Thryv - Q1 2023

Transcript

Operator (participant)

Hello, my name is Chris. I'll be your conference operator today. At this time, I'd like to welcome everyone to the Thryv Holdings Inc Q1 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Cameron Lessard, Head of Investor Relations, you may begin.

Cameron Lessard (Head of Investor Relations)

Thank you, operator. Hello, good day to everyone. Welcome to Thryv's first quarter 2023 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer, Paul Rouse, Chief Financial Officer, and Elise Balsillie, our Chief Revenue Officer for Thryv Australia. A copy of our earnings press release and investor presentation can be found on our website at thryv.com or in the investor section at investor.thryv.com. Please acknowledge comments made on today's call and responses to your questions may contain forward-looking statements about the operations and future results of the company. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Thryv has no obligation to update the information presented on this conference call. Finally, our speakers will reference certain non-GAAP managed measures, which we believe will provide useful information for investors.

Reconciliation of those measures to GAAP will be posted on our website. With that introduction, I would now like to turn the call over to Joe Walsh.

Joe Walsh (Chairman and CEO)

Thank you, Cameron, and thank you all for joining our call. I'm pleased with our Q1 performance. Our continued focus on optimizing our predictable, scalable, and repeatable model to drive revenue growth while improving the bottom line is evident in our results. Every success metric is steady or increasing year-over-year and showing solid performance versus our expectations. This gives us strong predictability and durable smart growth. Our first quarter SaaS revenue grew 24%, which was at the top of our guidance. SaaS subscribers ended the quarter at 54,000, an increase of 15% year-over-year. This is attributable to our best-in-class software platform and continued strong sales velocity. We are seeing each month yielding better results than the prior month. Everything from qualified leads to demos to conversions, it's all up into the right.

I've mentioned in the past that we expect a balance between ARPU growth and subscriber growth. You'll have to forgive us, subscriber growth just sort of took off in this period, you know, it's just really going well, and we're having a lot of strong uptake. There won't always be a perfect balance between the two, but we expect, you know, a relative balance between subscriber growth and ARPU growth. We continue to set records in user engagement on our SaaS platform. Engaged users at the end of the quarter was 45,000, an increase of 25% year-over-year, and 10% quarter-over-quarter. On the bottom line, once again, SaaS EBITDA came in better than our guidance. We've been getting more efficient each quarter, and let me explain how. First, there's a big tailwind at our back.

More small businesses are adopting these type of SaaS tools. We've mentioned before our business comes in kind of three chunks. The first is in making our regular rounds, talking to the approximately 400,000 small businesses in our customer base, our zoo, we sometimes call them. More of those feel ready to modernize now and are moving forward and beginning to adopt these tools. Sales have been very strong into our base. Secondly is referrals. Those 54,000 subscribers are bringing their friends. They're telling their neighbor, the guy they're in the bowling league with on Tuesday night, and we're getting increasing referrals, and that's a bigger and bigger piece of our pie. That means that our cost of acquisition is low on those. We're not having to spend huge amounts of money to get a conversation with a new business.

We're able to work with basically friends and family. That allows us to have a really efficient model. Now, we do still have an inbound, outbound machine like other software companies do, but we haven't had to rely really heavily on that. That's part of where the great economics and the improved profitability are coming from. We're on a journey to be a Rule of 40 company, and we believe we can continue to have very strong growth and pair that with profitability. Turning to our marketing services, revenue came in better than expectations, and we continue to see very predictable performance in billings. You know, we've had success in the past of acquiring well-run marketing services businesses at fair prices and introducing our Thryv software to those clients. This next one really fits that profile well.

We're pleased to announce that we've acquired Yellow Holdings Limited, known as Yellow, New Zealand's leading marketing services company for over 50 years. Yellow has a similar history to our own in that it's basically come out of being the official telephone company, Yellow Pages. This is the old, you know, New Zealand telecom, now Spark, the official telephone directory of that market. They've built a pretty big, pretty significant digital marketing services business. In fact, they have over 10,000 digital clients there. We're confident that many of these local Kiwi businesses will benefit from modernizing and automating with our SaaS products. This is a relatively small tuck-in acquisition, our CFO, Paul Rouse, can share more about Yellow's financial contributions in our updated guidance. Our international expansion is a key focus area for us.

