Thryv - Q4 2022

Transcript

Operator (participant)

Ladies and gentlemen, good morning. My name is Abby. I will be your conference operator today. At this time, I would like to welcome everyone to the Thryv Holdings, Inc. Q4 and full year 2022 earnings conference call. Today's conference is being recorded. 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 would like to ask a question during this time, simply press the star key followed by the one on your telephone keypad. If you would like to withdraw your question, you must hit star one once again. Thank you. I will now turn the conference over to Cameron Lessard, Head of Investor Relations. You may begin.

Cameron Lessard (Director of Investor Relations and Capital Markets)

Thank you, operator. Hello, and good day to everyone. Welcome to Thryv's Q4 2022 earnings conference call. On the call today are Joe Walsh, Chairman and Chief Executive Officer, Paul Rouse, Chief Financial Officer, and Ryan Cantor, Chief Product Officer. A copy of our earnings press release and investor presentation can be found on our website at thryv.com in the investors section. Some of the comments made on today's call and some of the 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 the call. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors.

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

Joe Walsh (Chairman and CEO)

Good morning, Cameron, thank you all for joining us on our call today to discuss our Q4 results. 2022 was a year of tremendous accomplishment at Thryv. We finished the year with strong financial results, improved efficiency, and continued product innovation with the release of Marketing Center. Q4 SaaS revenue grew 25% year-over-year, and 26% for the full year. SaaS subscribers ended the year at just over 52,000, an increase of 13% year-over-year. SaaS monthly ARPU grew 10% in the quarter. Our average customer now spends around $4,400 a year, compared to $4,000 one year ago and $3,000 in 2020. We're making really good progress on ARPU with customers using the product more and buying more and buying higher-end versions of the product.

One year ago, on our earnings call, I highlighted our goal of targeting more balanced growth in SaaS subscribers and ARPU going forward, which we've achieved for three consecutive quarters. Engagement has increased 37% year-over-year, which we feel is a very strong indicator for durable growth. Our clients are using the Thryv platform to run and grow their businesses, to find customers, to stay organized, communicate, and get paid. Seasoned monthly churn has remained flat in the mid-1% range, which we consider to be world-class. On the bottom line, once again, SaaS EBITDA came in better than our expectations. This is significant as we cut our SaaS EBITDA loss by almost 1/2 since we issued guidance a year ago. We've been focused on driving cost-efficient growth, not growth at all costs.

The U.S. has been profitable for three quarters in a row as we continue to scale and move past our investment stage. SaaS EBITDA loss is a result of our expansion internationally with Australia and Canada. I'm pleased to report that Australia is on a path to turning a profit. After selling SaaS for only six quarters, it's been one of our top-producing regions. We feel our playbook really works, and these are not big losses, only single-digit millions. Once we stand up a new country, it takes a couple of years to cash flow, and then it goes from there. That'll be our model as we move forward. On marketing services, we continue to see very predictable performance in billings, which allows us to generate solid cash flow and pay down debt. Next up, I'd like to introduce Ryan Cantor, our Chief Product Officer. Ryan.

Ryan Cantor (Chief Product Officer)

Thank you, Joe. As we previously covered in both 2021 and 2022, Thryv continued to responsibly expand our engineering and product capabilities. We've invested in a robust UI/UX team to ensure the Thryv platform remains both powerful and easy to use. We've invested in in-app experience to fuel our product-led growth initiatives. We've invested in product and engineering to conduct better client research and to accelerate our roadmap to deliver better value to our current and our future clients. Small businesses run better on Thryv. We know this and hear it every day from our clients. Thryv is a growing all-in-one small business platform. The needs of these small businesses continue to grow at an accelerated pace, and Thryv is in pole position to deliver increased functionality to meet this growing demand.

