so that's the nick is sort of gone. So, you know, where I think we're a really strong Rule of 40 type company. And when we eventually do join those SaaS league tables, I think, you know, we'll stand in pretty good stead. We're looking forward to standing on that stage and posing. Got it. That's very helpful.

Speaker Change: Yes, I think the.

Speaker Change: The Mac Daddy Homerun best thing that can happen as they add another center.

Speaker Change: That comes with a lot of margin and a lot of additional engagement with the company. So adding another centers the homerun, but theres lots of little singles before the homerun.

Paul Rouse: And then one final question maybe near towards Paul is, how should we be thinking about pre-cashable generation, what would new debt facility and just given the accelerated conversion activity that we're seeing within marketing services. Yeah, I guess the overall theme, I just want to say is if there's any concern about us meeting our amortization, don't be concerned; we're going to do that. So, and that's where we're focused on. You know, we took down the mandatory amortization pretty significantly from where it was previously. So, we feel very confident and free cash flow to manage that amortization.

Speaker Change: Where maybe they begin to use our signatures.

Speaker Change: Maybe they begin to use our team chat maybe that they get and they start getting involved with other things so.

Joseph A. Walsh: So anyway, I think, Arjun, it's not a frothy environment where people are just going, yeah, give me the big one. You know, they're kind of moving a little bit more cautiously. But as you can see, we're still making steady progress, adding new subscribers, and this trend is still playing out.

Speaker Change: <unk>.

Speaker Change: The center is the big one and as I think we pointed out in the information here we are.

Speaker Change: Seeing really strong month over month over month over month uptake of additional centers and I know you understand this really well.

Speaker Change: Cost of acquiring that customer for the first time in getting them setup.

Speaker Change: As you guys call it cap right Theres, a big CAC to get them set up but as time goes by new add additional centers Theres real operating leverage that comes from that and that's that's the page that we're now getting on we've got another center coming later this year and as we look at next year customers.

Joe Walsh: But as Joe mentioned earlier, you know, with the additional flexibility, we might be able to do other things with the cash flow above that. So, but I just want to let any fears about the amortization, we're going to meet that and we know issue and we're still trying to figure out what we, if there's better place, we can put our money in the future with the pre cash flow. So I guess I'll leave it there. Understood. That's helpful. Well, thanks again for taking my questions, and that's a lot with the rest of the quarter. Thank you very much.

Speaker Change: Customers not just on a single center, but on two or three in some cases.

Speaker Change: That's where things really start to ramp for us and I know you've followed other companies in this space that a platform strategies that have added other centers or other hubs or whatever and seen the way each of those cohorts lights off another sort.

Unknown Attendee: [inaudible] Unknown Attendee, Zachary Cummins, Cameron Lessard, Ryan Cantor, Grant Freeman, Thryv

Speaker Change: So the lift of growth in lift of margin.

Speaker Change: Okay perfect Alright very helpful. Thank you.

RJ: Thank you RJ.

Speaker Change: Your next question comes from the line of Scott Berg from Needham <unk> Company. Please go ahead.

Joe Walsh: Yeah, just I guess just to wrap up, you know, we were talking there just a minute ago about cash, and the company has always thrown off a lot of cash. All of that cash kind of went to debt repayment in the past. And now, with the new credit facility, we have, over time, we will begin to develop some flexibility. You know, we no longer have 100% cash. We have some flexibility built in, and we're enthused about what we'll be able to do with that. Our first priority is always, obviously, product and engineering, making sure we have the best software, making sure it's developed quickly, making sure it's interoperable, works well with other software in the market to make it easy for our customers to adopt.

Unknown Attendee: because that comes with a lot of margin and a lot of additional engagement with the company. So adding another center is the home run. But there are lots of little singles before the home run, where maybe they begin to use our signatures, and maybe they begin to use our team chat, and maybe they start getting involved with other things.

Scott Berg: Hi, everyone nice quarter, thanks for taking my questions here.

Speaker Change: I guess I got a couple starting on the customer acquisition through the SaaS additions in the quarter. Obviously, it was a really large jump quarter over quarter.

Speaker Change: I think we probably all assume then Joe you commented on most of them are.

Speaker Change: Our board is marketing center customers, but did you see customers come aboard maybe more.

Speaker Change: Any of the other centers as well or is it really all just kind of marketing center debit.

Joe Walsh: Marketing centers has eclipsed business center as our fastest growing product its not the biggest product because there's a center has been around for a long time, but sales coming in.

Joe Walsh: Per day week over week, we're seeing marketing center just roll in.