Given this announcement, I wanted to invite Elise Balsillie, Thryv Australia's Chief Revenue Officer, onto the call today to highlight the successes we've had in the Australia market with the prior acquisition of Sensis Holdings. Similar to Yellow in New Zealand, Sensis Holdings, before rebranding to Thryv Australia, was a leading and highly profitable digital marketing and directory services company. We acquired Sensis at an attractive valuation and integrated the company in an effort to reshape the perspectives of SMBs in Australia by providing an easy-to-use solution to modernize their operations. Fast-forward to today, Thryv Australia has been a success in one of our top producing regions for SaaS. Elise has been instrumental in leading the Thryv Australia business. With that, I'd like to ask Elise to join and share more about our impressive progress in Australia. Elise.

Elise Balsillie (CRO)

Thanks, Joe. In March 2021, Thryv acquired Sensis in Australia. Within a matter of months, we were in market positioning the Thryv software to our Yellow Pages clients. We had strong relationships with tens of thousands of clients here in Australia, and that trust is what supported us in presenting Thryv. Building a brand in-market takes time, and by leveraging our trusted position, we were able to accelerate this process. Our marketing team then worked hard in the background, building our brand and reputation more broadly across the Australian market to support us in attracting new clients. The competition in Australia was not at the same level as the United States. While some of our clients used point solutions in their business, the vast majority of them didn't know where to start.

Every small business has problems that keep their small business owners awake at night, from getting paid to managing their staff, being bogged down in admin and never getting to their son's football game. We could finally help them, and far more impactfully than just driving leads to their business. The go-to-market approach was critical. We managed a significant volume of customers and revenue in our marketing services business. While we were leveraging those relationships to have Thryv conversations, we were not doing it at the detriment of our marketing services revenue or EBITDA. Our sales force was already proficient in selling leads through their marketing efforts. We introduced Thryv as a natural extension, enabling businesses to convert more leads into clients, improve their client experience, and nurture the relationships post-sale to promote customer loyalty.

By integrating marketing and client experience, we aim to increase the client base and maximize the lifetime value of each client. We trained and coached our sales teams to identify problems and gaps in their client journeys. This approach allowed us to position Thryv as a tailored solution, addressing the most pressing needs of each business. We're seeing strong NPS results, Net Promoter Score, coming through from our SaaS customers at all points of the customer journey, and our volume of engaged users is growing each month. We're specifically pleased with the number of engaged users, showing that our clients are truly embedding the software into the business. I'm really excited about the growing number of advocates we have and the strong feedback they're providing. Like Tyler and Eve from a popular decking business in Melbourne. Thryv is like an employee.

It's like having another person in the business to take the pressure off us. In Q1, Thryv Australia has delivered strong performance, exceeding all key metrics. Our SaaS performance was incredibly strong, exceeding our target for the quarter. Each month we've outperformed the prior by greater than 10%. The Australian region is now one of the top-performing regions globally. In Q1, we launched our partner channel here in Australia, an exciting milestone which has given us a new channel to bring Thryv to market. We've seen positive results with our first partners signed on and trained, and our first partner sales being secured. Working across a number of key trade expos in Australia during Q1 has helped us grow both the recognition and awareness of the Thryv brand, especially in key verticals, and has resulted in many partnerships being secured.

We're exciting Marketing Center will launch in Australia later this year, We'll have an opportunity to expand the value that we're delivering to our SaaS clients, whilst also increasing the overall customer recurring revenue. The team is primed and ready to launch these new centers in market as they're delivered. Thryv Signatures have just launched, ThryvPay being the perfect extension for the service segment. In addition to our success with building the Thryv Australia SaaS business, we've continued to deliver exceptional results across our marketing services revenue and reached our targets for Q1. Overall, we're incredibly pleased with the performance of the Australian business, what we've been able to achieve in less than two years in market, and what we envisage for the future. I'll now turn the call back to Joe Walsh.

Joe Walsh (Chairman and CEO)

Thank you, Elise, thank you for the amazing job you've done of leading Thryv Australia. You know, each time we enter a new market, enter one of these new international markets, we expect two to three years of investment as we get that market set up, and Australia is no different. You know, we've been investing the last two years there. We expect in 2024, Thryv Australia will be contributing a positive EBITDA, a positive cash flow. We're just about at the end of the investment period, and the losses they're making this year are actually relatively small. I'm gonna turn and broaden the international to just a little bit to talk about Canada. You know, in Canada, we didn't make an acquisition.

We've gone in just greenfield building. There'll probably be a full, you know, three or so year investment cycle there. We're talking single-digit millions, not huge amounts of money that we're investing. The profitability of the U.S. is able to carry that small investment. Similarly, with New Zealand, there will be an investment for a couple of years as we get it set up, but it'll be reduced because we made the acquisition of Yellow, which gives us a zoo to hunt in and will give us lower CAC and make it a more efficient market entry. With that, I'd now like to turn the call over to our CFO, Paul Rouse, to discuss our first quarter financial results. Paul?