In early 2022, we unveiled an exciting new product strategy to move to a multiple center platform. This would allow us to solve these additional problems for our existing clients and attract a wider array of new clients into our platform in the coming periods. After a year of development and numerous rounds of live client testing, we were excited to launch Marketing Center in Q4. This exciting new center presents a bridge between our past and our future. Marketing Center was built from the ground up and focused on the modern needs small businesses have with growing their business, while leveraging our decades of experience offering marketing services and tools to the market. To date, Marketing Center results have been strong and client reception has been incredibly positive. We plan to share additional metrics and insights about our newest center throughout the year.

Sitting right underneath our centers are a growing number of modular apps that enable our users to customize the Thryv platform to meet the specific needs and pains they have. For those looking for a more cost-efficient payment option built specifically for service-based businesses, we built ThryvPay to be a modular app and then recently improved ThryvPay again by launching mobile card readers throughout the U.S.. Additionally, for small business owners who have modern iOS or Android devices, ThryvPay also just recently released tap-to-pay, using near-field communication technology to turn a small business owner's mobile device into hardware to accept lower-fee card-present payments. Launched in October 2020, ThryvPay now enables businesses to accept credit cards or bank drafts. They can accept in-person payments via mobile devices or device list with tap-to-pay.

They can accept online payments via QR codes, SMS text messaging, or email. It makes it easy to pay with Apple Pay or Google Wallet. It enables small business owners to offer consumer financing to their clients for larger ticket items. Lastly, ThryvPay enables customizable automated surcharges or convenience fees to help offset the cost of payment processing. While lower average ticket sales put some pressure on overall payment volumes in Q4, overall ThryvPay volume nearly doubled year-over-year. In 2022, the second full year of ThryvPay, overall payment volume grew to over $140 million, a 114% year-over-year improvement. Another app we've recently launched is our new Signatures app. Signatures enables our users to upload a document to send to their contacts for an e-signature fully built into the Thryv platform.

This eliminates the need for users to take multiple manual steps to get their contracts, agreements, or proposals signed and then uploaded to their centralized CRM. With Signatures, it is now a fully automated process end-to-end. The Signatures app enables all users to try it for free with up to free free signatures per month. People who need more and have been able to try it before they buy it can upgrade in-app to $49 a month for up to 100 signatures with a small overage fee for additional. This release is on the heels of our TeamChat app that we launched in early Q4. 10% of our active users are already adopting TeamChat, which is extraordinary, quite frankly, especially given the holiday season backdrop.

TeamChat enables all of the internal collaboration and coordination within a small business to take place in an organized and secure way. These releases are in addition to a multitude of enhancements we released to improve our core Thryv product. We recently launched both native two-way real-time Google Calendar and native Outlook integrations to better meet SMBs where they are before they adopt Thryv, and to easily see their Thryv appointments and events inside both Google and Outlook, and vice versa. We launched a robust and configurable end-to-end deposit workflow that enables service-based businesses to be paid a portion of their estimate at the time of approval while capturing a digital signature all in just a few clicks for the end consumer.

In addition to the deposit improvements, we have also released all new customizable templates for both estimates and invoices, enabling SMBs to pick a style and a color that aligns to their brand. Additionally, this month, we launched the ability to better configure both estimates and invoices with customizable sections and headers with easy-to-use drag and drop capabilities. Both of these improvements have been top five requests from our users, and we were delighted to deliver it for them. In 2022, a combined 1 million estimates and invoices were created and sent inside the platform. That represents a 20% improvement year-over-year. We launched an improved rich text editor for our heavily used centralized inbox, enabling better control and customization for longer form conversations, and this release has been a hit.

Inbox conversations in 2022 increased nicely, with Thryv now powering 7 million conversations between small businesses and their prospects and customers. Every month, small business frustration from over-adoption of independent point solutions continues to grow. With more and more businesses seeking out a true all-in-one platform that can grow with them, that's what Thryv is. It's simple, it's powerful, and it's tailored to the needs of these growing small businesses. With that, I will now turn it over to our CFO, Paul Rouse, to discuss Q4 financial results. Paul?