Joe Walsh: And we've got always really specific conversations going with our engaged customers about, you know, what they'd like next, you know, where they might have any sharp edges or pain points, and the product that we're improving. So that's always first priority. We obviously have a super low share price. So, you know, we buying shares is another opportunity. We're beginning to see the bid-ask out in the marketplace for some of these SaaS companies that we might tuck in. They're beginning to modulate a little bit, so there's some opportunities there. So I think, you know, the fact that we've come this far really with one hand tied behind our back virtually, virtually no cash flexibility, and we will have some going forward.

Joe Walsh: I think I've described this in the past, but it's a much smaller leap from buying marketing and advertising services from the legacy company over the last century.

Joe Walsh: To buying <unk>.

Joe Walsh: Grow your business tool a marketing.

Joe Walsh: Services tool a marketing center tool.

Speaker Change: That jump, it's pretty small we're asking them to.

Speaker Change: Actually incorporate a big change to their business.

Joe Walsh: Go onto with CRM then.

Joe Walsh: Begin to embrace all the functions that were in business Center.

Joe Walsh: We've kiddingly internally said Thats, why I kind of asking to meet the broccoli. It's good for them. It will it will make our business better.

Speaker Change: It's off another.

Speaker Change: So the lift of growth and lifted margin.

Paul Ralph: Okay perfect very helpful. Thanks, Joe.

Joe Walsh: Marketing centers French Fry, maybe it makes the phone rang a kitchen more business.

Joe Walsh: You guys should think about that because I think it does, you know, give us an added kick going forward. And we feel like we're really well positioned on this unstoppable trend, unstoppable mega trend really, of small businesses moving to the cloud. And you know, 25% SaaS growth and 50% subs growth are our numbers that we're really proud of. And we think there's more, more good numbers ahead. So, with a crossover point coming up, you know, we think it's time for people to take a look at the right.

RJ: Thank you RJ.

Joe Walsh: And so.

Speaker Change: Your next question comes from the line of Scott Berg from Needham and company. Please go ahead.

Theres just been a lot of enthusiasm and energy around.

Speaker Change: Marketing Center.

Speaker Change: It's really that.

Speaker Change: The heartland at the moment.

Scott Berg: Hi, everyone nice quarter, thanks for taking my questions here.

Speaker Change: Fair enough good thing I'd like to know broadly I guess.

Scott Berg: I guess I got a couple starting on the customer acquisitions through the SaaS additions in the quarter. Obviously, it was a really large jump quarter over quarter I think we probably all assume minutes. Joe you commented on most of them are coming aboard as marketing center customers, but did you see customers came aboard maybe more than any of the.

Speaker Change: Oh cool nobody's fit.

Speaker Change: Yeah.

Speaker Change: Certainly not.

Speaker Change: And that's the case, but.

Speaker Change: Excellent I guess in the Q.

Speaker Change: Kind of follow up on the SaaS additions in the quarter on Europe.

Operator: Thanks, everyone.

Operator: So, ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Speaker Change: Joe you gave a lot of value.

A lot of color around the monthly <unk> number.

Speaker Change: Their centers as well or is it really all just kind of marketing center debit.

Speaker Change: And in this environment can certainly understand promotional pricing to get customers on board. How do we think about that trending is that a 90 day price.

Speaker Change: 60 day, maybe 180 day price, how do you expect that to that pricing trend to those customers over the year and then do you expect to run similar promotional opportunities through the end of the year.

Speaker Change: Yeah.

Speaker Change: I want to be clear I think the biggest impact was when they came in.

Speaker Change: Because the way our billing works is it's sort of a prorated credit thing.

Unknown Attendee: Services tool, a marketing center tool, that jump is pretty small. We're asking them to, you know, actually make a big change in their business and, you know, go on to a CRM and, you know, begin to embrace all the functions that were in Business Center. We've kiddingly internally said that it's like kind of asking them to eat their broccoli because it's good for them. It'll make their business better, but the marketing center is French fries, baby. It makes the phone ring, it gets you more business, you know, and so there's just been a lot of enthusiasm and energy around. Mark

Speaker Change: And some of them made the move over.

Speaker Change: Very late in the quarter.

Speaker Change: Even late late in the month and the final quarter. So we only picked up partial billing.

Speaker Change: So I think youre going to see a correct.

Speaker Change: Right away, it's really a bit of anomalous there it isn't like we threw in some gigantic discount we are stepping customers over to make it easy for them and honestly, that's going to give us scope for rate later, we will migrate them to the full rack rate over time.

Speaker Change: That will give us a little bit of a rate lift when we look ahead to the year ahead.

Speaker Change: But yes to answer your question.

Speaker Change: As far as the go forward.

Speaker Change: We have.