Paul Rouse (CFO)

Thank you, Joe. As a reminder to listeners, we are going to focus on our two segments, SaaS and marketing services, which includes results from domestic and international operations. We feel this is more beneficial in modeling and understanding the business. Additional detail between domestic and international for each segment can be found in the appendix section of the investor presentation. Okay, let's jump into the results, beginning with our SaaS segment. SaaS revenue was $59.9 million in the first quarter, representing growth of 24% year-over-year, and at the top of our guidance. SaaS subscribers totaled approximately 54,000 at the end of the first quarter, an increase of 15% year-over-year. SaaS ARPU increased to $379 in the first quarter and represents 8% growth year-over-year. Turning to the bottom line.

First quarter SaaS adjusted EBITDA was -$204,000 and ahead of our guidance. As Joe described in his previous remarks, we have been emphasizing productivity in our SaaS business and championing efficient growth by managing our spend in our new acquisition channels. I'm excited to announce that our U.S. SaaS business has achieved positive EBITDA for the past four quarters. Additionally, negative EBITDA contribution in our international markets came in better than expectations, which resulted in our overall EBITDA being near breakeven. We are encouraged by the strength we are seeing in the U.S. and by the success of our international investment efforts, and believe we are on the path to becoming a Rule of 40 software company. We are confident that our strong growth and profitability will continue to drive our success in the years to come.

First quarter Seasoned Net Dollar Retention was 91% and unchanged versus the prior quarter. As a reminder, Seasoned Net Dollar Retention represents clients that have been with us for over one year. With the rollout of our additional centers like Marketing Center, the company is on the path to achieve 100% NDR. By providing our subscribers with a better experience, additional centers can help to increase customer satisfaction and loyalty. This can lead to clients renewing their subscriptions, upgrading to higher value packages, and recommending the company to their friends and colleagues. We also believe by addressing these factors, we will keep churn low while generating new revenue streams via new centers to offset the cost of customer acquisition, which leads to higher NDR. Moving over to marketing services.

First quarter revenue was $185.6 million, which came in better than expectations due to timing and shipment of print publications from Q2 into Q1 in both our U.S. and Australian markets. First quarter marketing services adjusted EBITDA was $58.7 million, resulting in an adjusted EBITDA margin of 32%. First quarter marketing services billings was $193.4 million, representing a decline of 21% year-over-year. Please note this metric now includes billings for our Vivial Holdings for 2022 comparative period. First quarter consolidated adjusted gross margin was 66%. First quarter consolidated adjusted EBITDA was $58.5 million, representing an adjusted EBITDA margin of 24%. As previously discussed, these measures were impacted by revenue recognition in our marketing services segment around the timing and shipment of our print product.

Our net debt position was $451 million in the first quarter. Our leverage ratio for the first quarter, in accordance with our credit facility, was just under 1.5x net debt to EBITDA and well below our covenant of 3x. The company generated an additional $27.2 million in free cash flow in the first quarter and paid $35 million towards our term loan. Let's turn to guidance. We are reaffirming our prior full year SaaS revenue guidance in the range of $257 million-$259 million, upgrading our profit outlook for the full year as follows. For the full year of 2023, we now expect SaaS EBITDA in the range of $2.5 million-$3.5 million, which we previously guided to as turning profitable or breakeven.

For the full year 2023, we are increasing our outlook for marketing services. We now expect revenue in the range of $653 million-$663 million, and adjusted EBITDA in the range of $187 million-$190 million. This upgraded guidance for marketing services reflects our recent acquisition in New Zealand, which we believe will contribute around $10 million in reported revenue. You can find additional information related to our 2023 guidance in our press release and investor presentation available online. As communicated on our last earnings call, we expect to ship fewer print publications in the third quarter of 2023, and due to the accounting treatment, it will impact our third quarter results.

However, this does not impact free cash flow and our ability to retire debt, and we expect a very high cash flow conversion in the third quarter. For this reason, we want to point investors to our marketing services billing performance and operational metric in our investor presentation, which shows steady performance for our many historical periods. We realize the non-linearity of our print is a bit complicated, and we try to provide as much information as possible to be transparent. I'll now turn the call back over to Joe.

