Q2 2025 Thryv Holdings Inc Earnings Call
Megan: Excuse me, ladies and gentlemen. Thank you for your patience. The call will begin momentarily. Again, thank you for your patience. The call will begin momentarily. Good morning. Thank you for attending today's Thryv Holdings' second quarter 2025 earnings conference call. My name is Megan, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to turn the call over to Cameron Lessard with Thryv Holdings. Please go ahead.
Excuse me, ladies and gentlemen, thank you for your patience. The call Will begin momentarily. Again, thank you for your patience for call. Will begin momentarily.
Cameron Lessard: Good morning, and thank you for joining us for Thryv Holdings' second quarter 2025 earnings conference call. With me today are Joe Walsh, Chairman and Chief Executive Officer, and Paul Rouse, Chief Financial Officer. During this call, we will make forward-looking statements that are subject to various risks and uncertainties. Actual results may differ materially from these statements. A discussion of these risks and uncertainties is included in our earnings release and SEC filing. Today's presentation will also include non-GAAP financial measures, which should be considered in addition to, but not as a substitute for, our GAAP results. Reconciliations of these measures can be found in our earnings release. As a reminder, on this call, SAS revenue reflects the combined performance of Thryv and Keep. We will only specify Keep's performance when discussing its revenue contribution for the quarter and fiscal year.
Good morning, thank you for attending today's Thrive Holdings second quarter 2025 earnings conference call. My name is Megan, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to turn the call over to Cameron Lessard with Thrive Holdings. Please go ahead. Good morning, and thank you for joining us for Thrive Holdings' second quarter 2025 earnings conference call. With me today are Joe Walsh, Chairman and Chief Executive Officer, and Paul Rouse, Chief Financial Officer.
Actual results May differ materially from these statements.
A discussion of these risks and uncertainties is included in our earnings release and SEC filing.
Cameron Lessard: With that, I'll turn the call over to Joe Walsh, Chairman and CEO. Joe?
Today's presentation will also include non-gaap Financial measures which should be considered in addition to but not a substitute for our gaap results. Reconciliations of these measures can be found in our earnings release as a reminder on this call SAS Revenue, reflects, the combined performance of Thrive and keep we will only specify keeps performance when discussing its Revenue contribution for the quarter and fiscal year.
Joe Walsh: Thank you, Cameron, and good morning, everyone. I will highlight a few items, and Paul will take you through the numbers. We did it. We made it through the pinch point. At our investor day in December, we laid out a pinch point that was approaching for us, and investors were understandably concerned to see our leverage ratio rising. It was a challenging setup. You had accounting-related pressure due to our publication schedule, with the move from 18 to 24 months, leaving a few less directories publishing in the early part of the year. And you had our decommissioning of legacy systems tied to marketing services, which added costs in the short run but simplified our business for the long run. You had us digesting Keep and the challenges there, and you had the last of our high amortization payments that needed to be made.
With that, I'll turn the call over to Joe Walsh chairman and CEO Joe.
Thank you Cameron and good morning everyone. I will highlight a few items and Paul will take you through the numbers.
We did it. We made it through the pinch point.
At our investor day in December, we laid out a pinch point that was approaching for us and investors were understandably concerned to see our leverage ratio Rising. It was a challenging setup. You had accounting related pressure, due to our publication schedule with the move from 18 to 24 months. Leaving a few less directories publishing in the early part of the year.
and you had,
Joe Walsh: So there was a reason to focus on it. But we've achieved that. We're out the other side of it now. We've made those amortization payments, and from this point forward, our business begins to, the ratio begins to improve in Q3 and Q4, moving out. We have lower amortization payments ahead of us now, and we're well ahead on those payments. So we now will have a real opportunity to have some free cash flow left in the business. With each passing week, with each passing month, we're going to begin to actually develop a little bit of leftover free cash flow in the business and be able to make decisions for the first time about how to allocate that. So mark it down in your calendar there. We're past the pinch point. That's behind us now.
Our decommissioning of Legacy systems tied to marketing Services, which added costs in the short run, but simplified our business, uh, for the long run. You had us digesting keep and the challenges there, and you had the last of our high amortization payments that needed to be made. So, there there was a reason to focus on it, but we've achieved that we're out the other side of it. Now, we've made those amortization payments. And from this point forward, our business begins to, uh, the ratio begins to improve and Q3 and Q4 moving out. Um, we have lower amortization payments ahead of us now and we're well ahead on those payments. So we now will have a real opportunity to have some free cash flow left in the business with each passing week. With each passing month. We're going to begin to actually uh develop a little bit of of leftover free cash flow in the business and be able to make decisions for the first time.
Joe Walsh: In terms of our results, you know this transition is continuing to go really well. Our rule of 40 ways are continuing. We delivered in its most recent period around 20% EBITDA margins and over 20% growth. So continuing to be a rule of 40 type business. As expected, our ARPU for our customers is rising. Currently, it's at about $4,200 on an annual basis. And as we said, we see that going from $4,000 to $8,000 over the next few years. Some evidence that we see progress here, our seasoned clients are spending $5,400 a year. And clients from our largest sales channel, which is our US direct channel, are spending about $6,000 a year. So we're definitely on course with more products now within the platform and customers buying more and more products. You know we're seeing really good progress there.
About how to allocate that. So, uh, mark it down in your calendar. There, we're past the pinch Point, that's behind us. Now,
Um, in terms of our results, you know, this transition is continuing to go really well.
Our rule of 40 ways are continuing we delivered in its most recent period around. 20% Eva de margins and over 20% growth. So continuing to be, you know, a rule of 40 type business.
As expected our, our poop for our customers is rising currently. It's at about 4,200 on an annual basis. And as we said, we see that going from 4,000 to 8,000 over the next few years. Some evidence that we see progress here are seasons. Clients are spending 5,400 a year and clients from our largest sales Channel, which is our US Direct Channel.
Joe Walsh: We've spoken about net revenue retention, that we expect it to hang out right around 100%. It was again this period a little over 100% at 103%. And the clients buying multiple products increased to 19%. So really good progress there on working with the existing clients and adding more. So with that, let me turn it over to Paul and let him take you through the numbers. Paul?
Our spending about 6,000 dollars a year. So we're definitely on course, with more products now within the platform, and customers buying more and more products, you know, we're we're seeing, uh, really good progress there.
Paul Rouse: Thanks, Joe. SAS reported revenue was $115 million in the second quarter and met the top end of our guidance range, representing an increase of 48% year over year. Keep contributed $17.7 million in the second quarter. Excluding Keep, Thryv's SAS business grew 25% year over year. SAS adjusted gross margin increased 430 basis points year over year, reaching 74%. In the second quarter, SAS adjusted EBITDA increased to $23.4 million, exceeding guidance and resulting in a record adjusted EBITDA margin of 20%. This performance underscores the progress we are making in scaling a profitable and durable software business. As we stated last quarter, the return of a strong print quarter helped reverse the temporary cost allocation headwind, with more shared expenses now shifting back to the marketing services segment.
We've spoken about net revenue, retention that. We expect it to hang out right around 100%. It was again, this period a little over 100% at 103 and the clients buying multiple products increased to 19%. So really good progress there on on working with the existing clients and adding more. So with that, let me turn it over to Paul and let him take you through the numbers, Paul.
thanks Joe SAS reported Revenue, was 115 million and his second quarter and met the top end of our guidance range representing, an increase of 48% year-over-year
in the second quarter.
Excluding keep drives SAS business. Grew 25% year-over-year.
Growth margin increased 430, basis points year-over-year, reaching 74%.
In the second quarter, SAS suggested IBA increased to 23.4 million, exceeding guidance and resulting in a record. Adjusted IBA margin of 20%.
This performance, underscores the progress, we are making in scaling a profitable and durable software business.
Paul Rouse: This will continue to normalize over time, particularly as we transition more print publications to a 24-month cycle, bringing greater consistency and visibility across the business. We ended the second quarter with 106,000 SAS subscribers, including 14,000 from Keep, representing a 25% increase year over year. With a large and established customer base now in place, our focus is on increasing spend per customer by driving adoption of more products and solutions, especially among our high-value clients and larger businesses. This approach meaningfully expands SAS's lifetime value and is a more efficient driver of profitability. In the second quarter, our overall SAS ARPU reached $352, with Thryv at $340, up sequentially, and Keep ARPU holding strong at $431. We see continued opportunity for ARPU expansion through the second half of the year, supported by our broad platform and our redesigned compensation plan that incentivizes increased monthly recurring revenue.