Unknown Attendee: Fair enough. It's a good thing I like my broccoli, I guess. Nobody's fitter than you.

Speaker Change: Other specific playbooks that were running against the marketing services base.

Speaker Change: We're taking people that arent exactly at the rate.

Unknown Attendee: Certainly not the case, but excellent. I guess in the, you know, to kind of follow up on the staff additions in the quarter on your, you know, Joe, you gave a lot of, you know, kind of color around the monthly ARPU number, and in this environment, we can certainly understand promotional pricing to get customers on board. What do we think about that trending? Is that a 90-day price? Or is that a 60-day, maybe 180-day price? How do you expect that pricing to trend for those customers over the year? And then do you expect to run similar promotional opportunities through the end of the year?

Speaker Change: The units are going over to and offering them to make the move over without a big.

Speaker Change: Bucket of cold water on the face price up initially to get them on get them in the new platform get them enjoying the benefit and then we begin to grow from there. So yes, there'll be there'll be more of it to answer. Your question you pointed question I'll, let Dr that.

Speaker Change: Is that kind of color around the monthly <unk> number is and in this environment can certainly understand promotional pricing to get customers on board. How do we think about that trending is that a 90 day price is that 60 day, maybe 180 day price how do you expect that to that pricing trend for those customers over the year and then.

Speaker Change: There'll be there'll be more of this type of thing as we keep going we've got a very big.

Speaker Change: Xu base that we're hunting in and were finding all of a sudden with marketing center much much higher level of interest to make the migration over and I also want to point out and please don't lose sight of this.

Speaker Change: Do you expect to run similar promotional opportunities through the end of the year.

Speaker Change: I want to be clear I think the biggest impact.

Speaker Change: Decade of small business SaaS is another year or two further along and it's much more obvious to people that they should be making this move now than it was even two or three years ago.

Speaker Change: Was when they came in.

Speaker Change: Because the way our billing works is it sort of a prorated credit thing.

Speaker Change: And some of them made the move over.

Speaker Change: Very helpful. Thanks for taking my questions. Thanks, Ken.

Speaker Change: Late in the quarter, even late late in the month and the final quarter. So we only picked up partial billing.

Speaker Change: Your next question comes from the line of Daniel Moore from CJS Securities. Please go ahead.

Speaker Change: So I think youre going to see a correct right away.

Unknown Attendee: right away. It's really a bit of an anomaly there. It isn't like we threw in some gigantic discount. We are stepping customers over to make it easy for them. And honestly, that's going to give us scope for a rate later. We will migrate them to the full rack rate over time. And that'll give us a little bit of a rate lift when we look ahead to the year ahead.

Daniel Moore: Thank you good morning, Joe Good morning, Paul.

Joe Walsh: Joe you touched on.

Joe Walsh: A few of these in the prepared remarks, but can you elaborate on some of the examples of AI that you've implemented.

Speaker Change: And maybe some of those who are developing and.

Daniel Moore: Are those tools more critical as a selling tool or retention tool from your perspective.

Speaker Change: Those are great questions.

Speaker Change: So what we've done is we are trying to make it.

Speaker Change: Look our base are sort of the dirty fingernails people.

Joe Walsh: We're out there doing.

Speaker Change: In roofing plumbing electrical work were doing bodies body work on your car you know, we do have dentists chiropractors hopefully their fingers are clean, but that we have a lot of service based businesses and they're busy doing that stuff.

Speaker Change: It's a lot of times, when they're presented with a blank page to figure out how to write content.

Speaker Change: Their services are about their products.

Speaker Change: He just gets dumped theyre unable to really move forward and so one of the simplest things that we're doing is using AI to help them develop content for their landing pages and for their promotional offers for their product descriptions and importantly for their social posts, which in today's day and age is almost tables.

Speaker Change: Stakes, if you're running a small business you've got to be actively posting in.

Speaker Change: So we've got.

Speaker Change: Our pro editor and some other services that will really guide them and add them and that they are not looking at a blank page. They are looking at something thats sort of pre built in format and they can go through and edit and improve it but that's just a lot easier thing to do so that's been kind of a killer app and we're finding that people get excited about that at.

Speaker Change: At the time of sale. So it is a sales aid.

Joseph A. Walsh: Joe, you touched on a few of these in the prepared remarks, but can you elaborate on some of the examples of AI that you've implemented and maybe some of those you're developing? And are those tools more critical as a selling tool or a retention tool from your perspective?

Speaker Change: But furthermore, customers that bought long ago, when we didn't have that.

Speaker Change: Some of the examples of AI that you've implemented.

Speaker Change: As we introduce it to them their level of kind of NPS score satisfaction with us has risen and their engagement on the platform has improved and I think theyre getting more benefit from it even though they might have bought two years before we put that in.