Joe Walsh (Chairman and CEO)

Thank you, Paul. I guess as sort of the headlines here from today's call, I'd like to underscore a couple things. The profitability of our SaaS business is coming along a little faster and a little stronger than we expected, and that's really owing to our great model. The fact that we've got 400,000 existing customers that wanna talk to us, that we're able to have a conversation with and help make this journey, you know, in modernizing their business. They're bringing their friends. They're introducing us to referrals at an ever-faster pace. As our subscriber base gets bigger, they're introducing more and more referrals. It's sort of a self-regenerating model. Our Marketing Center launch is going well. We're just in the early days of that. Obviously, we just began at the very end of last year, but sales are coming along nicely.

Our sales organization is really learning how to talk about the product and how to do it the best possible way. We've got some early successes from customers that are excited about what they can do with marketing centers, so more to come on that later, but that seems to be percolating along really nicely. I guess sort of the final couple takeaways that I would offer you is our North Star is an engaged user, more and more small businesses are running their businesses on Thryv. You can see it in the huge gains we're making in engagement, and that is a great leading indicator to what revenue is gonna look like in another year or two. The dogs are eating the dog food. This is working. I think the final proof point of that is look at subscriber growth.

You know, 15% subscriber growth. They're coming in almost as fast as we can sign them up and get them onboarded. I mean, it's really outstripping our expectations even. It's been very good, and that's because the software is so excellent and making such a big difference for small businesses. With that, we'll wrap the call up, and I'll turn it over to the operator.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. Our first question is from Rob Oliver with Baird. Your line is open.

Rob Oliver (Managing Director and Senior Research Analyst)

Great. Thanks, guys. Good morning. Appreciate you taking the questions. I had two, Joe, one, I'll start with you. Yeah, strong on the subscriber front, you mentioned that you also alluded in your prepared remarks to kind of that, you know, working towards that balance between subscribers and ARPU. Just on the ARPU side, you know, growth dropped kind of below 10%, and I'm just wondering, like, is that just a function of the economy and people, you know, kind of starting out with a smaller bite at the apple or maybe being a little bit slower to upgrade? Is it because people are waiting for some of the new products or, you know, help us just understand that. I had a quick follow-up.

Joe Walsh (Chairman and CEO)

Yeah. I think it's probably a mix of things. I mean, our customers, we've talked about them before. These are very resilient, you know, small businesses. Our average client's been with us for more than 15 years on the marketing services side. These are the really old line established businesses, not new starts. you know, so they don't tend to, you know, just go out of business if the wind blows. They read the same newspapers you do, you know, and, you know, they hear that there's a, you know, there's a great, you know, recession coming, and it's all gonna be very challenging and, you know, what's the Fed saying? I mean, they hear all that same stuff.

There is definitely a, you know, a tinge of conservatism out there in the market and, you know, people, you know, measuring twice, maybe 3x before they cut. As you can see, we continue to do really well. We're continuing I guess, maybe say it differently. The tailwind behind our business of cloud adoption is bigger than the crosswinds of, you know, of the economy. Yeah, look, when they make the decision as to what to buy, you know, do they sometimes, you know, buy a little bit more conservatively in this environment? Yeah, they do. I don't think it's anything to particularly worry about really. You know, we're continuing to see very strong uptake.

We did, you know, more demos in the first quarter than we've ever done, ever. You know, we're setting a lot of internal records as things keep moving along. I think demand's there. I think we're growing along and, you know, we see people once they enter the ladder of our products, they tend to move up because the products are good, and they work. And it tends to, you know, develop. We're not troubled by it at all. I don't think you should be either.

Rob Oliver (Managing Director and Senior Research Analyst)

Great. Okay. Thanks, Joe. Appreciate that. I'm sure there's gonna be a bunch of questions on Yellow from some of the other analysts, but I'll just ask a quick one to start. You know, you guys mentioned 10,000 digital clients there in New Zealand. Like what is digital there? Is that like SEO, SEM? Is there a print business here too? Appreciate it. Thanks, guys.

Joe Walsh (Chairman and CEO)

Yep, no problem. As I mentioned, they were and are still, the sort of official directory company, you know, in New Zealand. New Zealand's about a 5 million population, you know, country. We're talking about, you know, 20 directories that cover the country in total. It's not a giant business. Yes, they have a directory business, and, you know, they have the Essentially just like Sensis was when we bought it or just like, you know, the Thryv business in the US, very, very similar. A lot like, you know, Vivial when we bought that. It's a traditional directory business that had pivoted over. In addition to their printed directories, they also have a very strong online directory, which is quite profitable and highly used.

