Q3 2024 Thryv Holdings Inc Earnings Call

of Acquisition Announcement.

Our superpower I've called it has been hunting in the zoo converting directory customers and marketing services customers to our modern SaaS software platform.

First with CRM run your business tools with solid success.

And recently, we've added grow your business functions our success with growth element has set up our marketing services conversion.

The small Miss we had in marketing services this quarter was actually a good guy.

We cannibalized ourselves. These customers are now on a modern SaaS platform poised to grow with us into the future.

We've guided that we will be a 100% and Dr Company.

These customers.

Fan their spend.

In fact, we see 10% to 15% growth in the ensuing year. After this conversion.

As a multi product company, we now see many paths to grow customers once they land on one of our centers.

Approximately 12% of our customers are now multi center.

This is a key lever to watch in the future.

At 350 million are now our SaaS business is beginning to show.

72% gross margins, 12% adjusted EBITDA margin, 29% growth.

This rule of 40 performance was achieved by hunting and the zoo converting marketing services customers does that.

We've shown we can upsell of these accounts, we get referrals from our engaged SaaS clients.

While it's in the early stages, our product led growth strategy is beginning to help us meet new customers.

And we gain new customers through acquisitions like the <unk> acquisition, we made last week, which added over 15000 quality customers.

I'll talk more about keep after Paul covers our financial results Paul.

Paul: Thanks, Joe Alright.

Paul: Let's dive into our results beginning with SaaS.

Paul: SaaS revenue was $87 1 million in the third quarter and above guidance, representing an increase of 29% year over year and up.

Paul: 12% sequentially.

Paul: Our SaaS suggest that gross margin has seen significant growth.

Paul: Creasing by 560 basis points year over year, and 250 basis points quarter over quarter to reach 72, 2%.

Paul: Impressive improvement stems from the continued positive impact of our high margin SaaS offerings, which have driven.

Paul: At 8% year over year increase in SaaS suggested gross profits were.

Paul: We're delighted to have surpassed our goal of exceeding 70% and adjusted gross margins earlier than anticipated.

Paul: SaaS not only aligns with our strategic objectives, but also positions us strongly for continued future profitable growth.

Paul: In the third quarter SaaS, adjusted EBITDA was $10 3 million.

Paul: Above our guidance and resulting in a SaaS adjusted EBITDA margin of 11, 8%.

Paul: As Joe mentioned earlier, we've achieved the rule of 40 and incredible milestone for our company. This accomplishment reflects a powerful combination of strong growth and expanding EBITDA margins, primarily driven by our strategic product mix initiatives.

Paul: In the third quarter, we delivered strong SaaS subscriber growth, reaching 96000 subscribers up from 70000.

Paul: In the prior quarter.

Paul: This 13% sequential growth and 45% year over year increase reflects a successful execution of our accelerated migration strategy.

Paul: <unk> marketing services clients to our SaaS platform.

Paul: As we've consistently communicated getting these customers on our platform is strategically critical as it creates a clear path to upsell through our tiered product offerings.

Paul: SaaS are approved for the quarter was $307 compared to $333 for the prior quarter. This temporary pressure on <unk> as a direct result of our successful accelerated migration strategy as we are bringing a substantial volume of customers onto the platform introductory price points.

Paul: While this creates some near term pressure given the magnitude of the customer growth.

Paul: We are confident in our ability to expand these relationships over time through our established upgrade paths within marketing center.

Paul: We view this as a strategic tradeoff that prioritizes elevate our subscription base and to position us for long term value creation.

Paul: Importantly, we're on.

Paul: We're already seeing early validation in our land and expand strategy at quarter and 12% of our subscriber base at two or more paid centres demonstrating strong product adoption beyond initial entry points.

Paul: I think what you'll be seeing is us.

Paul: Trying to focus less on the solo per door, onesie, Twosies business and more on the bigger businesses and keep us in the same mode.