Speaker Change: And maybe some of those who are developing and are those tools more critical as a selling tool or retention tool from your perspective.

Speaker Change: Well those are great questions.

Speaker Change: So what we've done is we are trying to make it.

Speaker Change: So what we like to say is youre thrive just got better.

Speaker Change: Look our base are sort of the dirty fingernails people.

Speaker Change: And so that's been a that's been a really good thing for us.

Speaker Change: We're out there.

Speaker Change: Helpful.

Speaker Change: <unk> roofing plumbing electrical work were doing bodies body work on your car you know, we do have dentists chiropractors hopefully their fingers are clean, but we have a lot of service based businesses and they're busy doing that stuff.

Speaker Change: Just a quick housekeeping I assume.

Speaker Change: The tweaking guide slightly higher profitability in SaaS slightly lowered marketing services is that simply a function of your concerted push to convert more customers or is there anything else going on there.

Speaker Change: It's a lot of times, when they're presented with a blank page to figure out how to write content.

Speaker Change: I think thats.

Speaker Change: A big piece of it I think the margin lift is.

Speaker Change: About their services are about their products.

Speaker Change: Largely coming from.

As described earlier that when you when you sell a new customer you have all this cash that comes with it but when you just add an additional center to withstanding account. It just has great leverage and Youre seeing that were seeing month over month over month really brisk uptake now I think the story you guys going to be writing about a lot in <unk>.

Speaker Change: <unk> five is this platform strategy is really playing out here.

Speaker Change: It's giving them real.

Speaker Change: Gross margin lift real profitability lift in.

Speaker Change: I've said, all along we're driving hard to be a rule of 40 company.

Speaker Change: And.

Speaker Change: And I think we can get it strongly from the EBITDA line, we can get a lot. There I think we can run this thing really profitably it's already fully scaled.

Speaker Change: Pretty big company.

Speaker Change: Our SaaS business and it.

Speaker Change: It's been profitable for many many quarters and that's really beginning to lift now as we add new centers. We've got another center coming out before the end of the year. So it will be even more product to sell going into next year.

Speaker Change: Stole my last question, which is just update on timing of.

Speaker Change: Potential rollout of the next new center and whether there is likely to be a freemium option for that at least early on as well. Thanks again for the color.

Speaker Change: Yes.

Speaker Change: I don't have details to reveal today as far as the exact timing what we've guided is that we would get it out before the end of the year and I can confirm that that's definitely going to happen.

Unknown Attendee: helpful. Just a quick housekeeping, I assume that the tweaking guide slightly higher profitability and SAS slightly lower marketing services. Is that simply a function of your concerted push to convert more customers? Or is there something else? I think that's, you know, a big piece.

Speaker Change: And to your second question.

Speaker Change: We're slowly learning.

Speaker Change: This freemium thing and how to do it.

Speaker Change: We are planning to allow customers to benefit a bit from this new offering.

Speaker Change: On a sort of three included get some benefit from it basis try before you buy all of that kind of stuff. So there is a plan to do that where it won't just be you have to buy to get some benefit from it and we.

Speaker Change: We're learning that when you deliver value to our customer before you have to they have to give you any money.

Speaker Change: You guys are going to be writing about a lot in 'twenty. Five is this platform strategy is really playing out here and that.

Speaker Change: It just start things off on a nice foot. So we're kind of excited about the way that will unfold.

Speaker Change: It's giving them real.

Speaker Change: Gross margin lift real profitability lift in.

Speaker Change: Alright, Thanks again.

Speaker Change: Thank you.

Speaker Change: I've said, all along we're driving hard to be a rule of 40 company.

Speaker Change: Your next question comes from the line of Rob Oliver from Baird. Please go ahead.

Speaker Change: And.

Unknown Attendee: I think we can do it.

Speaker Change: And I think we can get it strongly from the EBITDA line, we can get a lot. There I think we can run this thing really profitably it's already fully scaled.

Speaker Change: Great. Thanks, good morning.

Speaker Change: Yes.

Rob Oliver: Centered strategy appears to be playing out nicely for you guys. I was wondering if we can get an update on.

Speaker Change: Pretty big company.

Speaker Change: Our SaaS business.

Speaker Change: Command Center and also as you think about sort of the cadence of center Rollouts over the next couple of years, how should we think about that I mean, I know you spent a lot of time with customers Youre.

Unknown Attendee: I stole my last question, which is just an update on the timing of the potential rollout of the next new center and whether there's likely to be a freemium option for that, at least early on as well. Thanks again.

Speaker Change: Pretty in tune with the opportunity was there must be certain things within the platform that are percolating up that have your folks excited so how should we think about the cadence of.