Paul Rouse (EVP, CFO, and Treasurer)

Thank you, Ryan, and good morning to everyone on the call. As a reminder to listeners, we are going to focus on our two segments, SaaS and Marketing Services, which includes results from both domestic and international operations. We feel this is more helpful in modeling and understanding the business. Additional breakout between domestic and international for each segment can be found in the appendix section of the investor presentation on our website. Okay, let's get into the numbers, beginning with our SaaS segment. SaaS revenue grew to $59.3 million in the Q4, another strong quarter and a 25% year-over-year increase. Full year SaaS revenue grew 26% year-over-year. At the end of the Q4, SaaS subscribers totaled approximately 52,000 compared to 46,000 in the prior year.

This represents a 13% increase in subscribers year-over-year and our third consecutive quarter of double-digit growth. SaaS ARPU increased to $387 in the Q4 compared to $351 in the prior year and represents 10% growth year-over-year. Turning to the bottom line, Q4 SaaS adjusted EBITDA was -$2.2 million and ahead of guidance. Full year SaaS adjusted EBITDA was -$13.4 million, which is an improvement of 36% year-over-year, and almost $10 million better when compared to the midpoint of our original guidance. As indicated at the beginning of 2022, our goal was to show more operating leverage in our SaaS business as the year progressed. Throughout the year, we emphasized the value creation potential from improved marketing efficiency due to our enhanced team selling model.

We are pleased with the results and have confidence for our positioning in 2023. Seasoned net dollar retention was 91% in the Q4. As a reminder, Seasoned net dollar retention represents clients that have been with us for over one year. Moving over to marketing services. Q4 marketing services revenue was $220.1 million and ahead of guidance. Our notable performance was due to strength in our digital offerings. Full year marketing services revenue was $986 million, which includes $89 million in contribution from Vivial Holdings on a reported basis. Q4 marketing services adjusted EBITDA was $70.4 million, resulting in an adjusted EBITDA margin of 32%.

Full year marketing services adjusted EBITDA was $346.7 million, resulting in an adjusted EBITDA margin of 35.2%, in line with our projections throughout the year. Q4 marketing services billings was $192.8 million, representing a decline of 17% year-over-year. Full year marketing services billings was $829.9 million, representing a decline of 18%. Both of these measures exclude the impact of Vivial. Q4 consolidated adjusted gross margin was 68%. Full year consolidated adjusted gross margin was also 68% and unchanged when compared to the prior year. Q4 consolidated adjusted EBITDA was $68.2 million, representing adjusted EBITDA margin of 24%. Full year consolidated adjusted EBITDA was $333.3 million, representing an adjusted EBITDA margin of 28%.

I would also like to point out that we have an impairment to goodwill, a one-time non-cash charge in the Q4 in the amount of $102 million, or $2.98 per diluted share related to the structural decline of our marketing services business. Net loss was $50.4 million, or a loss of $1.47 per diluted share for the Q4 2022, and compared to net income of $5.1 million, or $0.13 per diluted share for the Q4 of 2021. Finally, our net debt position was $468 million in the Q4. Our leverage ratio for the Q4, in accordance with our credit facility, was 1.4x net debt to EBITDA and well below our covenant of 3x.

The company generated an additional $34.5 million of free cash flow in the Q4 and paid $31 million towards our term loan. From a year-to-date perspective, we generated $119.3 million in free cash flow and paid $112.5 million towards our term loan. Since the refinancing associated with the Sensis acquisition in 2021, we repaid nearly 40% of our term loan in just under two years. In addition to the progress we have made on our long-term debt, we have made significant headway in reducing our pension liability over the course of 2022. A reduction of $68 million, a nearly 50% reduction when compared to the prior year. Let's discuss guidance for the fQ1 and full year 2023.

For the Q1, we expect SaaS revenue in the range of $59.5 million-$60 million. For the full year 2023, we expect SaaS revenue in the range of $257 million-$259 million, which implies SaaS revenue growth of 19%-20%. For the Q1, we expect SaaS adjusted EBITDA in the range of -$2 million to $3 million. For the full year 2023, we expect SaaS to be adjusted EBITDA positive. This full year guidance currently reflects a more profitable U.S. SaaS business offsetting international investments. For the full year 2023, we expect marketing services revenue in the range of $635 million-$649 million, and adjusted EBITDA in the range of $185 million-$187 million.