With more shared expenses. Now shifting back to the marketing Services segment.
This will continue to normalize over time. Particularly as we transition, more print Publications to a 24-month cycle, bringing greater consistency and visibility across the business.
We ended the second quarter with 106,000 SAS subscribers including 14,000 from keep representing a 25% increase year-over-year.
With a large and established customer base. Now, in place, our focus is on increasing spend per customer by driving adoption of more products and solutions.
Especially among our high-value clients and larger businesses. This approach meaningfully expands SAS lifetime value and is a more efficient driver of profitability.
In the second quarter, our overall SAS arpu reached 352 with Thrive at 340 subsequently and keep our pool holding strong at 431.
We see continued opportunity for arpu expansion through the second half of the Year supported by our broad platform and our redesigned Compensation Plan.
That incentivizes increased monthly recurring Revenue.
Paul Rouse: We continue to be over 100% NRR, achieving 103% this quarter. Additionally, clients with two or more Thryv SAS products increased to 17,000 at the end of the second quarter, compared to 13,000 in the prior year. Thryv centers per client also grew to 15% at the end of the second quarter, compared to 10% in the prior year, further highlighting the traction we are seeing with existing clients. This kind of expansion, more products, more centers, more value, is core to our growth strategy and is a key driver of SAS's lifetime value. Moving over to marketing services, second quarter revenue was $95.5 million and above guidance. Second quarter marketing services adjusted EBITDA was $27.8 million, resulting in an adjusted EBITDA margin of 29% and just above guidance.
We continue to be over 100% nrr achieving 103%. This quarter. Additionally clients with 2 or more Thrive. SAS products increased to 17,000 at the end of the second quarter compared to 13,000 in the prior year.
Thrive centers per client, also grew to 15% at the end of the second quarter compared to 10% in the prior year.
To further highlighting the traction. We are seeing with existing clients.
This kind of expansion more products, more centers, more value is core to our growth strategy and is a key driver of sass lifetime value.
Moving over to marketing Services, second quarter of Revenue was 95.5 million and above guidance.
Paul Rouse: As anticipated, this quarterly performance is subject to the dynamics of the print schedule, which performed better than expected and returned to normalized levels starting in the second quarter. Second quarter marketing services billings totaled $78.4 million, down 38% year over year, reflecting the intentional shift in our strategy as we continue to initiate upgrades of legacy digital marketing services products for clients to our SAS platform. The decline will persist, but at a managed pace. We remain on track to exit marketing services by 2028, with cash flow lasting through 2030, ensuring strong liquidity as we fully transition to a pure play software business. We ended the second quarter with net debt down $24 million to $274 million, bringing our leverage ratio to 2.2 times, ahead of expectations.
Second quarter marketing Services, adjusted ibaa was. 27.8 Million, resulting in an adjusted IBA margin of 29% and just above guidance.
As anticipated, quarterly performance is subject to the dynamics of the print schedule.
Which perform better than expected and return to normalize levels starting in the second quarter.
Second quarter marketing Services Billings total 78.4 billion.
Down 38% year-over-year, reflecting the intentional shift in our strategy as we continue to initiate upgrades of legacy digital marketing services products for clients to our SaaS platform.
The decline will persist, but at a managed pace. We remain on track to exit marketing services by 2028.
With cash flow lasting through 2030 ensuring strong liquidity, as we fully transition to a pure play software business.
Paul Rouse: Importantly, during this period, we made two additional quarters of required amortization payments, effectively eliminating two years of required amortization under our new term loan facility in just 13 months. So we are paid through until the second quarter of 2026. This achievement enables us to step down to a lower required amortization of $35 million per year going forward, significantly increasing the flexibility within our capital structure. With strong print quarters expected ahead, we anticipate leverage to step down significantly as revenue recognition ramps and cash flow improves. Turning to our outlook for 2025, for the third quarter, we expect SAS revenue in the range of $116 million to $117 million. For the full year, we are updating our SAS revenue to a range of $460 million to $465 million. For the third quarter, we expect SAS adjusted EBITDA in the range of $18.5 million to $19.5 million.
We ended the second quarter with net debt, down 24 million, to 274 million. Bringing our leverage ratio to 2.2 times ahead of expectations importantly,
During this period we made 2 additional quarters of required amortization payments. Effectively eliminating 2 years of required amortization under our new Term Loan facility in just 13 months.
So, we are paid through until the second quarter of 2026.
This achievement enables us to step down to a lower required. Amortization of 35 million per year going forward, significantly, increasing the flexibility within our capital structure.
With strong, print quarters, expected ahead. We anticipate leverage to step down significantly as Revenue recognition, ramps, and cash flow improves,
Turning to our outlook for Q3 2025, we expect SAS revenue in the range of $116 million to $117 billion.
For the full year.
We are updating our SAS Revenue to a range of 460 million to 465 million.
Paul Rouse: For the full year, we are raising SAS adjusted EBITDA guidance to a range of $70.5 million to $73.5 million. For the full year, we are raising our marketing services revenue guidance to a range of $323 million to $325 million. For the full year, we are raising our marketing services adjusted EBITDA guidance to a range of $78.5 million to $80.5 million. With that, I'll turn it back over to Joe.
For the third quarter, we expect SAS adjusted ibaa in the range of 18.5 million to 19.5 million.
Guidance to a range of 70.5 million to 73.5 million for the full year.
We are raising our marketing Services Revenue guidance to a range of 323 million.
To 325 million.
For the full year, we are raising our marketing services adjusted IBA guidance to a range of $78.5 million to $80.5 million.
Joe Walsh: Thanks, Paul. Before we wrap, I want to reiterate our conviction that we are on a good path. The business is progressing nicely. The modest adjustment in SAS guidance is isolated to softness in the Keep business, specifically within the demand generation side of the Keep business. We didn't love the economics that were there, and as we were facing the pinch point, we took the opportunity to kind of cut costs there and didn't really invest in those sales because they weren't as profitable on a lifetime value to cost of acquisition basis. But the Keep business is helping us tremendously across the SAS business, and I want to take you through that in just a minute. Before that, I also want to comment that please note that we increased our SAS EBITDA target. So we are delivering really where it counts.
With that, I'll turn it back over to Joe.
Thanks Paul.
Before we wrap, I want to reiterate our conviction that we are on a good path. The business is progressing nicely, the modest adjustment in SAS guidance is isolated the softness in the key business?
Specifically within the demand generation side of the key business.
We didn't love the economics that were there. And as we were facing, the pinch point, we took the took the opportunity to kind of cut cost there. And didn't really invest in those sales because they weren't as profitable on a lifetime value to cost of acquisition basis.
Joe Walsh: I want to talk about the Thryv for HVAC. We recently announced Thryv for HVAC, and this is a product that we worked very closely with a very successful large HVAC business and designed automations by HVAC for HVAC using Keep's powerful automation tools. You know, one of the, I guess, sort of knocks against Thryv might be that, well, Thryv is horizontal. They have horizontal software. That's how they got to over 100,000 subscribers so fast, because they're working horizontally. What we're doing now is working to deepen our engagement by going deeply vertical in our most powerful verticals where we've had the most success. And HVAC is a real big winner for us. And so, you know, we've rolled this out.
But the key business is helping us tremendously across the SAS business and uh I want to take you through that in just a minute before that I also want to comment that please note that we increased our SAS Eva Target so we are delivering really where it counts.
I want to talk about the Thrive for HVAC. We recently announced Thrive for HVAC and this is a a product that we worked very closely with a very successful large, HVAC business and designed automations by HVAC 4 HVAC using keeps powerful automation tools, you know, 1 of them, I guess sort of knocks against Thrive might be the, well Thrive is horizontal, they have horizontal software, that's how they got to over 100,000 subscribers so fast because they're working, horizontally.
Joe Walsh: We already have an impressive number of sales so far coming in from that HVAC vertical, and we'll be following with more verticals, working with a successful leadership company in each vertical, sort of mapping processes, and then rolling that out more broadly. And I want to be clear, this is not the back office. So we're not doing the, you know, the the filters and the wing nuts and tracking the trucks. This is a focus on the the the marketing side, the outside, you know, managing the the the funnel of how you get work, how you get repeat work, how you get followed up. So actually, in in some of these larger accounts, we're working with ServiceTitan or with some of the other back office tools. We're working closely with them, and there's a connection between the two.