They also do general small business agency stuff where they, you know, build websites and do SEO and SEM and all that stuff. They've got a, you know, a nice trusted relationship with those small businesses. And that's what we're gonna build on.

Rob Oliver (Managing Director and Senior Research Analyst)

Thanks again.

Joe Walsh (Chairman and CEO)

Thank you.

Operator (participant)

The next question is from Arjun Bhatia with William Blair. Your line is open.

Arjun Bhatia (Partner, Co-Head Tech Equity Research, and Software Analyst)

Hey, guys. Thanks for taking the question. Joe, maybe just to follow up on what you're expecting out of New Zealand on the software side. Can you maybe just compare some of the market characteristics between New Zealand and Australia, which seems like it's been a success thus far? I remember Australia was relatively early in terms of SMB software adoption. Do you see those similar characteristics in New Zealand as well?

Joe Walsh (Chairman and CEO)

Yeah, I would say, the two markets are very similar in that regard. If anything, New Zealand is probably, you know, a year or two behind Australia in terms of, you know, digital sophistication, software adoption, et cetera, et cetera. There is an initiative in the country to, you know, move small business or move business in general more digital, to more paperless, more, you know, adopt more of these tools. It's definitely a thing there that they're working toward, and I think our entry into the market will really be well-timed and welcomed in terms of supporting those initiatives.

Arjun Bhatia (Partner, Co-Head Tech Equity Research, and Software Analyst)

Okay. Got it. Just when we think about when I'm looking at the SaaS metrics for Q1, it looks like the subscriber growth, I mean, I think you had one of your best quarters in adding net new clients on the SaaS side, but we didn't really see that flow through to revenue this quarter. Is there anything different about the characteristics of the customers that you're adding that might be different this quarter versus what we've seen historically? I'm just trying to square those two trends a little bit.

Joe Walsh (Chairman and CEO)

Yeah. Not really. I think the prior question got to it a little bit. I think, you know, there's a little bit more conservatism out there in terms of what people are buying. You know, there are a variety of add-ons that also, you know, make that ARPU number move around a little bit. You know, I think maybe people during the prior period were a little bit more conservative around that. People really took the holidays off this year, you know, and we've had a really strong, you know, Feb and March and now April. The holiday period was a little tiny bit soft for us 'cause people, you know, took the time off. It was nice.

There's always a little noise in the numbers, Arjun, but, you know, I don't see any big trend to identify. To the extent that people come in a little lower on our kinda good, better, best scale when they enter, we find they tend to migrate up. That just is more scope for increasing them later. I'm not really concerned about it.

Arjun Bhatia (Partner, Co-Head Tech Equity Research, and Software Analyst)

Okay. That makes sense. Thanks for taking the questions.

Joe Walsh (Chairman and CEO)

Thank you, Arjun.

Operator (participant)

The next question is from Robert Morelli with Needham & Company. Your line is open.

Scott Berg (Managing Director and Senior Research Analyst)

Hey, thanks for taking the question. I'm going through, Scott Berg. You know, in this macro, are you seeing any behavior changes in your marketing services customers in terms of look to your SaaS solution?

Joe Walsh (Chairman and CEO)

I mean, I mentioned, I think in the prepared remarks, there are a lot of these very established, very mature, you know, HVAC, plumbing companies, roofers, whatever, that were aware, have been aware for a while that we provide these tools, and they just weren't ready to move. We're finding increasingly they're more ready. You know, we come around, and we call on them this year, and they go, "Okay, I'm ready now to talk about that. I'm ready to embrace that." you know, it's just the world's moving on. That mega trend that we've described We watched enterprises adopt the cloud over the last decade. That's trickling down now, and the small businesses are looking to use these tools. In some cases, they're coming right from paper and pencil. I call them the unclouded.

We're moving them right, you know, into digital. In other cases, especially with the little bit bigger businesses in our base, they have already begun to onboard some point solutions. They might have brought something in to help them with payments. They, you know, many of them do their accounting in a cloud-type tool. They might have gone and started to do some point solutions, and they're now in search of a platform. Thryv is a platform, and it's, you know, I don't know if you guys, you know, make that distinction when you analyze these different things, but there are elements or point solutions or tools out there, and a lot of them are really good, and then there's platforms. Thryv is a platform, and it is really a all-in-one complete tool you can run your business on.

We're super interoperable with the various point solutions that are out there. When our sales reps are in the field and they encounter somebody who started to screw around a little bit with Mailchimp or Constant Contact and do a little bit of email marketing, they say, "Well, you know, I have that." We say, "Well, no problem. You can just integrate that in with your Thryv. It's, it's a one plug API, and the data will share back and forth. We also have email automation in our tool, but we don't mind if you use that one. No problem." It just makes it easy. That's what we've tried to do is just reduce that barrier to adoption, reduce that friction, make it easy for customers.