Paul Ralph: Incremental center Rollouts, and then I had a follow up work Paul until the conversation here.

Unknown Attendee: Yeah, I don't have any details to reveal today as far as the exact timing, but what we've been guiding is that we'd get it out before the end of the year, and I can confirm that that's definitely going to happen.

Speaker Change: So I think.

Speaker Change: The biggest thing I would add is that we do have some really strong.

Speaker Change: Demand from the market from our customers.

Unknown Attendee: And to your second question, you know, we're slowly learning about this freemium thing and how to do it. We are planning to allow customers to benefit a bit from this new offering on a sort of free included basis, you know, get some benefit from it basis, try before you buy, all that kind of stuff. So there is a plan to do that where it won't just be something you have to buy to get some benefit from it.

Speaker Change: To do more stuff some of that they can achieve on our in our app store in our marketplace and connect up with other things, but we have designs on on filling some more of their needs and we've been working for a couple of years and the back office on those and as I mentioned, one is done and about to be revealed and another is really far along in about the comps.

Speaker Change: We're still pretty comfortable with that center of year guidance that we've given the one thing I want to hasten to add is that these.

Unknown Attendee: And we're learning that when you deliver value to a customer before they have to give you any money, it just starts things off on a nice foot. So we're kind of excited about the way that will unfold.

Speaker Change: These opportunities are these.

Speaker Change: Problems that we're solving are not all the same size.

Speaker Change: So every one of them isn't going to have the exact same pricing as business center data or whatever I mean, theyre going to be bigger ones and smaller ones theres going to be some that are really kind of.

Speaker Change: Game changing and some that are smaller as we go along it's just as we keep building out the platform.

Unknown Attendee: Great. Thanks. Good morning.

Speaker Change: We can't make them all exactly bricks that are the same size. So.

Speaker Change: I would underscore that.

Speaker Change: You asked about command center, which was the center that we got out late last year and.

Joseph A. Walsh: Joe, yeah, the center strategy appears to be playing out nicely for you guys. I was wondering if we could get an update on Command Center and also as you think about sort of the cadence of center rollouts over the next couple years. How should we think about that? I mean, I know you spend a lot of time with customers. You're pretty in tune with the opportunity. There must be certain things within the platform that are percolating up that have your folks excited. So how should we think about the cadence of, you know, incremental center rollouts? And then I had to follow up to bring Paul into the conversation.

Speaker Change: I would describe that first one that we got out SD Wan.

Speaker Change: Couple of years, how should we think about that I mean, I know you spent a lot of time with customers here.

Speaker Change: And we are working like Crazy.

Speaker Change: <unk> that into the <unk> and improving it.

Speaker Change: Pretty in tune with the opportunity there there must be certain things within the platform that are percolating up that have your folks excited so how should we think about the cadence of it.

Speaker Change: <unk> had good interest in it.

Speaker Change: But like a lot of brand new software products, especially cutting edge things.

Speaker Change: Incremental center Rollouts, and then I had a follow up to work Paul into the conversation here.

Speaker Change: And it's very cutting edge, what we've tried to do there.

Joseph A. Walsh: Unknown Attendee Yeah, so I think demands from the market, from our customers. You asked about command center, which was the center that we got out late last year. And, you know, I would describe that first one that we got out as V1.

Speaker Change: So I think.

Speaker Change: There were a couple of sharp edges that we've that we've run into that we're working our way through and so it's developing we've got lots of sign ups lots of people using it but its not currently as good as I want it to be or we're developing as fast as I want it to.

Paul Ralph: The biggest thing I would add is that we do have some really strong demands.

Paul Ralph: Demand from the market from our customers.

Speaker Change: To do more stuff someone that they can achieve on our in our app store in our marketplace and connect up.

Speaker Change: With other things, but we have designs on on filling some more of their needs and we've been working for a couple of years and the back office.

Speaker Change: And our product team are working really hard engineering team are working really hard on.

Speaker Change: Some refinements and perfection now that we've been in the market with it for a little while and customers are really given us direct feedback about it so I expect that.

Speaker Change: If you go back and you look at marketing center it didn't take off like a rocket when we first rolled it out either it's now our number one selling product it took us a minute to kind of get it dialed in.

Speaker Change: Product itself.

Speaker Change: Get our way of marketing and selling it dialed in we're sort of in the same phase right now with command Center.

Speaker Change: But I just wanted to remind you that what command center will do as it's perfected and VII and VIII and we look ahead to 'twenty five and 'twenty six.

Speaker Change: It will be out in front.

Speaker Change: As kind of a wedge product <unk>.