What we're doing now, is working to deepen, our engagement, by going deeply, vertical in our most powerful verticals where we've had the most success. And HVAC is a real big winner for us. And so, you know, we rolled this out, we've already have an impressive number of sales so far coming in from that HVAC vertical and we'll be following with more verticals. Working with a successful leadership company in each vertical sort of mapping processes and then rolling that out to more broadly. And I want to be clear, this is not the back office. So we're not doing the, you know, the the the filters and the wing nuts and tracking the trucks. This is a focus on the, the the marketing side, the outside, you know, managing the The Funnel of how you get work, how you get, repeat work, how you get followed up. So, actually in in some of these larger accounts, we're
Joe Walsh: So we've had a lot of success with this, and we're excited about strengthening our vertical positioning going forward. You know, we've been asked about growth after the zoo. What happens when you get done with the zoo? And I just wanted to comment briefly on this. We are working on a variety of initiatives for '26 and beyond, starting with a free trial motion for one of our products, which will be kind of a product-led growth motion. We've been leaning into the new partner channel that we acquired from Keep, investing in that, and we believe that that will bear a lot of fruit in the future. We're excited about the feedback we're getting from the partners and the partner channel.
Working with, uh, ServiceTitan, or with some of the other back office tools, we're working closely with them, and there's a, um, a connection between the two. So, um, we've had a lot of success with this, and we're excited about strengthening our vertical positioning going forward.
you know, we've been asked about
growth after the zoo. What happens when you get done with the zoo and I just wanted to comment briefly on this
We are working on a variety of initiatives.
Joe Walsh: We have a franchise channel that we're leaning into investment there, and we believe that there will be a lot of application, and the Keep tools have added a lot there in terms of being able to provide interesting offers for those franchisors. We have an agency channel. We own an agency called BNI. We work with some large national brands, and we've had some success and expect a lot more success going forward, working with those agency clients and beginning to automate some of their processes with the new tools that we have. So we believe that there's many vectors to our growth in the future, and we actually see a smaller percentage of our sales and our growth in the future coming from our direct channel, and we're broadening out into other channels as well.
For 26 and Beyond starting with a free trial, uh, motion for 1 of our products, which will be kind of a product-led growth motion. We've been leaning into the new partner channel that we acquired from Keith investing in that, we believe that that will bear a lot of fruit in the future. We're excited about the feedback, we're getting from the partners and the partner Channel. We have a franchise channel that we're leaning into investment there and we believe that there will be a lot of application. Um, and the, the key tools have added a lot there in terms of being able to provide interesting offers for those franchises, we have an agency Channel, we we own an agency called dni, we work with some large National Brands and we've had some success and expect a lot more success going forward. Working with those those agency clients and begin to automate some of their processes with the new tools that we have. So um we believe that there's many vectors to our growth in the future and
Joe Walsh: We also rolled out a new product we just recently announced, and that's Workforce Center. Workforce Center is designed to help a small business pay their employees and contractors in an easy way, stay up on all their tax compliance and all the rules that they need to follow. And it's a scalable solution that, whether you're hiring your first employee or you have a whole bunch of employees, you're able to offer. And what most small businesses find is that there's plenty of payroll operators out there, but they really want people that have lots of employees. It's kind of hard if you just have a couple. And with Thryv's Workforce Center, it's ideally suited for our small business customer. It integrates right into your Thryv platform, so you can just work right within the platform, and you don't have to log in or out.
We actually see, uh, a smaller percentage of our our sales and our growth in the future, coming from our direct Channel and more broadening out into other channels as well.
Joe Walsh: And we've already had a number of sales in the product, and we've got small businesses paying their employees on the product. So we're excited about this, and we feel like there's going to be a lot of potential success here. And, you know, furthermore, I think the broader we make the platform, the more sort of locked-in customers get and the less churn there is over time. And when you're dealing with small businesses, it's always going to be a little more churn. So that's an important item for us. Last comment I'd like to make is on our global industry classification standard, the GICS. Where we're positioned as a company currently, Thryv is classified incorrectly. We are classified as under advertising, under media and entertainment within the communication services. So we're not in software at all. So when people screen and look for Thryv, they don't see Thryv.
Scalable solution that whether you're hiring your first employee or you have a whole bunch of employees, you're able to offer and what most small businesses find is that there's plenty of payroll operators out there but they really want people that have lots of employees. It's kind of hard if you just have a couple of and with thrives Workforce Center, it's ideally suited for our small business customer in integrates right into your Thrive platform. So you can just work right within the platform and you don't have to log in or out and um, we've already had a a number of sales in the product and uh we've got small businesses paying their employees on the product. So we're excited about this and and we feel like uh there's going to be a a lot of
Potential success here. And, you know, furthermore, I think the broader we make the platform, the the more sort of locked in customers, get in the less churn there is over time and when you're dealing with small businesses, it's always going to be a little more turned. So that's an important item for us.
Joe Walsh: We don't even show up anywhere in the league tables of software. And that's just a mistake that's being made by the GICS group, and you know we expect that that will be rectified at some point in the future. It is something that I think is important, and I wanted to just mention it here. And that's it. Let's open it up for questions, operator.
Last comment, I'd like to make is on our, uh, Global industry classification. Standard the jicks where we're positioned as a company currently Thrive as classified incorrectly, we are classified as a, uh, under advertising under media and entertainment within the communication services. So we're not in software at all. So, when people screen and look for Thrive, they don't see Thrive. They, they, they they
We don't even show up anywhere in the league tables of software and that's just a mistake that's being made, uh, by the jicks group and, you know, we expect that that will be rectified at some point in the future. Um, it it is something that uh uh I I think is important and I wanted to just mention it here. Um,
And that's it, let's open it up for uh questions. Operator.
Speaker 5: Absolutely. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to retract your question for any reason, please press star followed by two. Again, to ask a question, please press star one. We do ask that you limit yourself to asking one question and one follow-up. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question will go to a line of Arjun Bhatia with William Blair. Arjun, your line is open.
Goodly, if you would like to ask a question, please press star. Followed by 1 on your telephone keypad, if you would like to retract your question for any reason, please press star followed by 2 again to ask a question. Please press star 1, we do ask that you limit yourselves asking, 1, question and 1, follow-up. As a reminder, if you're using a speaker-phone, please remember to pick up your handset before asking your question.
Our first question will go to the line of Arjun Bhatia. With William Blair, our juice, your line is open.
Arjun Bhatia: Thank you, and congrats on a great Q2 here. Especially nice to see the profitability ramp. Joe, you talked a little bit about the vertical strategy just now. The HVAC product is out. What like help us understand how you think that's going to impact the business. You know, is it going to help you kind of get new customers in the HVAC segment? Is there an upcharge for the vertical capabilities? How do you think that kind of plays out into the Thryv growth story? And then I'd be curious to hear, you know, how you're thinking about the roadmap for future verticalization. Which verticals might you target? And what kind of timeline should we think about there? Thank you.
All right, thank you. And, um, congrats on a, on a great Q2 here, especially nice to see the, the, the possibility where we have, um, Joe, you've talked a little bit about the virtual strategy just now. Um, the hrec product is out what like, help us understand what how you think that's going to impact.
The business, you know, is it going to help you kind of get new customers in the AC segment? Is there an upcharge for the for the vertical capabilities?
How do you think that kind of plays out into the trial growth story? And then, I'd be curious to hear, you know, how you're thinking about the road map for future verticalization, which, which verticals might you target, um, and then what kind of timeline should we should? We think about their, thank you.
Joe Walsh: Thanks, Arjun. So within HVAC, we have mapped these automations, and it is an upcharge. You need to buy this automations package. And you've got one of the leading HVAC companies in the country who've, you know, sort of opened up their processes and shared. And so a lot of aspiring HVAC guys kind of get a glimpse into how the big guys do it and do it really well. Sort of the roadmap of where they may want to go for the future is laid out for them and pre-built in these automations. So you're buying automations. You're also buying IP. You're buying, you know, business processes. So yes, there's a fee for it. And in terms of how it'll shape, you know, our business, I think it will continue to flatter ARPU because, you know, you've got people that are standing accounts adding a chunky additional investment.
Thanks Arjun. So uh, within HAC, we we have mapped these automations, and it is an upcharge you need, you need to buy this automations package, and you've got 1 of the leading HVAC companies in the country who you know, sort of opened up their processes and shared. And so a lot of aspiring HVAC guys kind of get a glimpse into how the big guys do it and do it really well.