We exist at Thryv to make small businesses' lives easier and better and allow them to compete more effectively. Anything that we can do to lower the friction, we try to do. That's kind of the way we think about that, the answer to that question.

Scott Berg (Managing Director and Senior Research Analyst)

Got it. Thanks for that. You know, again, just given the macro, have you know, seen any material change to churn with your non-seasoned customers?

Joe Walsh (Chairman and CEO)

Oh, I see what you're saying. You're trying to get past season into... Okay, I got the question now. It hasn't improved. You know, we certainly, you know, we certainly see people that are, you know, more nervous about things and, you know, questioning their expenses and so on. We haven't seen a big move up or anything. You know, there's always a little bit of noise in the data. It might have moved a tenth or something one way or the other, but I wouldn't say there's any big trend I could identify that it's surging up.

Scott Berg (Managing Director and Senior Research Analyst)

Got it. Thanks for the color.

Operator (participant)

The next question is from Zach Cummins with B. Riley Securities. Your line is open.

Zach Cummins (Senior Research Analyst)

Yep. Thanks. Good morning, and thanks for taking my questions. Joe, just kind of following up on Net Dollar Retention. It's remained pretty steady here at about 91% over the past couple of quarters, but how do you think about consistently trying to drive that number higher over time?

Joe Walsh (Chairman and CEO)

Well, we, you know, on record is saying we believe this will be a 100% Net Dollar Retention business. you know, that's how we see the model. That's, that's what we believe is going to happen. you know, I think that there's not a huge amount of scope for us to move churn down 'cause it's pretty low now. you know, maybe we can grind off a tenth or two in better economic times. It really is gonna come more from upsell. That upsell will be driven by a lot of the wonderful products that our engineering and product team are in the back room inventing. you know, I get the great benefit of getting to spend time with those guys and see what they're doing and see what they're working on.

You know, the product roadmap is very, very exciting. I know a lot of you guys follow other software companies. You follow giant ones like Salesforce.com and really big ones like HubSpot. You know, I think that HubSpot is a very similar business to ours. I mean, they're obviously way upmarket from where they are. I guess their ideal client is 2,000 employee companies, where ours is more like 20. We're way below them. As they've added more hubs, you've seen their ARPU go up, and, you know, their business grow. You know, we only have two centers out right now, and the second center only just came out. The other centers are really in advanced stages of development and coming along very quickly.

As they come out, we're very confident we'll be able to serve more needs and broaden the footprint we have in these businesses just at the very time that their interest and their readiness and their willingness to adopt those things will be there. I mean, if we had those products sitting right there right now, you know, they may not be as ready, but we're seeing that adoption curve just accelerate. We're quite confident that we can move that over the next number of years from 91 to 100. You know, you might even see it bounce around a little bit, where it might, you know, go up to 94 and then back up to 93 and then move to 95. I can't promise you it'll go in a perfect straight line.

We genuinely believe that this will be a 100% Net Dollar Retention business in just a few years, and you guys should think about the model that way.

Zach Cummins (Senior Research Analyst)

understood. That's helpful. Final question for me is just really around acquisition channels, for the SaaS business. It sounds like you've really had pretty strong, referral volume here, at least in the recent quarter. How are you thinking about just where those new customers are coming from? Is there a greater emphasis being placed on kind of that referral channel and leaning into that? How are you thinking about, just the overall customer acquisition engine?

Joe Walsh (Chairman and CEO)

I wish I could tell you it was some genius idea that I had or somebody on the team had. We're just seeing more referrals. It's just that simple. I mean, the existing base, I mean, you could see it in the engagement numbers surging up quarter-over-quarter-over-quarter, we're seeing engagement drive. You know, our Chief Customer Officer, Grant Freeman, was really articulate about this at our Investor Day. He told a story about one of our customers, and he said, "Our North Star, what we wake up every morning thinking about, is helping these small businesses and driving that engaged user number up." As engaged users have risen dramatically over the last two years, they're bringing their friends.

You know, I've talked to two analysts over the years who have said, "Well, you know, once you get through your Yellow Pages base, how are you gonna sell more customers then?" It just keeps regenerating. You know, they keep introducing us to more and more people. We're actually getting more sales from referrals than we are directly out of the channel now. That perfect third, third has been a little pear-shaped lately because we're getting so many referrals. You know, one customer is not referring us to one other one, they're referring us to two. We're feeling that accelerate.