Speaker Change: Does that answer your question.

Speaker Change: That answers it very well thank you John I appreciate it thank you Jason.

Speaker Change: Your next question comes from the line of Scott Berg of Needham. Your line is now open.

Scott Berg: Hi, everyone. Thanks for taking my questions here.

Scott Berg: When we think about the product here going forward how much of this is going to be just integrating.

Scott Berg: The key platform with the traditional thrive platform or you just are you going to take more of a.

Scott Berg: A true single platform approach, where you take their functionality and just maybe rebuild its on top of what you have today.

Speaker Change: I mean, we're going to.

Scott Berg: Fully and completely integrate everything together.

Scott Berg: We have approximately a 200 person.

Scott Berg: It's an engineering team they have approximately a 100 person product and engineering team.

Scott Berg: And we're keeping the whole thing and leaning in.

Scott Berg: In nursing and even putting more investment in product is our really our highest priority really really making sure. Our products are best in class that they are interoperable with other tools that are out in the marketplace and of course that they work well together as well and so we'll be working very fast working on the plumbing.

Scott Berg: To pull everything together and have a unified platform in the meantime.

Scott Berg: We will begin to work together like two companies that actually aren't connected where they use the API is to go back and forth between the company. So we will try to create some interoperability.

Speaker Change: Right away, even before all the deep plumbing has done to make everything work.

Speaker Change: So that's kind of the game plan.

Speaker Change: Got it helpful and then.

Speaker Change: Your marketing services business last couple of quarters has had more customers convert to your SaaS business I think than maybe what you were expecting at this time at this stage of the cycle.

Speaker Change: Certainly seen great success, retaining those customers on the new platform, but how do we think about those conversions here going forward as the last two quarters, an anomaly as this rate kind of the right.

Speaker Change: Right to think about and then obviously the inverse relationship for those marketing services revenues or could that actually accelerate and you have more customers meal of those customers even more quickly convert to your SaaS platform.

Speaker Change: I think Scott what we've been doing is we've been really focused on it.

Speaker Change: And we're very very proud of the fact that we were able to transition faster than was our plan a year ago.

Speaker Change: The way business works when you are.

Speaker Change: You do a budget and a plan you sort of spend September October maybe a little bit in November.

Speaker Change: Perfecting our plan and our budget in your agreement with the board and all of that and then you go to work on it and we're sitting here a year later and we.

Speaker Change: We fully delivered it actually outstrip the plan, we actually are making those conversions faster. So that was as I said in the prepared remarks. It was kind of a good guy we're really excited about that.

Paul: So.

Paul: Back to your question about what does it look like going forward I think what youre seeing and you and I've talked about this what youre seeing is.

Paul: A lot of the people in marketing services came there because they wanted to grow it.

Paul: Wanted to leave they wanted growth they wanted to be found.

Paul: They didn't necessarily come there for operating their business software and so what we're offering them now our tools to help them grow tools to help them do better in marketing their business tools to help them be found.

Paul: And towards the instrument all the marketing that they do and see how it works in and sort of eliminate a lot of the waste.

Paul: And Thats something that is attractive and people are really like a lot and so we've had we've had more success than we thought we would and yes, I think that does mean that the the <unk>.

Speaker Change: Transformation process.

Paul: Picked up speed, a little bit from kind of the pace that had been on when we were selling just run your business software because that was a harder conversation to have with somebody that wanted to grow their business. Some actually I did want to run their business, but it.

Paul: It was a little harder.

Paul: Off track, so that pace has picked up.

Paul: I do believe if you study the numbers, you'll see when they move over.

Paul: Margins are very strong when they move over into SaaS and when we look back at the early groups that this transition occurred for their spending 10% to 15% more when we look back a year later so we're growing these once we get them onto the new platform, we have a chance to.

Paul: Talk to them about where they are in their digital journey and help them along so.