Speaker Change: Collecting new customers there'll be building a new zoo.

Speaker Change: It goes out into the world and it offers you an experienced with thrive that lets you not pay anything try it play with it work with it and have thriving your life drive brand drive product and after you see the benefits you can get from it I think there is a conversation that we can have so I'm, sometimes asked well what happens when you do runs out you guys are going to someday.

Joseph A. Walsh: And, you know, we're working like this. Unknown Attendee, Zachary Cummins, Thryv Holdings, Ryan Cantor, Grant Freeman, Thryv Holdings, But I just want to remind you what command center will do as it's perfected in V2 and V3, and we look ahead to 25 and 26. Well, we're building that new zoo through Command Center, so it is a long-term plan. It's not something that has to happen this quarter,

Speaker Change: Run out of your zero, if I project out how fast you're going through it.

Speaker Change: 31, you'll run out of zoo animals to go bring in.

Speaker Change: Well, we are building that new Zip through command centers. So it is a long term plan, it's not something that has to happen. This quarter. We're looking more in the fullness of time.

Speaker Change: And if you look at it around the industry at other <unk> plays a lot of them did take a couple of years to dial before they just took off and we're in that mode here and as was asked in an earlier question, we're thinking more about sort of <unk> elements, even as we develop new centers going forward. So.

Speaker Change: I wanted to.

Speaker Change: And our product team are working really hard engineering team are working really hard on.

Speaker Change: Some refinements and perfection now that we've been in the market with it for a little while customers have really given us direct feedback about it so I expect that.

Speaker Change: Being thoughtful about using product as a marketing tool I guess to bring us product qualified leads as we move along.

Speaker Change: If you go back and you look at marketing center it didn't take off like a rocket and when we first rolled it out either it's now our number one selling product it took us a minute to kind of get it dialed in the product itself.

Speaker Change: Does that answer your question. It does yes, that's great color. Thanks, Joe I appreciate that.

Speaker Change: Paul a question for you just to go back to the <unk> topic I know.

Speaker Change: Get our way of marketing and selling it dialed in we're sort of in the same phase right now with command Center.

Paul Ralph: Joe Joe told us not to worry about it but I guess our job in part is to worry a little bit. So you did mention that.

Speaker Change: But I just wanted to remind you that what command center will do as it is.

Paul Ralph: You expected <unk> would be better in the second half.

Speaker Change: Perfect It and VII and VIII and we look ahead to 'twenty five and 'twenty six.

Speaker Change: Went down four quarters in a row when it kind of accelerated down this quarter you do have some I think some easier comps coming but just wanted to get a sense for what gives you the confidence that we should see that start to head back up. Thank you.

Speaker Change: It will be out in front.

Speaker Change: As kind of a wedge product <unk>.

Speaker Change: Collecting new customers there'll be building a new zoo.

Speaker Change: Yes, there's a number of things like Joe mentioned, a lot of the drivers were working to move these customers are where we've made a change in our commission plan to drive the number of centers sales and you're seeing the effect here with the number of adds we've had.

Speaker Change: And if I can always everything comes in the last month.

Speaker Change: The quarter for bonuses. So there was a big push to bring those clients in a large majority of them came and partially in the year in June and so on so this naturally as you get a full month of billing coming out in July August September should make the ads are going to naturally rise. So we are confident that this.

Joseph A. Walsh: We're looking more in the fullness of time. And if you look around the industry at other PLG plays, a lot of them did take a couple of years to develop before they just took off. And we're in that mode here. And as was asked in an earlier question, we're thinking more about PLG elements, even as we develop new centers going forward. So being thoughtful about using products as a marketing tool, I guess, to bring us product-qualified leads as we move along.

Speaker Change: This is a temporary thing would be start heading north on <unk> as you move out into the second half of the year. So I wouldn't be concerned about that that's going to be coming back up.

Speaker Change: Great. Thanks, guys I appreciate it.

Speaker Change: Thank you.

Speaker Change: Your last question comes from the line of Zach Cummins from B Riley Securities. Please go ahead.

Zach Cummins: Hi, Good morning, Joe and Paul Thanks for taking my questions. Joe I, just really had a question around the potential leverage we could see in the SaaS segment.

Speaker Change: The adjusted EBITDA guidance raise there for this year, but.

Speaker Change: How are you thinking about that potential leverages as you exit this year and going into 2025. It seems like we're potentially getting to an inflection point where.

Speaker Change: And EBITDA on a consolidated basis could be.

Speaker Change: Maybe remaining steady or potentially moving up.

Speaker Change: Is 2024 levels.

Speaker Change: That's such a good question because I mean.