If I'm just completely transparent with you guys, that has allowed us to take our foot off the gas a little bit on kind of the inbound funnel, which in that regard, we're like any other software company. We're out there spending money, you know, trying to meet people to get conversations. I pity the fools, you know, those other small businesses out there that are having to go out there and spend mightily just to get a conversation with somebody. We have 400,000 customers that have a whole lot of friends. Most of our life is a pretty friendly kind of farmer conversation, talking to, you know, relationships or introduced relationships, really warm conversations where the customer is already kind of pre-sold.

We're not doing a lot of ice cold calling and a lot of, you know, spade and pick work, trying to get a conversation with somebody who doesn't really wanna talk to us. It's a nice life we have. I think you can see it in the EBITDA swinging to the positive. You know, our SaaS business is now profitable everywhere, not just the U.S., but everywhere. That comes from the big installed base of happy customers.

I believe over the next two years, more and more of those traditional old Yellow Pages customers in the base will decide it's time for them to modernize and will decide to do it with us because we've been calling on them, we've been nurturing them, we've been sharing videos with them, we've been teaching them, we've been talking to them about it now for six or seven years. I think when they're ready to move forward, they'll move forward with us.

Zach Cummins (Senior Research Analyst)

Understood. Well, thanks for the additional commentary and best of luck with the coming quarter.

Joe Walsh (Chairman and CEO)

Thank you very much.

Operator (participant)

The next question is from Dan Moore with CJS Securities. Your line is open.

Ross Kesselman (Equity Research Associate)

Hi. This is Ross Kesselman in for Dan Moore. Can you talk a little bit about the progress you're making with the Marketing Center, and when should we expect to hear more details regarding other centers you plan to introduce over the next few years?

Joe Walsh (Chairman and CEO)

It's a great question. Marketing Center came out at the very tail end of last year, and we brought it out in kind of a gated or a, you know, a staged way, where we sold it to a limited, you know, group of customers with a limited group of salespeople initially, and then we ramped it slowly because we wanted to make sure that, you know, there weren't bugs or edge cases or problems that we, you know, needed to work out. That's gone really well. By the way, there were a couple, and we worked them out. That's the basics of software, right? It's been scaling gradually and nicely through the year.

We're still only allowing customers to buy Marketing Center if they're already Thryv customers, meaning they're already in the software, they're already Thryv Business Center customers, they've already been so for at least a month. It's still kind of a smaller universe, but it is our plan very soon this summer to open it up more broadly and allow Marketing Center to be, you know, sold and marketed to really the whole base. You know, you'll realize that, you know, we've got a very big marketing services business. There's a lot of people interested in marketing and so on, even those that maybe are not interested in software yet. We think that's quite a big market, and we feel it'll accelerate very nicely as we open it up more broadly.

You know, it's an all-new product, and it's been a bit of a learning curve for the sales force to really understand who the ideal client is and, you know, how to position it correctly. The good news is we've got a bunch of customers that are in the software now, they're using it, and they're giving us a lot of positive feedback about, you know, how they're using it and what it's doing to help them. They're also giving us some feedback about what they'd like to see different. Like, they'd like to see this menu different. It should do this. You know, we've got some fast follow improvements that we're doing as well.

In terms of how you should see it flow through the numbers, which I know is what you're trying to get to, I think you'll see Marketing Center begin to show up in our numbers and influence the numbers in the back half of this year, probably, you know, strongest probably in the fourth quarter as we start to, you know, get closer of a year under our belt. When we make the sale, it's only $199 a month. You know, you just get that 1/12. It's not against our big base, a whole lot of money initially. It'll take a little time for it to percolate up. We haven't even rolled it out in any of the other countries yet. We just have it in the US.

We'll be rolling it out in any other countries relatively soon. I think you'll see in the back half of the year, probably closer to the fourth quarter, you'll start to see those numbers influencing our total numbers. The second piece of your question was, how are we thinking about other centers? We guided at our investor day, you guys to think about us coming out with a center per year. You know, I'm very confident that we can fully deliver on that, maybe even do a little better than that. You know, you will certainly see the next very big center coming out this year.

you know, we think this next center will open up the market a lot for us and broaden the application and the number of people that we have an opportunity to go have a conversation with. really excited to tell you more about that when it's ready.