You can find quarterly ranges for marketing services revenue in our press release and investor presentation available online. As indicated on the Q3 2022 earnings conference call, we expect to ship fewer print publications in the Q3 of 2023, and due to the accounting treatment, it will impact our Q3 results. However, this does not impact free cash flow and our ability to retire debt. We expect a very high cash flow conversion in the Q3. 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 many historical periods. We realize the non-linearity of print is a bit complicated, and we try to provide as much information as possible to be transparent.

Finally, due to the visibility we have in the business, we feel confident we can retire approximately $100 million of debt in 2023. I'll now turn the call back over to Joe.

Joe Walsh (Chairman and CEO)

Thank you, Paul. We're focused this year on efficient growth. We're fully scaled in the U.S. The business has been profitable now for a while, and the losses are fairly small for the new country starts, enough so that the U.S. can cover those and carry them. We've got an overall now profitable business in 2023, and we've reached that scale where we're beyond the investment phase. As we launch new countries going forward, there'll be a small investment as we set up a new country, but we now have a fully scaled U.S. business that we think can carry that. One interesting highlight in this transformational journey of our company, and this is actually, I think, a really big deal, is that for 2023 in our financial plan and our model, SaaS revenues actually eclipse print revenues for the first time. Yeah, that's right.

I'm being clear about that. The SaaS part of our business will have recognized revenue larger than the print part of our business. Now, to be honest, a little bit of that is the revenue recognition issue where some books move out of the year. By the time they get to 2024, and that sort of corrects and reverses, the SaaS business at the rate that it's growing, will have just pulled away from the print business. This was the inflection point where SaaS is larger than print, and from here on out, it'll just pull away. That's a gigantic milestone when you're trying to transform a legacy company into something new. You know, for those that were sort of waiting for that moment, you know, this is that moment where that crossover is occurring.

The way we are investing our money is into engineering and into product. We're pretty focused on making sure we've got the best-in-class product, that we've got an all-in-one solution. At the moment when small businesses are beginning to move to the cloud and beginning to experiment with point solutions, there's a sort of a crisis of disconnectedness where people really desire a more simple... Think about, you know, you get an iPhone because it just works. The Android phone might be slightly better with a better camera and a few other odds and ends, but it's more of a do-it-yourself project. When you get that iPhone, it just works, and that's what Thryv is. It's this premium brand, super high quality. Everything works well together. It's integrated into its own app store and marketplace.

You can run your business under one login with one dashboard, with an all-in-one product, that's super desirable for people at this point. There's a sort of a vendor consolidation thought process out there that's going on, even with the people who have begun to, you know, experiment with SaaS. Our investment is in product. We haven't had to throw lots of money at marketing and sales because we have this unfair advantage. We have 400,000 existing accounts in our zoo, in our customer base, that are steadily buying more and more software as this trend is picking up speed of small businesses moving to the cloud.

The largest area now of customers for us is actually referrals, where those existing 52,000 who are thrilled with what Thryv is doing for them are telling their friends. That's driving referrals to now to be more and more of our, of our revenue base. When you think about investing, don't think about throwing money at classic sales and marketing efforts. Think about a robust product investment. When we think about our customer base, we often talk about the SMB. When we started, we were kind of in the lowercase s. We were selling very tiny solopreneurs, two-employee, three-employee businesses. As our platform has gotten stronger, gotten more robust, as we've gotten better at figuring out who our ideal client is, we've begun to move up market.

We're moving up more to the, you know, 10-employee or 15- employee or 20-employee businesses a little bit more, and we're finding that they are able to consume a lot more of the software, and obviously, they have lower churn, they have great payment capabilities, and they tend to be less volatile. That's part of the journey that we're on, is moving from lowercase s to kind of uppercase S and even tipping into the M just a little bit as we moving forward. Our marketing services business, I realize, is a little tough to understand the way the revenue recognition is bouncing around. I would just direct everybody to look at cash flow. We can show you cash flow going back for years, and it's like a metronome. The rate of decline is very steady, and that cash is coming through.