Speaker Change: Look you are a student of the industry and so if you look at some of these other companies that have platform strategies, where they've added that <unk>.

Speaker Change: <unk> products third product fourth product you really start to see.

Speaker Change: And overall margin lift that come through and we're seeing that now come through in our SaaS business and as we look at our own internal models.

Speaker Change: We look at the fast growth of EBITDA out of SaaS.

Speaker Change: Replacing the melting iceberg.

Speaker Change: EBITDA, that's coming out of marketing services and so I.

Speaker Change: I don't think I'm allowed to give really finite guidance right now I don't think thats, what youre asking for you just wanted to kind of talk about it for a minute I think at a high level, but yes. The way we're thinking about it is that that the growth of EBITDA coming out of the SaaS business will form a replacement for the gradual decline.

Unknown Attendee: Great. Thanks, guys. I appreciate it.

Speaker Change: The melting iceberg part coming out of marketing services, So we're sort of reaching that nadir in the process now and.

Operator: Your last question comes from the line of Zach Cummins from B. Reilly Securities. Please go ahead.

Speaker Change: Zach Cummins from B Riley Securities. Please go ahead.

Speaker Change: Again, I don't I don't think I'm authorized it step in front of Paul and give EBITDA guidance, specifically, but directionally you got it exactly right were at that moment now.

Zachary Cummins: Hi, good morning, Joe and Paula. Thanks for taking my questions. Joe, I just really had a question around the potential leverage we could see in the SAS segment. I mean, nice to see the adjusted EBITDA guidance raised there for this year, but

Speaker Change: Yeah.

Speaker Change: Hi, Good morning, Joe and Paul Thanks for taking my questions. Joe I, just really had a question around the potential leverage we could see in the SaaS segment, I mean nice to see the adjusted EBITDA guidance raise there for this year, but.

Speaker Change: The other moment that we're at is.

Speaker Change: <unk>.

Speaker Change: As we just another number.

Speaker Change: How are you thinking about that potential leverages as you exit this year and going into 2025. It seems like we're potentially getting to an inflection point, where adjusted EBITDA on a consolidated basis could be.

Speaker Change: Number of weeks here.

Speaker Change: We finished this year at 40% and as we go into next year.

Speaker Change: We will cross over.

Speaker Change: <unk>.

Speaker Change: SaaS business at the revenue line will be our largest source of revenue.

Speaker Change: Maybe remaining steady or potentially moving up.

Speaker Change: From his 2024 levels.

Speaker Change: It'll be our majority business and.

Speaker Change: Oh, that's such a good question because I mean, it look you're a student of the industry and so am I. If you look at some of these other companies that have platform strategies, where they've added that.

Speaker Change: We're looking forward to hopefully being bumped up against the metrics of other excellent SaaS companies out there and sort of joining the SaaS League tables.

Speaker Change: We think we show up with some pretty pretty kickass metrics.

Speaker Change: Second product third product fourth product you really start to see.

Speaker Change: We've mentioned before we believe our net dollar retention, which is in the mid Ninety's now will rise to 100.

Speaker Change: We think that doesn't it's not that far away at the rate we're selling additional centers now we think thats coming coming now and then.

Speaker Change: Medium term.

Speaker Change: So that's sort of hole in the boat from a metric standpoint will be gone or gross margins are strong and rising now so that Nick has sort of gone so.

Speaker Change: I think were really strong rule of 40 type company and when we eventually do join those SaaS League tables I think.

Speaker Change: We will stand in pretty good stead.

Speaker Change: Going forward to standing on that stage and posing.

Speaker Change: Got it that's very helpful and then.

Paul Ralph: And one final question, maybe geared towards Paul is.

Paul Ralph: How should we be thinking about free cash flow generation.

Speaker Change: New debt facility and just given the accelerated.

Speaker Change: <unk> activity that were seeing with and marketing services.

Paul Ralph: Yes, I guess the overall same restaurant to say is if there is any concerned about us meeting our amortization don't be concerned we're going to do that so that's what we're focused on.

Speaker Change: Look down the mandatory amortization pretty significantly from.

Speaker Change: It was previously so we feel very confident in free cash flow to manage that amortization, but as Joe mentioned earlier.

Joe: With the additional flexibility we might be able to do other things with the cash flow above that so.

Joe: But I just want our later any fears about the amortization, but we're going to meet that and we know issue and we're still trying to figure out what if theres better place, we can put our money in the future with the free cash flow. So I guess I'll leave it there.