Ross Kesselman (Equity Research Associate)

Thank you for that additional color. If I could ask one follow-up. Over the past several quarters, you have accelerated the timeline of generating positive profitability in your SaaS business. Can you talk a little bit about why you feel that is the right decision in light of the material growth and upside opportunity in front of you, and whether or not the decision has any implications for achieving long-term growth targets you laid out roughly a year ago?

Joe Walsh (Chairman and CEO)

Great. That's a great question. You know, we're in constant dialogue with our kind of page one big investors. We, we meet with them regularly. We have conversations with them. You know, they have their own investment committees and their own evaluation and their own process, and they share with us, you know, what's going on. You know, without any question, over the last, five quarters or so, six quarters, there's been a reevaluation where these kind of growth at all costs models, where people are just, you know, spending money hand over fist in order to capture market share and grow, have sort of fallen out of favor. We were never doing that, by any stretch.

We were leaning in a little hard in investing and, you know, this desire to see the business, our SaaS business positive cash flow has been communicated very clearly. It really wasn't a gigantic shift for us because it was happening naturally. The scale of the business was getting to the point and the referral contribution. Remember, our cost of acquisition on referrals is really pretty low. We get typically an email or a phone call from somebody that says, "Hey, you know, my friend told me about this. I wanna learn more about it." When we get over there to meet with them, they've already been through the software with a friend, and they're pretty much ready to buy.

We don't have an enormous amount of sales costs in that. That has helped us a lot. I mean, if the environment around us was, "You're supposed to grow at all costs, go, go, go," we could be spending a little bit more on our inbound funnel and probably perk growth up a couple of extra points. You know, those sales would be more costly. Rather than making, you know, whatever we said, $2.5 million or $3.5 million this year, you know, we might lose $2.5 million or $3.5 million this year. Apparently, that's a really big deal to people. You know, the difference between, you know, positive cash flow and positive EBITDA with no, you know, no need for additional funding.

You know, our business generates a ton of cash. So we're not a company that's gonna have to go out and seek funding in an environment that's gonna punish us for doing that. I think that that's important to our investors. So, back to your question about its effect on our, you know, our long-term plan. We're still very bullish on our long-term plan, and we still feel that we're operating in a very, very big total addressable market, and that the decade of small business software is very much happening, very much playing out. The second half of this decade, it's gonna be standard for people to be seeking a platform like this, where it might still be the minority of businesses that are ready for a platform today.

Three, four years from now, it'll be the majority of them looking. We're in pole position to capture them. We're gonna continue to work at that. We believe that we're planning an investor day later this fall. We're gonna lay this out in some more detail. We feel that the cohorts of our additional centers that we'll be rolling out, each capturing a new element of spend, a new part of a small business' operation, that those cohorts will grow. The new markets that we're entering, we've just entered New Zealand, we plan to enter more countries, more geos, will drive us to those $1 billion and $4 billion numbers. We'll update on that a little later this year. Thanks for that question.

It's a really good one.

Ross Kesselman (Equity Research Associate)

Thank you for the additional color.

Joe Walsh (Chairman and CEO)

You're welcome.

Operator (participant)

We have no further questions at this time. I'll turn it over to Joe Walsh for any closing remarks.

Joe Walsh (Chairman and CEO)

Thank you very much, Chris. Appreciate that. Thank everyone for attending today and listening to the call. You know, my kinda big thoughts at the moment on our business are that swinging the business to profit is a big milestone. We had been profitable in the past, but we were then not profitable for however many, you know, eight or nine quarters, whatever it was. We're back to profitability. We'll never go back the other way. Our SaaS business is profitable. As we start new markets, new centers, new countries, we will continue to be a profitable business and use kind of the business' own juices for the growth and expansion. We're fortunate we have this very big base of high NPS score, highly engaged customers that we think can propel us along.

We have a really great model and, you know, I'd like to say that, you know, we're an excellent management team, but we really do have an unfair advantage. I mean, having 400,000 customers that have been with you for 15 years and like you and trust you and wanna hear what you have to say, nobody else has that, and that makes us special. You know, Marketing Center, we're super excited about. You know, some of you guys might have expected it would come out and just be another Business Center overnight. It is developing beautifully, and we're happy with how it's coming along. I do think you'll see that as a big, a big lift to our business as we get to the back half of the year.

The engaged users are what make me happy every day. When I turn my computer on, I've got an intranet site that scrolls by and shows me how many engaged, active users we have. That number is steadily going up, and that's driving the subscriber growth. I think if you wanna confirm what's the health of Thryv, look at what's happening in subscriber growth. I mean, it's just melting up. Thank you all for your attention today. Really appreciate the support, and I look forward to updating you again soon. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.