We paid down a lot of debt last year, and we will pay down a lot of debt again this year. We're cash flow guys. Keep that in mind. We're very focused on delivering cash. It's what we've been doing our whole career, and we feel comfortable that we will be able to continue to do that. When we first got to Dex Media, the very first thing we did was rip out a couple of hundred million dollars of cost, just restructured the business. We bought YP, and in no time flat, we improved margins by 20 points for anybody who was watching. We're pretty focused on efficient growth and delivering cash. That really is always our way, and we are always looking ahead, planning ahead, looking to variabilize the cost, looking at cost levers that we can use.

Keep in mind, in 2024, you know, the publication schedule normalizes a lot. The marketing services revenues recognition at least kinda roars back. SaaS, as I mentioned, will have pulled away and be bigger at that point. That's a quick trot through our business and an overview of where we are. Operator, why don't we open it up for some questions?

Operator (participant)

Thank you. At this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad. We do ask that you please limit yourself to one question and one follow-up question. We will pause for just a moment to compile the Q&A roster. We will take our first question from Scott Berg with Needham & Company. Your line is open.

Scott Berg (Managing Director and Senior Research Analyst)

Hi, everyone. Congrats on the next quarter. Thanks for taking my questions. I guess I got a couple here, Joe. I know it's real early. You've only had Marketing Center out for a couple months, but any bits of anecdotal information you can share? Maybe is this being purchased by new customers as part of the Business Center suite, or is this maybe selling better to existing customers in a cross-sell motion?

Joe Walsh (Chairman and CEO)

Well, thanks for the question. Marketing Center's off to a strong start. As you mentioned, we really just started selling it at the very end of the year. We don't have a super long run at it so far. We did limit it in this initial leg, in this initial phase to you can only buy it if you're already a Business Center customer. That's the universe that we're marketing it to at the moment. We're really not, you know, bringing in new with it at the moment. Now, that won't be that way forever. It was just our gated way of launching it to make sure that we had, you know, really good success out of the chute. Sales have been good. Interest in it has been very high.

As Ryan mentioned in his prepared remarks, it does kind of bridge back to our legacy. You know, our legacy reputation is linking buyers and sellers together through marketing services. A lot of our employees, you know, date back to that period of time and have a lot of credibility, a lot of skill there. It was a really logical move in that regard. Ryan Cantor, I don't know if you would like to, you know, expound or offer anything about what you're seeing in terms of customer anecdote or customer uptake. Ryan?

Ryan Cantor (Chief Product Officer)

Thanks, Joe. Early, early signs of people who have adopted Marketing Center, as Joe alluded to, are adding it on top of their already powerful Thryv experience, and they're taking advantage of better insights. As customers are visiting their website or their landing pages, they know where they're coming from, which is really starting to now inform their decisions. We're just starting to see people starting to run some paid advertising through the platform in the early parts of the year. We're starting to see some really, really strong results there as well. All things are very optimistic.

Scott Berg (Managing Director and Senior Research Analyst)

Thank you. That's super helpful. From a follow-up question. Paul, we know what's going on with the marketing services business this year. You guys have certainly detailed that over the last 90 days. I think the number one question I get with the revenue in the year is: How should we start thinking about bookings or billings for that segment here? I know we've kind of used a 20% annual contraction as a rule of thumb the last couple years. Should we think about the billings being kind of in line with that, you know, 20, maybe a little bit below, which is where it's been, or is there maybe a different trajectory going to occur this year? Thank you.

Paul Rouse (EVP, CFO, and Treasurer)

No, no, I think that's the correct way to think about it. You know, like it was 18% for the year, -17% for the quarter. Yeah, like Joe mentioned, it's a metronome and that's the correct way to think about billings going into 2023.

Scott Berg (Managing Director and Senior Research Analyst)

Great. That's all I had. Congrats on the next quarter again. Thank you.