Sort of the road map of where they may want to go what uh for the future is laid out for them and and pre-built in these automations. So
You're you're buying automations. You're also buying, IP, you're buying, you know, business processes. So, yes, there, there's a, there's a c for it. And in terms of how it'll shape,
Joe Walsh: I think it will impact engagement and client satisfaction because it will really help them advance to another level with their business. I think it will play defense for the thousands and thousands of HVAC accounts that we currently have. You know, rather than just having a horizontal piece of software, they'll have something that's deeply verticalized. And to the extent that, you know, they may be being called on by, you know, other players, it'll play defense. On the offense side, it gives us a heck of a story to tell when we want to go and try to win new business in HVAC. And you've got something really relevant to talk to them about. We've got a lot of wonderful content out there online now, you know, tutorial videos, you know, how to be a great HVAC company and so on, marketing.
You know, our business. I think it will continue to flatter our poop because, you know, you, you've got people that are standing accounts, adding a chunky additional investment. I think it will, it will impact engagement and client satisfaction because it will, it will really help them advance to another level with their business. Um, I think it will play defense.
Joe Walsh: And we're getting a lot of clicks and hits and views and all that stuff on that. And it's generating leads already. We've actually been at this for a minute. And it's going really well. So I think we will be able to attract more HVAC companies. I think we'll be able to retain the ones that we have. I think there'll be a nice upsell in terms of the ARPU per account. And so I think it'll flatter the whole category that way. I also want to stop and say that we have every intention of working closely with some of the back office folks who've spent an enormous amount of time mapping the back office processes and figuring out, you know, when the truck 22 comes in, you know, you load it with Freon and you put this many filters and wing nuts on it and all that.
You know, you've got something really relevant to talk to them about. We've got a lot of wonderful content out there online. Now, you know, uh tutorial videos, you know how to be a great HVAC company and so on marketing. And we're getting a lot of a lot of clicks and hits and Views and all that stuff on that and it's generating leads already. We've actually been at this for a minute and it's going and that's going really well. So I think we will be able to attract more HVAC companies. I think we'll be able to
retain the ones that we have, I think they'll be
Nice. Uh, uh,
Upsell in terms of the RPU per account. And so I think it'll flatter the whole category that way. I also want to stop and say that,
Joe Walsh: You know, we haven't done that. That's not where we operate. We don't operate in the deep back office. We're more out in front helping you get customers. And so we will be working with a number of these different players that work in the back office and, you know, anxious to do that. And I think there's white space in the market where we are, and I think we have an opportunity to serve there. As far as additional verticals, that team that did the HVAC vertical is flat out working on other verticals. And the way we approach those is we looked at our own success. We peered into our 100,000-plus customer base and said, where do we have the deepest penetration? Where are we having the most success? Let's start right there.
We have every intention of working closely with some of the back office, folks, who've spent an enormous amount of time, mapping the back office processes and figuring out, you know, when the truck truck 22 comes in, you know, you load it with Freon and you put as many filters and Wing nuts on it and all that, you know, we haven't done that. That's not where we operate. We don't operate in the Deep back office. We're more out in front, helping you get customers. And so we will be working with, uh, a number of these different players that that work in the back office and, um, you know, anxious to do that. And I think it's there's white space in the market where we are, and I think we have an opportunity to to serve there as far as additional verticals. Um, where that, that team that did the HVAC vertical is flat out.
Working on on other verticals. And the way we approach those is we looked at our own success. We we peered into our 100,000 Plus customer base.
Joe Walsh: And so we're really, you know, really working at our deepest penetrated, most successful classifications and delivering to them real value add and doing it pretty quickly. And so I think you'll see us adding more of these vertical applications pretty quickly. You know, we have several others underway as we speak, and we will be adding them pretty quickly. So if we look forward, say, a year from now, our top band of customers will have these vertical offerings, and we'll be heading further down, deeper into the customer base.
And said, where do we have the deepest penetration? Where are we having the most success? Let's start right there. And so we're, we're really, you know, really working at our our deepest penetrated, most successful classifications, and delivering to them. Real value, add, and, and doing it pretty quickly. And, um, so I think you'll see us adding more of these vertical applications.
Pretty quickly. Um, you know, we, we, we have, uh, several others underway as we speak and, uh, we will be, we will be adding them pretty quickly. So if we look forward to say a year from now, um, our our, our top band of customers will have these vertical offerings and we'll be heading further further down deeper into the customer base.
Arjun Bhatia: That's super helpful, Keller. I appreciate that. And then maybe, you know, I want to touch on the guidance for a sec. I know you mentioned, you know, the revision on the SaaS guidance is mostly due to a segment of the Keep business. But when we look at kind of what's implied in the back half on an organic basis, you know, it does imply a bit of a slowdown. Meanwhile, when I look at the Q2 results, both from an organic growth and a profitability perspective, you know, clearly there's good momentum in the business. Now you have vertical going out. You have Workforce Center. You're just getting going on a lot of the cross-sell initiatives that you launched this year. So how realistic maybe is the back half deceleration on an organic basis that's incorporating the guidance? And maybe, you know, are you being conservative there?
Um, let's, uh, super helpful. Call our appreciate that. Um,
And then maybe, you know, I want to touch on the guidance um, for for a sec. I I know you mentioned, you know, the the revision on the SAS guidance is is mostly due to the the to to segment of the key business. But when we look at kind of what's implied in the back half on an organic
Basis. You know, it does it does imply a bit of a Slowdown? Meanwhile when I look at the Q2 results both from a organic growth and profitability perspective, you know, clearly there's good momentum in the business. Now you have vertical growing up, you have Workforce Center. You're just getting going on. A lot of the Cross sell initiatives that you launched this year. So how realistic maybe is the back half.
Arjun Bhatia: Or what would have to happen in the business and the demand environment for that back half outlook to come to fruition?
Deceleration, uh, on an organic basis. That's incorporating the guidance. And and maybe, you know, are you being conservative there or what would have to happen in the business and the demand environment for for, for those uh, for that back half. Um, Outlook to, to come to fruition.
Joe Walsh: Yeah, Arjun. Paul still works here. So there's always a tremendous amount of good in everything that we put out. Though, you know, he's assuming we catch a cold, get the sniffles, fall down, sprain an ankle, like everything between now and the end of the year. So that's a, you know, we want to be conservative. We want to view the numbers that we give you guys like we're writing a check so that you can kind of count on them and build on them. So we're excited about a lot of the momentum we have going on in the business. We really are. So I can't point to anything that we're worried about, to be honest with you.
Yeah, art and Paul still works here.
so,
there's always a tremendous amount of concern.
And everything that we put out. Um so uh you know, he's assuming we catch a cold and get the sniffles fall down spraying an ankle like the everything between now and the end of the year. So that that's a, you know, we we we want to be conservative, we want to view the numbers that we give you guys like, we're riding a check.
So, you said you can kind of count on them and build on them. So, um, we're excited about a lot of the momentum we have going on in the business. We really are.
So, uh, I don't, I can't point to anything that we're worried about, to be honest with you.
Arjun Bhatia: Okay. That's good to hear. Perfect. Well, thank you for the time. Appreciate it.
Joe Walsh: Thank you, Arjun.
Okay. Um, let's get to here. Uh, perfect. Well, thank you for the time. I appreciate it.
Thank you. Are
Speaker 5: Thank you. Our next question goes to a line of Scott Berg with Needham & Company. Scott, your line is open.
Thank you.
Our next question goes to the line of Scott Berg with NEM and Company. Scott, your line is open.
Scott Berg: Hi, John. Paul and I supported the critique of my questions here. I wanted to focus all of my questions on the SaaS business, I guess, in general. John, I just wanted to see if you can expand upon your commentary around what you're seeing in the Keep business around those customers that you're, it sounds like you're maybe not reviewing or trying to get away from some unthoughtful contracts. And how do we think about where you are in that cycle, I guess, is Q2 this attract? Do you expect, you know, those, I guess, perfections to continue for a quarter or two? Because if I annualize the Q2 Keep revenues, I gave up $71 million versus what I believe you all expected would be a $75 million truck when you acquired the business last month.
Contracts. And and how do we think about where you are in this type of I guess is is Q2 this a try to expect, you know, those those I guess transactions to continue for a quarter or 2 because if I annualize the Q2 keep revenues again about 71 million dollars versus what I believe. You all expected would be a 75 million drop. When you acquired the business last call.
Joe Walsh: Yeah, look, the Keep software is amazing. The Keep people that we acquired are amazing. Their go-to-market motion had some challenges. I mean, they had been in a revenue decline for more than just one year prior to when we bought them. And, you know, even toward the end, they were selling at a fairly low lifetime value to CAC ratio in their direct channel in order to keep revenue up where it was. And you're very well aware of our pinch point that we just passed through and the, you know, the sort of tightness of our plan. And we just looked skeptically at those unprofitable sales and said, you know, do we really want to invest in those right now?