Paul: I think we're at a key part of the story here. So yes, I do think that that.

Paul: The pace that we Cannibalized marketing services will be faster.

Paul: In the coming quarters than it was.

Paul: Looking back a couple of years.

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

Speaker Change: Your next question comes from the line of <unk> <unk> from William Blair. Your line is now open.

Speaker Change: Thank you.

Speaker Change: John can you.

Speaker Change: Keith can you just touch a little bit on how you're thinking about.

Speaker Change: And then go to market model Sharon.

Speaker Change: And how it might evolve west with Mr. Chuck Manz now together because.

Speaker Change: It seem like Theres different go to market motions.

Speaker Change: Marcia in June because of the partner ecosystem.

Speaker Change: Along those same lines.

Speaker Change: Awareness pricing kind of come into us.

Speaker Change: So that's one SKU that you saw in a separate skus.

Speaker Change: So just give us some sense of how you are thinking about that at this stage.

Speaker Change: That you really put your finger origin on the <unk>.

Speaker Change: The fulcrum here, it's about distribution.

Paul: <unk>.

Paul: Keep keep has a wonderful partner ecosystem with multiple layers, it's very sophisticated they're very good at.

Paul: Our Big annual conference in a lot of sub conferences and they just do so much so well there and so.

Paul: That's a big piece of what drove this acquisition we're excited about.

Paul: Being able to be a part of that and offering the full cat.

Paul: Catalog of all the key products in all of the thrive products, which I think will make those partners really happy because they are just going to have a lot more services and products that they can provide to their customers. So it is going to be a real income lift for them.

Paul: And for US I think it is going to be a real source of growth in revenue and access to a more sophisticated.

Paul:

Paul: Low churn really nice market.

Paul: On the flip <unk>.

Paul: Keith gets access to our.

Paul: About 700 person International sales force.

Paul: And that's a real positive for them.

Paul: Keith has a.

Paul: Less than 10 person direct sales force they rely mostly on channel and.

Paul: There are direct team work on inbound leads that come in or leads that go scale out of other channels or whatever they kind of work in that market. So they haven't really put the amount of emphasis that we do on the direct channel and so all of a sudden the key products.

Paul: We will be.

Paul: Able to.

Paul: Joined the distribution of this very big sales organization that exist and drive and that's one of the things that.

Paul: Everybody is really excited about in this process. So I do think distribution is the magic here and I think it will take us a minute to get it all wired up and working it wont I don't think Youll see.

Paul: Sales in Q1 go straight through the roof. It will take US a couple of minutes to get it wired and ready and working but as I look at the course of taking keeps topline revenue has been declining that's not a secret.

Paul: Taking that decline and turning it into growth and then allowing keep to feed into accelerated growth for thrive in 'twenty six and beyond.

Paul:

Paul: That distribution is I think really the key and to your question about pricing or really detailed tactics.

Speaker Change: We're excited about.

Paul: Working directly with the <unk> team and the partners in figuring out the best way to do this luckily they have a big conference coming up in a couple of weeks in Arizona and we're going to.

Paul: Theres, a big partner day, and there's going to be hundreds and hundreds of people there will have lots of opportunity to sort of listen and thats the mode.

Paul: That I'm in that we're in right now is <unk>.

Paul: Listening tell us tell us how we can help tell us what you need tell us what would be ideal for you.

Paul: And then we'll sort of work to try to meet those needs.

Speaker Change: So I'm not going in with the <unk>.

Speaker Change: India ink pre baked plan and shove it down their throat really going in with an open tablets to say we have these wonderful products and we've made all this progress how can we do how can we help you.

Speaker Change: I think.

Speaker Change: I think it will be met with just even some of the early conversations we've had with a couple of partners.

Speaker Change: Super excited about.

Paul: Having.

Paul: Having the key company have this.

Paul: Big powerful business behind it and then of course, having all of these additional products. So.

Speaker Change: Does that answer your question.