Joe Walsh (Chairman and CEO)

Thanks, Scott.

Operator (participant)

We will take our next question from Arjun Bhatia with William Blair. Your line is open.

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

Hey, guys. Thanks. Thanks for taking the question. Congrats on the quarter. Maybe to start off with product, Joe, maybe this is for you, and Ryan possibly if he wants to jump in, it seems like you're adding a lot more capability to the solution, right? You're adding eSignature. You had the chat functionality. You're obviously adding Marketing Center. How do you think about, you know, with new capabilities that are coming in, how do you think about partnering with existing solutions that are out there versus building something yourself?

You know, what considerations do you take in terms of product experience, you know, UI, UX, et cetera, because it seems like your, you know, your MAU growth kind of jumped off the, took a step function increase rather this quarter, and I'm sure product enhancement has something to do with it. But how do you think about just the roadmap and adding new capabilities going forward into the platform?

Joe Walsh (Chairman and CEO)

Thanks for the question, Arjun. We're listening to our customers. We're spending time talking with them, meeting with them. We do Zooms with them. We call them. We have a Facebook chat session with them. Ryan just spent a couple days with one of our biggest customer groups, this, you know, big franchise group. He went and spent two days there just sitting and talking with people about the details, the little stuff like screens, like help sessions, like really into the weeds. We're listening to our customers, and I would say that if I were to put a banner over the whole thing, we're trying to make it as easy as possible for our customers to succeed. We're trying to make when you kind of plug things together, and it just works.

The way we do that is we sort of think of ourselves as Switzerland. We've got our marketplace, which we've got, you know, plans to even significantly improve that in the year ahead. We've got our marketplace, which if there's some standing stuff, some existing stuff that you're already using, you can often just go into the marketplace and connect it, and the data flows, and it starts populating your CRM, and it makes life easy. In terms of the add-on features and products that we have chosen to build and develop, those were in direct response to, you know, requests and conversations with our customers, and we asked them to force rank. You know, they can't just ask for everything. It's like, okay, you have to force rank this. Put it in order.

You know, things like, you know, having Signatures right within the tool, so they don't have to go get signatures somewhere else and then put it in their CRM is just so labor-saving and such a kind of a home run. You know, we decided to do it that way. It's really all about just, you know, allowing our small business customer to do this easily without having to, you know, sit down and take courses to become certified or something. Just keeping it really simple. In many cases, we allow them to do something multiple ways. If they'd like to do email marketing, Thryv has email marketing inside of it, but it also integrates with Mailchimp if that's what they wanna do. You know? I mean, if they like Constant Contact, no sweat, just connect it. It works.

We're trying to make it as simple as possible and put as few barriers in front of them as possible. Where our answer is, "Yeah, sure. That works. Here's how you do it," as often as possible. Ryan, I wanna just give you an opportunity if you want to expound any on my answer.

Ryan Cantor (Chief Product Officer)

Thanks, Joe. Arjun, great question, I would say that speed to market is what we're focusing on, and we're focusing on the UI experience for our users, that it is a homogeneous experience as you move from one part of the platform to the other. We think that delivers really kind of compounding value to the user because they're not having to relearn new functionality as we launch it because it relates, and it looks like a pattern they've become familiar with. Where we can partner, embed, and include partnerships with other companies to accelerate our roadmap faster, we obviously continue to choose to do that, as we think that is ultimately a key to success in the small business space, that most small businesses don't care how the technology works.

They just care that it does, and it does what they want it to do. We continue to, work smarter, not harder, and, ultimately just deliver, focusing on delivering value to our users as fast as possible.

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

Awesome. That's, it's very helpful. To maybe circle back on Marketing Center, when you think about the go-to-market motion, maybe not, you know, what you've seen in the last month, two months, but as you go forward and you think about where the adoption comes from, and you look within your install base, do you see this as somewhat of a targeted strike, right? There's a group of customers that fit the bill that would adopt Marketing Center, or is this something that you plan to take to all your SaaS customers, because there's a broader opportunity, you know, for adoption there? What are the thoughts on that strategy for the next year or so?