Yeah, look the the the keep software is amazing.
The, the key people that we acquired are amazing,
um, they're
go to market motion, had some challenges, I mean, they they had been in a revenue decline for more than more than just 1 year prior to when we bought them. And, um,
You know, even toward the end they were, they were selling at a fairly low.
Joe Walsh: When our overall numbers rock and the Thryv side of the house is rocking, do we really want to go over here and, you know, sort of buy more of these sales? And we just made the decision not to. We could have put a few million bucks into the demand gen business and, you know, equal that number. But it would have been not a good ROI on that cash in the short term. Where we're finding a tremendous amount of interest and success and traction with Keep software is through the Thryv salesforce into the Thryv customer base. Using these, you know, slick automations in the solutions launch pad and so on, customizing those for particular verticals is an absolute hit. And it's just early days now. We're just getting going. But it's gaining lots of traction in our sales organization and with our customers.
The Thrive side of the house is rocking. Do we really want to go over here and and, you know, sort of buy more of these sales and we just made the decision not to we could we we could have put a few million bucks into the demand gen business and, you know, equal that number. Um, but it it would have been not a good Roi on that on that cache in the short term.
Um, where we're finding a tremendous amount of interest and success and traction with Keep software is through the Thrive sales force into the Thrive customer base, you know, using these.
You know, slick automations in the solutions Launchpad and so on—customizing those for particular verticals is an absolute hit, and it's just early days. Now we're just getting going, but it's...
Joe Walsh: The ARPU, it's tasty. It's a good size one. It's, you know, margin rich. So we're really, really pleased about that. You know, one of the things that we were super excited about in buying Keep was their very successful partner channel. And it's still a good partner channel. It's still a successful partner channel. But when we showed up day one and said, "We're here," they were mad at us. Like the day they met us, they were mad at us. They said, "You know, we haven't been getting love. We haven't been getting innovation. We haven't been getting investment. We haven't been getting... And you owe us.
Gaining lots of traction in our sales organization and with our customers, um, the the RP who is tasty, it's a good size 1. It's you know, margin rich.
So we're really, really pleased about that. Um,
you know, 1 of the things that we were super excited about and buying keep was their very successful partner Channel. Um, and uh, it's still a good partner channel. It's still a successful partner Channel, but when we showed up day 1 and said we're here, they were mad at us.
Joe Walsh: And you owe us right now." And so we're working feverishly to deliver on, you know, a lot of the API hooks and different other technical things that they're looking for and some other ease of doing business with partner channel things that they've been waiting for a while for. And so we are emerging slowly from the partner doghouse as we deliver on those. And I have a lot of enthusiasm for what happens in '26 and '27 with the partner channel, just not happening quite as quick here in '25 because they're sort of taking a little bit of a wait and see in terms of really leaning in. So we're really pleased about Keep. I'd buy it again, you know, every day of the week and twice on Saturday. It was a great transaction. Keep's own revenue-producing model, you know, had been challenged.
Like the day they met us, they were mad at us. They said you know, we we haven't been, we haven't been getting love, we haven't been getting Innovation, we haven't been getting investment, we haven't been getting and you owe us and you owe us right now. And so we're working feverishly to
Deliver on, you know, a lot of the uh, API Hooks and and and different other technical things that they're looking for and some other ease of doing business with partner Channel things that um that they've been waiting for a while for. And um, so we are emerging slowly from the partner dog house as we deliver on those and I have a lot of enthusiasm for what happens in 26 and 27 with the partner Channel,
Joe Walsh: And we haven't chosen to just pour money in to fill in that hole. But I am very confident of what Keep will do in the fullness of time in terms of adding revenue to our business. And, you know, one of the other promises that we made, Scott, for Keep was that we could deliver $10 million in cost synergy so that it would bounce our EBITDA up this year. And we went by $10 million like it was tied to a pole. Like that's in the rearview mirror. And we're going further than that. So the cost synergies were captured right away. And the revenue synergies are coming. They're just delayed by a little bit. And that was really a business decision that I made just out of an abundance of caution to make sure we preserved every dollar for debt repayment.
Just not happening quite as quick here, in, in, in, in 25 of a little bit of a wait, and see in terms of really leaning in. So, um, we're really pleased about keep, I'd buy it again. You know, every day of the week and twice on Saturday, it was a great transaction um keeps on Revenue producing model, you know had been challenged and we haven't chosen to just pour money in to fill in that hole. Um
But I I am very confident.
Of what people do in the fullness of time in terms of adding Revenue to our business.
And you know, 1 of the other promises that we made Scott for keep was that we could deliver ten million dollars in cost synergies. So that would bounce our IBA up this year and we went by 10 million like it was tied to a poll like that's that's in the rearview mirror and it we're going further than that. So um the cost synergies were captured right away and the revenue centers are coming. They're just delayed by a little bit and that was really a business decision that I made just just just to out of a abundance of caution to make sure we preserved every dollar.
Joe Walsh: And as Paul shared in his segment earlier, we're actually now ahead of debt repayment. So we sort of pushed that off the table as an issue now. Not only does our MWRP drop substantially, but we're actually paid way into next year already. So, you know, you can take that and tick-tail that off your issues for Thryv list.
Uh, for debt repayment and as Paul shared in his segment earlier, we're actually now ahead of debt repayment so we sort of pushed that off the table as an issue. Now, not only does our M work
drop substantially, but we're actually paid way into next year already.
So um, you know that you, you can take that and pigtail that off your issues for Thrive list.
Arjun Bhatia: Over and out.
Over and out.
Scott Berg: Got it. Helpful, Joe. And then if I look at the organic Thryv business in a quarter on the SaaS side, my numbers are correct. It looks like your customer count actually contracted by 4,000 a quarter over quarter. I know this is a year where you're focusing on cross-sell upsell and existing customer expansion. I guess what we're seeing there in the business is this kind of a one-quarter item as you focused on those existing customer expansions. Or you see something else in the business that's maybe not offsetting some of your natural churn with the new customers coming in.
Got it, helpful journal. And then, if I look at your organic fine business in the quarter and around the staff side, my numbers are correct, it looks like your customer donation.
The next.
Order over quarter. I know this is you where your folks in
this is what we're seeing there in the businesses is kind of a point quarter item as you focused on those existing customer expansions or you see something else in the business.
In that Ops setting.
With that.
New customers coming in.
Joe Walsh: Yeah. Well, you have the theme right. This is the year 2025 will be the year where our client base will remain about flat and where the big gain will come with an ARPU bounce, with us going in and adding multiple SaaS products into existing customers, upselling, taking people deeper into tools like these automations we've been talking about, adding things like Workforce Center. So this, you know, we guided in the fullness of time or over the balance of the decade that we would go from sort of $4,000 a year to $8,000 a year. And then we immediately then that year, you know, or last year, ARPU went back slightly because we just added so many subs and a lot of those, you know, were coming over out of marketing services with special pricing arrangements.
Joe Walsh: So what's happening now is we're meeting with these clients, working with them, getting them squared away with often new packages and new programs and updating and changing. And that's resulting in strong upsell. Candidly, we did not have the money to do both this year. We couldn't really staff going out and servicing all those people who came over. I mean, we made what, 40-plus thousand jump in subs last year. We've got a lot of people to see, a lot of people to talk to. And so this will just be a year where we're flattish. And it'll bounce around quarter to quarter through the year, but I would expect we'll end the year right around where we started, but with a big jump in ARPU so that revenue will make a big jump.
Who went back slightly, because we just added so many subs. And a lot of those, you know, were coming over out of Marketing services with special pricing Arrangements,
so,
What's happening now is we're meeting with these clients working with them, getting getting them squared away with often new packages and new programs, and updating, and changing and and that's resulting in strong. Upsell
Joe Walsh: And then as you look forward to '26, and we'll get into guidance for next year or later, but you know, I would expect us to get back on the horse and begin to invest in expanding our channels. As I mentioned earlier, we've got some new channels that are gaining traction. And I would see us get back on a path of balancing adding subscribers and adding ARPU. I hope that answers the question.
Candidly, we did not have the money to do both this year. We, we couldn't really staff going out and servicing. All those people who came over. I mean, we, we we made what 40 plus thousand jump and Subs. Last year, we've got a lot of people to see, a lot of people talk to and um, so this will just be a year where we're flattish and it'll Bounce Around quarter to quarter through the year. But I would expect we'll end the year right around where we started but with a big jump in our food so that Revenue will make a big jump and then as you look forward to 26 and we'll get into the guidance for next year or later, but, you know, I would expect us to get back on the horse and begin to invest, um, in expanding our our channels. As I mentioned earlier, we've got some new channels that are gaining traction and I I would see us get back on the path of balancing adding subscribers and adding our poop.