Joseph A. Walsh: We think we'll show up with some pretty, pretty kick ass metrics. You know, we've mentioned before, we believe our net dollar retention, which And so that sort of hole in the boat from a metric standpoint will be gone. Our gross margins are strong and rising now, so that sort of nick is sort of gone. So, you know, we're, I think we're a really strong Rule of 40 type company. And when we eventually do join those SAS league tables, I think, you know, we'll stand in pretty good stead. We were looking forward to standing on that stage and posing.

Speaker Change: Pretty pretty kickass metrics.

Speaker Change: We've mentioned before we believe our net dollar retention, which is in the mid Ninety's now will rise to 100, and we think that doesn't it's not that far away at the rate we're selling additional centers now and we think thats coming coming now in the medium term.

Speaker Change: Understood. That's helpful. Well, Thanks again for taking my questions and best of luck with the rest of the quarter.

Speaker Change: And so that's sort of hole in the boat from a metric standpoint will be gone or gross margins are strong and rising now so that Nick has sort of gone so.

Speaker Change: Okay.

Speaker Change: I think were really strong rule of 40 type company and when we eventually do join those SaaS League tables I think.

Speaker Change: Please go ahead.

Speaker Change: Thank you very much yeah, just I guess just to wrap up we were talking Theyre, just a minute ago about cash and.

Speaker Change: <unk>.

Speaker Change: We will stand in pretty good stead, we are looking forward to standing on that stage and posing.

Speaker Change: The company has always thrown off a lot of cash all of that cash kind of went to debt repayment in the past and now with the new credit facility. We have over time, we will begin to develop some flexibility.

Speaker Change: Got it that's very helpful and then.

Paul Ralph: One final question, maybe geared towards Paul.

Paul Ralph: How should we be thinking about free cash flow generation.

Paul Ralph: The new debt facility and just given the accelerated.

Speaker Change: We no longer have.

Speaker Change: 100% cash we have some flexibility built in and.

Paul Ralph: Conversion activity that we're seeing with and marketing services.

Speaker Change: We're enthused about what we'll be able to do with that our first priority is always obviously product and engineering, making sure. We have the best software, making sure. It's developing quickly making sure it's interoperable, where it works well with other software in the market to make it easy for our customers to adopt and we've got always really specific conversations.

Speaker Change: Along with our engaged customers about what they like next where they might have any sharp edges or pain points within the product that we are improving so that's always the first priority.

Speaker Change: Obviously have a super low share price. So we buying shares is another opportunity.

Speaker Change: We are beginning to see the bid ask out in the marketplace for some of these.

Speaker Change: SaaS companies that we might tuck in.

Speaker Change: They are beginning to.

Speaker Change: Modulate a little bit sort of some opportunities there so.

Speaker Change: I think.

Unknown Attendee: understood. That's helpful. Well, thank you.

Speaker Change: That the fact that we've come this far really with one hand tied behind our back virtually virtually no cash flexibility and we will have some going forward.

Speaker Change: You guys should think about that because I think it does.

Speaker Change: Give us.

Speaker Change: And added kick.

Speaker Change: Going forward.

Speaker Change: And we feel like we're really well positioned on this unstoppable trend.

Speaker Change: On top of a mega trend really of small businesses moving to the cloud and 25% SaaS growth of 50%.

Speaker Change: Subs growth is our numbers that we're really proud of and we think theres more were good numbers ahead, so with a crossover point coming up.

Speaker Change: We think it's time for people to take a look at thrive.

Speaker Change: Thanks, everyone.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Paul Ralph: Best software, making sure it's developing quickly making sure. It's interoperable works well with other software in the market to make it easy for our customers to adopt and we've got always really specific conversations going with our engaged customers about what they like next.

Paul Ralph: Where they might have any sharp edges or pain points within the product that we are improving so that's always the first priority.

Paul Ralph: We obviously have a super low share price. So we buying shares is another opportunity.

Speaker Change: We are beginning to see the bid ask out in the marketplace for some of these SaaS.

Paul Ralph: SaaS companies that we might tuck in.

Paul Ralph: They are beginning to.

Paul Ralph: Modulate a little bit so there's some opportunities there so.

Joseph A. Walsh: I think, you know. The fact that we've come this far, really with one hand tied behind our backs, virtually no cash flexibility, and we will have some going forward, you guys should think about that, because I think it does. And we feel like we're really well positioned on this unstoppable trend, are numbers that we're really proud of, and we think there are more good numbers ahead. We think it's time for people to take a look at Thryv.

Speaker Change: I think.

Paul Ralph: The fact that we've come this far really with one hand tied behind our back virtually virtually no cash flexibility and we will have some going forward.

Paul Ralph: You guys should think about that because I think it does.

Paul Ralph: Give us.

Paul Ralph: And added kick.

Paul Ralph: Going forward.

Q2 2024 Thryv Holdings Inc Earnings Call

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