Joe Walsh (Chairman and CEO)

Ryan, I'll start that answer, and then if you wanna amplify it, you can. I would remind you, Arjun, that if you look back at 2022, we have a billion-dollar marketing services business. It's a pretty big base of people that are trying to advertise and promote and get more customers. We've got a really big universe of people that we can go and talk to about Marketing Center. It really is right down Broadway for us. If I'm really honest with you, it's a little easier to sell, help you grow your business than it is a full business process change, where you've got to install a CRM at the heart of it and begin to live in our inbox. I mean, that's kind of a higher order sale. It's harder.

We're actually moving down into an easier area, and as I mentioned, we're taking baby steps by initially just marketing to existing SaaS customers. That won't be forever. We do plan to go into the broader zoo eventually. We're just making sure, you know, everything is perfect and we have all the momentum first. Ryan, I'll let you amplify if you wanna add anything there.

Ryan Cantor (Chief Product Officer)

No, Joe, I think early stages are done as we focus on the existing Business Center user. We're really seeing two cohorts. We're seeing the, you know, already active user who is naturally willing to add on additional functionality and get more value out of the platform. Our teams operate very well when we give them a focusing area to go after. That's working out pretty well.

Users inside the platform can also activate a 14-day trial inside the platform, which we're excited about. We are starting to see some users who maybe were a little on the lower end of engagement, but really being able to track and measure the effectiveness of their marketing is now a catalyst for using the platform more. Sometimes, you know, small businesses need a little bit of a push on, "Well, why should I use an online CRM," or, "Why should I track my online payments?" If one of those reasons are it can deliver you an understanding of which marketing works and which marketing doesn't, that can be a catalyst to drive future engagement in our CRM product. We're seeing a little bit of both happening at the same time.

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

Great. That's helpful. One last just housekeeping item for Paul. The goodwill impairment that you mentioned, Paul, is that related to like a legacy acquisition, YP, or is there something more recent that that's, that that impairment is related to?

Paul Rouse (EVP, CFO, and Treasurer)

Yeah, that's what it, what it relates to. It relates. It came on the books in 2016 with the restructuring and the YP acquisition in 2017. You know, actually it's not too bad. We extracted during that time $1.6 billion in cash from the business. Given where we are, I think we're doing pretty well. You know, it's a declining business from time to time. This could happen in the future. What you don't see though, is interesting, is accounting rules only let you write down assets, not write up. The valuation on the SaaS business and international was actually a lot higher than the carrying value. That's the deal.

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

All right. Makes perfect sense. Thank you, guys, and congrats again.

Operator (participant)

As a reminder, press star one if you would like to ask a question. We will take our next question from Rob Oliver with Baird. Your line is open.

Rob Oliver (Director and Senior Research Analyst of Software)

Great. Hey, good morning, everyone. Thanks for taking my questions. First one's for Joe. Joe, just curious, there hasn't been a question yet on the macro. It seems the economy, at least in the U.S., has been fairly resilient, and certainly your SaaS numbers, you know, for Q4 metrics were quite strong. A bit of a decel here in the guidance reflects that. Just wanted to get your sense of what's contemplated in the guidance and how you view the macro having been through, you know, a bunch of cycles here before. Then I had a quick follow-up for Ryan.

Joe Walsh (Chairman and CEO)

Okay. Yeah. Our company has been in business for 137 years. So there have been a lot of cycles that the business has been through and the customer base has been through. The macro is really good for us right now. I mean, our SMB customer has weathered a pandemic, a supply chain crunch where they couldn't get any supplies. They've weathered a staffing issue where they couldn't find anybody to hire, you know, and all of that is better now. Pandemic's better now. The supply chain is eased or easing, and they can hire again. So, these are the best of times compared to what they've been going through for the last, you know, three years or so, if I'm honest. Remember, our customers on average have been with us about 15 years.