Hope that answers the question.
Scott Berg: It does. Thank you for taking my questions.
Good job. Thank you for taking my questions.
Joe Walsh: Thanks, Scott.
Thanks Scott.
Speaker 5: Thank you. Our next question goes to a line of Jason Cryer with Craig Hallam. Jason, your line is open.
Thank you.
Our next question goes to the line of Jason Krier with Craig-Hallum. Jason, your line is open.
Jason Kreyer: All right. Thank you, guys. So, Joe, you know, you made it through this financial pinch point. You talked about the financial flexibility. Just hoping you can unpack that and then just talk about the opportunities, just given better profitability, lower amortization liabilities. And so I think all of that will equate to better free cash flow. But what kind of financial flexibility opportunities do you have with that better free cash flow generation? Thanks.
All right, thank you guys. Uh, so Joe, you know, you made it through this financial pinch point. You talked about the financial flexibility was just hoping you can unpack that and just talk about the opportunities just given better profitability lower, amortization liabilities. And so I think all of that will equate to better free cash flow. But what kind of financial flexibility opportunities do you have with with that better free cash flow generation. Thanks,
Joe Walsh: I'm going to share this answer with Paul. I'll start, and then I'll let him talk about how he thinks about it. Yeah, you know, most corporations have some capital allocation decisions that they make. They sit around a room and they say, you know, should we allocate the money into share buybacks? Should we put it into debt repayment? You know, should we invest more in marketing or whatever? We've only made two decisions, and they just left them stuck there for the last few years. And that's invest, hand over fist in our product, and cut everything else and pay down debt. That's pretty much what the last several years have been. And so, yeah, we're excited about now that we're past the pinch point, we actually begin to make some new decisions. We can invest in, you know, adding salespeople.
I'm going to share this answer with Paul, I'll start and then I'll let him talk about how he thinks about it.
Um, yeah, we, you know, most corporations have a, some Capital allocation decisions that they make you either sit around a room and they say, you know, should we allocate the money into share BuyBacks? Should we put it into, uh, debt repayment? You know, should we invest more in marketing or whatever?
We've only made 2 decisions.
And I just left them stuck there for the last few years and that invest hand over fist in our product.
And cut everything else and pay down debt.
Joe Walsh: We can put more demand generation into the market. We can tell our story more to our customers. We can do more marketing. And obviously, you know, with such a mispriced share price, we can buy back stock. And I can, you know, you have to figure that's very much on the table. We have a share buyback authorization. We've not really had any cash to action that. But we now have the ability. We have the authorization, and we have the money to do it. So those are some of the options. You know, I don't want to, you know, get too deeply into exactly how we'll play all that right now. But, you know, with the share price where it is, that's certainly something that we'll be thinking very hard about. I'll let Paul comment to any thoughts he has on it. Paul?
That's that's pretty much what the last several years have been. And so yeah, we're excited about now that we're past the pinch point, we actually begin to make some new decisions we can invest in, you know, adding salespeople we can put more demand generation into the market, we can we can tell our story more to our customers. Uh we can do more marketing and obviously you know with
A such a mispriced share price, we can buy back stock and I can, you know, you have to figure that's very much on the table. We have a share share buyback authorization. We've not really had any cash to action that, but we now have the ability, uh, we have the authorization and we have the, uh, the money to do it. So, um, those are some of the options, you know? I I don't want to
Paul Rouse: Yeah, I'll stay in my lane here. Yep. Those strategic decisions are really Joe's. But I just want to let you and the market know we're still focused like a laser beam and repaying debt and delevering. So you'll see that as we move out too. We'll be focused on that.
You know, get too deeply into exactly how we'll play all that right now. But, um, you know, with the share price, where it is, that's certainly something that we'll be thinking very hard about. I'll let Paul comment to any thoughts. He has on it. Uh, Paul. Yeah, I'll stay in my Lane here. Yep. That those strategic decisions are are really Joe's, but I just want to let you in the market know, we're still, uh, focused like a laser beam and we, we, we paying that and de-levering. So you'll, you'll see that as we move out, too, we'll be focused on that.
Joe Walsh: Does that answer your question, Jason?
Jason Kreyer: Helpful. Thank you. That answers my question very well. I appreciate that. Just a quick follow-up for me on Marketing Center. If you can just talk about the growing client appetite there and maybe, you know, you're seeing success with new products in market. So curious if you can maybe shine a light on what those new products are, how you're finding ways to engage with customers that have that greater appetite.
Does that answer your question? Jason, helpful. Thank you.
That answers my question very well, I appreciate that. Um just a quick follow up for me on on marketing Center. If you can just talk about the growing uh client appetite there and maybe you know you're you're seeing success with new products and markets. So curious if you can maybe shine a light on what those new products are how you're finding ways to engage with customers that have that greater appetite.
Joe Walsh: Yeah, we, you know, it's funny. We've been in business since 1886, linking buyers and sellers together through the yellow pages, right? And that's the background here. And then that went on to be online yellow pages and then all manner of digital marketing. And, you know, our company is peopled with experts in everything to do with search engine marketing and SEO and all these different things. And we have a network, a massive network of directories for which we monetize their traffic. And, you know, we hadn't fully been leveraging all of that. And we sort of were almost running away from it, focusing on helping people to operate their businesses, you know, with our CRM software and, you know, estimates, invoices, billing, payments, all that kind of stuff.
Joe Walsh: And I think we've recently woken back up to the fact that helping small businesses grow is a big deal. And it's an area that's our birthright. We're really, really good at it. And so our Marketing Center answers the famous question that John Wanamaker asked. You know, I know that half of all my advertising is wasted. I just don't know which half. It answers that. It lets you know precisely which things that you're doing are working online, offline. There's no mystery. And for successful businesses and smart people that want data to know how they're doing, it delivers that. What we've now done is coupled that with some of our other things that help you build your list, that helps you drive your leads, helps you meet new, you know, new perspective people that are interested in what you do. And we've struck oil.
We sort of were almost running away from it, focusing on helping people to operate their businesses, um, you know, with our CRM software and and um, you know, estimates invoices, billing payments, all that kind of stuff. And uh I think we've recently woken back up to the fact that um,
Helping small businesses. Grow is a big deal and it's it's an area that's our Birthright. We're really, really good at it. And so our marketing Center answers, the famous question that John wanted to make or asked, you know, I know that half of all my advertising is wasted I just don't know which half it answers that it lets you know precisely
Which things that you're doing or working online offline, there's no mystery um, and for successful businesses and smart people that want data to know how they're doing it. Delivers that. What we've now done is coupled that, with some of our other things that help you build your list, it helps, you drive your leads, it helps you meet new, you know, new prospective people that are interested.
In what you do. And, um,
Joe Walsh: I mean, you know, we're screwing around out here drilling holes, and all of a sudden, oil just came up everywhere. We hit it. And we haven't hit it on our hands. And our focus has really been Marketing Center and some very powerful add-ons that leverage the other assets that we have as a business. So I really like where we are. And I think we fit nicely in the market with some of those people that have spent a lot of time working in the vertical, you know, realm, digging in on all the deep back office operations of a pest control company or whatever. You know, we can actually partner and sit right alongside of them where we're handling all the front end, helping to keep the order book full and keep your existing customers activated and all that. We are superb at all that.
We've struck oil. I mean, you know we're screwing around out here drilling holes and all of a sudden oil just came up everywhere, we hit it and we have a hit on our hands and um
Uh our Focus has really been marketing Center and some very powerful add-ons that leverage the other assets that we have as a business.
Joe Walsh: And if you want to keep track of when we applied the chemicals, that's great. You know, we fit in there perfectly. So we really like what we've learned. We like where we are there.
So um I really like where we are and I think we fit nicely in the market with some of those people that have spent a lot of time working in the vertical, you know, realm digging in on all the Deep back office operations of a pest control company or whatever. You know, we can actually partner and sit right alongside of them where we're handling all the front end, helping to keep the order booked full and, uh, keep your existing customers activated, and all that we are, superb at all that. And if you want to keep track of when we applied the chemicals, that's great. You know, we fit in there perfectly so we really like what we've learned. We like where we are there.
Jason Kreyer: Wonderful. Thank you. Appreciate it, guys.
Joe Walsh: Thanks, Jason.
On the phone. Thank you. Appreciate it, guys.
Thanks Jason.
Speaker 5: Thank you. Our next question goes to a line of Zach Cummins with B Riley Securities. Zach, your line is open.
Thank you. Our next question. Goes to the line of Zach, come with B Riley Securities, suck your line is open.
Arjun Bhatia: Hi. Good morning. Congrats on the strong quarter. This might be a question pointed towards Paul, but can you speak to just the outperformance that we saw on the SaaS adjusted EBITDA margin side? Is there any sort of one-time benefit in this quarter? Just wondering in terms of second half versus the guidance that you've put out there and maybe potential upside on the margin realization front.
Hi. Good morning. Congrats on, on the strong quarter. This might be a question pointed towards Paul. But C can you speak to, uh, just the outperformance that we saw on the SAS adjusted? Email margin side? Is there any sort of 1-time benefit in this quarter? Um, just just wondering in terms of second half versus the guidance that you've put out there and maybe potential?
Paul Rouse: Yeah, thanks, Zach. Good question. Yeah, it really was. You know, we had a really strong print quarter. So it, you know, as you know how our allocations work, it's based on revenue. So if you have a strong print quarter, it's going to allocations are going to be stronger towards marketing services. That type of, listen, I would love if we had 20% each quarter going out, but quarters are going to be lighter in print for the third and fourth. So the allocations will shift back, weighing on SaaS. There'll still be strong quarters, but I wouldn't write down the 20% going forward straight for SaaS margins.
On, on the marginalization front.
Yeah, thanks, Zach, good question. Yeah, it really was. You know, we had a really strong print quarter.
So it, you know, as you know how our allocations work is based on Revenue. So if you have a strong print quarter, it's going to allocation is going to be stronger towards marketing services. That, that type of, listen, I would love if we we had 20% each quarter going out, but but quarters are going to be lighter in print for the the, uh, third and fourth. So the allocations will shift back.
Weighing on SAS, they'll still be strong quarters but I I wouldn't write down. The 20% going forward. Straight for assess margins.
Arjun Bhatia: Understood. That's helpful. And Joe, just with the press release this morning around Workforce Center, can you delve a little bit into maybe some of the early feedback you've been getting from some of the early users of the product? And how should we think about the ideal customer fit and who's going to be really interested in this product within your customer base?
Understood, that's that's helpful. And and Joe uh just with the press release, uh, this morning around Workforce Center. I mean, can you delve a little bit into maybe some of the early feedback you've been getting from from some of the early users of the product and and how should we think about the ideal customer fit and and who's going to be really interested in in this product within your customer base?
Joe Walsh: So there's a whole world of kind of PEO people out there working with, you know, businesses and even small businesses on payroll. But they become less and less interested when you don't have very many employees. When you're below 25 employees, you know, it's just not a lot of they're there. And our customer base is largely these, you know, 5, 8, 10, 12, 15 employee businesses that kind of sit below that radar. And their dream scenario would be to have one platform they could use for everything. And we're delivering on that. So, you know, that's kind of the market that we see. We don't think it's going to be a massive, you know, revenue. It's not going to rival a Marketing Center in revenue or something like that.
So there there's a whole world of kind of peo people out there working with
You know, businesses and even small businesses on payroll but they become less and less interested. When you don't have very many employees when you're below 25 employees. You know, it's just not a lot of their, their and our customer base is largely these
Joe Walsh: It's more of a convenience that we were able to adopt, create a cool UI, and plug into what we're doing to make life easy for our customers. And we've seen, and the evidence is overwhelming, that the more of our SaaS products they buy from us, the churn falls. So if they add, you know, Workforce Center, you know, their propensity to churn just drops through the floor. And so, you know, that's sort of how we thought about it. It's a little bit like Thryv Pay. It's a convenience for customers. Workforce Center is the same. So that's kind of how we think about it. We don't have a ton, you know, of revenue modeled in for this. We do have many customers already on it. We've actually been doing it for a while.
You know, 5 8, 10 12, 15 employee businesses, that are that kind of sit below that radar and their dream scenario would be to have 1 platform that could use for everything and we're delivering on that. So, um, you know, that's kind of the market that we see, we, we don't think it's going to be a massive, you know, Revenue. It's not going to rival marketing Center in revenue or something like that. It's more of a convenience that we were able to adopt create a cool UI and plug into what we're to what we're doing to make life life. Easy for our customers and
we've seen and the evidence is,
Overwhelming.
That the more.
Yeah, Workforce Center, you know, their propensity to churn just drops through the floor and so, um, you know, that that's sort of how we thought about it. Um, it's a little bit like Thrive pay, it's a, it's convenience for customers. Um, Workforce Center is the same
Joe Walsh: We brought it out in alpha earlier this year and then had a beta, and it's now out live, and we're out selling it. And we have customers on it and paying their contractors, paying their employees, happy with it, already giving us feedback about, you know, additional things they'd love to see and all the things that customers always do. But we're off to a really nice start with it. And I would put it down as a, you know, if I were modeling, if I were in your shoes, I would put it down as a minor positive. And, you know, we may going into '26, we may, you know, we may even think about guiding you a little bit on it. We'll see. But we don't have a ton in for this year.
Um, so that that's kind of how we think about it. We we we don't have a ton, you know, Revenue model in for this. Um, we we do have many customers already on it. We've actually been doing it for a while. We we brought it out in Alpha earlier this year and then had a beta and it's now out live and we're out selling it and we have customers on it and paying their contractors paying their employees happy with it. Already giving us feedback about you know, additional things. They love to see and all the things that customers always do. Um but we're off to a really nice start with it. And um I would I would put it down as a
Joe Walsh: This is really, if you think back to the promises we were making last year, we said we'd get another center out this year. And we sort of directed you to think that would probably be in Q4, probably late Q4. And the team just had it ready. The alpha went well. The beta went well. So we went ahead and took the wrapper off and rolled it out. So in our big model, there's really not much revenue in it. So anything we get will be a good guide.
You know, if I, if I were modeling, if I were in your shoes, I I would put it down as a, as a as a minor positive. And, uh, you know, we we may go into 26. We may, you know, we may even think about guiding you a little bit on it, we'll see. Um but we don't we don't have a ton in for this year this is really. If you think back to the promises we were making last year we said we'd get another Center out this year and we sort of directed you to think that would probably be in Q4 probably late Q4 and the team just had it ready. The alpha went, well, the beta went well, so we went ahead and took the took the wrapper off and rolled it out. Um,
So in in our big model, there's really not much revenue in it, so anything we get will be a good guy.
Arjun Bhatia: Understood. Well, thanks for taking my questions, and best of luck with the rest of the quarter.
Joe Walsh: Thank you very much.
Understood. Well, thanks for taking my questions and uh best of luck with the rest of the quarter.
Thank you very much.
Speaker 5: Thank you. Our last question will go to a line of Matthew Swanson with RBC. Matthew, your line is open.
Thank you. Our last question will go to the line of Matthew Swanson with RBC Matthew, your line is open.
Arjun Bhatia: Yeah, thank you so much for taking my questions. And congratulations as well on getting past the pinch point. Maybe on that, when you think about kind of what you've learned in this period of efficiency, how do you think that impacts the areas you want to focus on investment in 2026 when you get more flexibility? Basically, where are some of these areas that you've been able to, you know, gain additional leverage? And then where are the areas that you really want to, you know, double down pouring into?
Yeah, thank you so much for taking my questions, and congratulations as well on getting past the pinch point. Maybe on that, when you think about kind of what you've learned in this period of efficiency, how do you think that impacts the areas you want to focus on investment in 2026 when you get more flexibility? Basically, where are some of these areas that you've been able to gain additional leverage, and then where are the areas that you really want to double down on?
Joe Walsh: Yeah, look, the one place we never skimped is on the product. We continue to invest hand over fist in product engineering, product improvement, making it more interoperable with other products in the market, all the connective tissue that makes it easy for small businesses. Because we felt like that's something that we couldn't slow down on. So we were flat out on that. But in terms of the development of some of our sales channels, we did skimp there. We did hold off there. We did, you know, we pulled back on international. We pulled back on, you know, the amount of energy we're putting against our, you know, our back in the day, the old Thryv partner channel before we bought Keep. You know, similarly on our franchise channel. So there are a number of initiatives that we're honestly super excited about.
Yeah, look the 1, the 1 place we never skipped is on the product. We continue to invest Handover fist.
In product engineering product Improvement, making it more interoperable with other products in the market, all the connective tissue, that makes it easy for small businesses because we felt like that, that's something that we couldn't, you know, couldn't slow down on. So we were flat out on that, but in terms of the development of some of our, uh, our our sales channels, um, we did skimp there. We did hold off their, uh, we did, you know,
We, we pulled back on International, we pulled back on, you know, the the amount of energy we're putting against our, you know, our our, our back, in the day on the old drive partner channel before we bought keep, um, you know, similarly on our franchise channel. So there, there are a number of initiatives that we're
Joe Walsh: We have incredible leaders focused on and, you know, a nice right to win that we haven't peopled or invested in just based on deference to this pinch point. We needed to get past it. So, you know, we will be able to begin to seed some investment into those channels. You know, our marketing team is like the Maytag repair people, like sitting there, sitting there waiting for us to give them some money. So we, you know, we're going to begin to be able to do that, to begin to market the product. I doubt you're watching, you know, the Final Four and seeing ads on TV for Thryv. I mean, we really haven't been doing much at all in terms of marketing. We've been just relying on having been in business for 140 years as the way to meet people and so on.
Honestly, super excited about. We have an incredible leaders focused on and
You know, a nice right to win that we haven't.
Joe Walsh: So honestly, there's just a lot of opportunities. I could go on for probably 10 more minutes about all the places that we could use a little bit of nourishment that we could put in that would be offensive and begin to put us on our front foot. The best way I can describe the last several years for us as a company is we've been on the back foot. We've been in a cost-cutting, you know, get through this, get through this, get through this kind of mode with Paul Rouse, who's mean, running around, you know, cutting everything in sight and just cranking us down. And he's done a wonderful job and delivered a buttload of cash and has us, he overshot, you know, but that's, I'd rather have him overshoot than undershoot.
People are invested in, uh, just based on difference to this pinch point, we needed to get past it. So, you know, we will be able to begin to feed some investment into those channels. Um, you know, our, our marketing team is like the mayag repair people like sitting there sitting there waiting for us to give them some money. Um, so we, you know, we're going to begin to be able to do that, to begin to market the product. Uh, I doubt you're watching, um, you know, the final 4 in seeing ads on TV for Thrive. I mean, we really haven't been doing much at all in terms of marketing. We've been just relying on having been in business for 140 years as, as the way to, to to meet people and so on. So,
honestly, there's just a lot of opportunities. Um, I I I could go on for probably 10 more minutes about all the places that we could could use a little bit of nourishment that we could put in, that would be offensive and begin to put us on our front foot.
Joe Walsh: And so it is very exciting for us to kind of get off the back foot and onto the front foot. And, you know, we've been doing some reasonably good growth, obviously, you know, as a business. But, you know, a lot of that has come from, you know, hunting in our zoo, moving our zoo over and all that. So, you know, getting, going outside of that is something that we're super excited about in, you know, in the year ahead.
Business. But you know a lot of that has come from you know, hunting in our Zoo, moving our zoo over and all that. So uh you know, getting going outside of that is something that we're super excited about and um, you know, in the year ahead.
Arjun Bhatia: Yeah, I appreciate that. And then I guess like between SaaS adjusted EBITDA margins, the ARPU, the net retention, we're starting to get a glimpse of kind of like the power of the transition platform. But I wanted to focus specifically on multi-products. I know retention gets a lot better when you get to that. What is kind of the key strategy, I guess, in improving that 19%? Is it about, do you think it's about the product fit in terms of getting more centers out? Or do you think is this more so kind of on that same line we were just on about investing more in the go-to-market and more about making sure your customers and the right customers know about the products?
Yeah, I appreciate that and then I guess like, between SAS adjusted deep, but down large in CRP. The net retention. We're starting to get a glimpse of kind of like the power of the transition platform. Um but I want to focus specifically on multi-product. I know retention gets a lot better when you get to that what what other kind of the key strategy I guess in improving that 19%? Is it about
Do you think it's about the product fit in terms of getting more centers out? Or do you think is this more? So kind of on that same line, we were just on about investing more in the go to market and more about making sure your customers and the right customers know about the products.
Joe Walsh: Yeah, one of the things we did invest in, I must have hid it from Paul. He didn't know about it, I guess, over the last couple of years is really modernizing our go-to-market efforts. And we have, we've invested in the data scientists to do it, the sales technology to put in the hands of our sales reps to aim them. I mean, just, it was just a few years ago, we'd say to the reps, "Good luck, guys. Go get them." That was about the end of it. Now, I mean, when they wake up in the morning, they open up their laptop, it says, "Okay, welcome to your morning. Let's go call on ABC Glass and Mirror Company. And this is what you're going to talk to them about." And that's just next level from where we were even, really even two years ago.
Yeah, 1 of the things we, we, we did invest in, I must must have hid it from Paul. He didn't know about it, I guess, uh, over the last couple of years is really, um, modernizing our go to market efforts, um, and we, we have, we've invested in the, the data scientists to do it the, the sales technology to put in the hands of our sales reps to aim them. Um, I mean, just, it was just a few years ago, we'd say to the Reps. Good luck guys. Go get them. And that was about the end of it now
Now, I mean, when they wake up in the morning, they open up their laptop. It says, okay, welcome to your morning. Let's go call on ABC, Glass and Mirror Company. And this is what you're going to talk to them about.
Joe Walsh: And so we are now with the go-to-market team, the data scientists doing that, and our marketing team all working very carefully together. We're now directing our sales force out running very specific plays against very specific types of businesses with a very specific offer. And I would say that we're in the first inning of that. We're really just getting going, but we're seeing tremendous sell-through on that, tremendous success. And our marketing team are beginning to do account-based marketing ahead of those sales plays so that the kind of the beachhead is softened and they actually have already been alerted that there's Workforce Center available or that there's this other add-on product available. So we're honestly just starting. And I would expect that percentage of customers that have more than one SaaS product to just move up almost like a metronome moving north.
And that's just Next Level from where we were even really even 2 years ago. And so we are now with the the the uh go to market team, the data scientists doing that, and our marketing team, all working very carefully together. We're now directing our sales force out running, very specific plays against very specific, uh, types of businesses um with a with a very specific offer. And I would say that we're in the first inning of that, we're really just getting going. But we're seeing tremendous sell through on that, tremendous success and our marketing team are beginning to do account-based, marketing ahead of those sales plays. So, that the kind of the beach head is softened, and they actually have already been alerted. That there's work force center available, or that there's this other add-on product available. So
Joe Walsh: It should just go up and up and up and up and up. And with it, you know, our net revenue retention will be stronger. Our, you know, our churn will continue to reduce. I just, I think that's the play here. And it was awful hard to go get 100,000 customers, guys. They don't just fall out of the sky. It was very hard. Our job now is to leverage that. And we've said to you we can go from 4,000 to 8,000. We're currently at about 4,200. But if you look at what's being sold by our direct sales channel, it's more like 6 grand. And so that's a little peek into where this goes. And I mean, we intend to add customers over the next few years.
Um, we're honestly just starting and I would expect that percentage of customers that have more than 1 SAS product. To just just move up almost like a metronome moving North. It should just go up and up, and up, and up, and up and with it, you know, our our, our net revenue retention will be stronger. Our uh, you know, you know, our our churn will will will continue to reduce. I I just I think that's the play here and it was awful. Hard to go get 100,000 customers going.
They don't just fall out of the sky, it was very hard. Our job now is to leverage that and we've said to you, we can go from 4,000 to 8,000. We're currently at about 4,200, but if you look at what's being sold by our direct sales channel, it's more like 6 grand.
Joe Walsh: But if you just took the 100,000 we have now and we then grew them from 4,200 to 8,000, you've all but doubled the SaaS business over that, you know, over that planning period. And as I said, I do think it's a growing and expanding market. I think we can capture more share, not donate share. So, you know, we are super bullish on those opportunities.
Um, and so, that's a little peek into where this goes. And I mean, we intend to add customers over the next few years. But if you just took the 100,000 we have now, and we then grew them from 4,200 to 8,000 you all the double the, the SAS business over that, you know, over that planning period. And and and as I said, I do think it's a growing and expanding Market. I think we can capture more share. Not not not, not donate. Share
so, um,
you know, we are super bullish on on those opportunities.
Speaker 5: Thank you.
Arjun Bhatia: Still there? Okay, good.
Thank you, still there.
Speaker 5: Thank you. And with that being our last question, we'll conclude the question and answer session, as well as today's conference call. Thank you for your participation. I hope you have a great rest of your day.
Good.
Thank you. And that
With that being your last question, we'll conclude the question and answer session as well as today's conference call, thank you for your participation. I hope you have a great rest of your day.