These are very mature kind of icons in their community, more successful businesses. We really don't trade in the new startups. Our ICP are more established businesses. That group has done really well. You know, the consumer, as I think you mentioned in your, in your question, is good, and it's continuing to do that little concrete job out back, you know, or re-roof their house or whatever they need to do. Our mostly service-based type businesses are continuing to be really busy, and continuing to do well. That's part of why, you know, you see our growth and results very, very strong. You know, we're actually a couple of months into the year already, and, you know, engagement in the software is higher than ever right now. You know, sales and momentum continue very strong right now.

In terms of your mention of our guidance, you know, implying a decel, we guided the same last year, you know, with the same guidance we gave you last year. We, you know, we tend to be underpromise, overdeliver kind of guys. We, we've been around a long time. We're very conservative. We're proud of the fact that we've beaten rates, you know, every quarter since we came out. We're not gonna get over our skis. That's not who you're dealing with. You know, we're being told that there's a great gathering storm out there, you know, so we're... You know, we put a little bit of a conservative guide in it, just as we did last year. And we continue to have very strong momentum. You know, we've now got more than one center clicking as we go through this year.

you know, I mentioned in my prepared remarks, you know, Australia is now hitting full stride, and Canada's coming up really nicely. you know, we hired an international president, so you can imagine we're planning to add more countries. That's not hard to figure out. I feel very comfortable with the guidance that we gave. It's probably conservative, if I'm honest. you know, we tend to be guys that want to fully deliver, overdeliver, and we're just not gonna get out over our skis. No issues in the macro at all. our guys are doing great, and we don't see any signs of trouble. Which is not to say that it couldn't come. I mean, I read the same stuff you guys do. honestly, I just want to say one more thing here.

You know, I have heard some of the enterprise SaaS companies talking about decisions being delayed and C-suite getting involved and this and that and the other. You will understand our customers don't have a C-suite. You know, we're dealing with the decision-maker, and they're chugging along just fine. Really nothing has changed for them. It'd have to get a whole lot worse for it to begin to really affect the way they think about modernizing their business. This is a trend that you can't put back in the bottle. Small businesses are moving to the cloud, and they're moving at an ever faster rate to the cloud. This is a big trend that we're riding, and I think it's stronger than a little economic crosswind.

Rob Oliver (Director and Senior Research Analyst of Software)

Really appreciate all the color, Joe. That's really helpful. Thank you. Ryan, there's been a bunch of product questions already. You know, when I look at the platform today versus when, you know, some years back when I first started doing work on you guys, I mean, it's been a tremendous evolution. The functionality, you guys mentioned chat, eSign, obviously Marketing Center, estimates, invoices, calendar integrations. When you look at, you know, kind of what's on your agenda, you know, over the next 12 months-24 months, I know you don't probably want to give away all the goods in terms of new features, what are the priorities for you? I know you mentioned kind of UI. You guys have also done a lot of work in verticals.

Kind of what constitutes success in terms of, you know, continued platform expansion for you over the next year or two years? Thank you.

Ryan Cantor (Chief Product Officer)

Thanks, Rob. I think as we look forward, without giving away all the goodies, we've obviously announced a multicenter approach. We now are excited that we have two, obviously we're continuing and focusing on that effort as well, to solve additional pain points and problems that users have, right? Creating easier onboarding. I mean, Joe alluded to, you know, a CRM is business process change. We're always really focusing on how can we meet small businesses a little closer to where they are before they come to Thryv today. When we think we can lessen that gap, we're reducing the friction to really be able to adopt the platform and then grow with us inside. That's a really big focus.

I think as we add centers, as we add these apps, you know, our focus on UI is to ensure that, again, it remains simple, easy, effortless. Joe's analogy to an iPhone is simply perfect. It just works. It's homogeneous. You don't have to learn new things when the iPhone is improved. It just is intuitive, and it's natural. We're putting a lot of effort in there because that's always the risk as you add additional functionality, that it can bog down the platform. We're being very, very careful and methodical about how we do that. To your last question about vertical, you're really seeing now a transformation of the platform into this combination of centers and apps, right? ThryvPay is an app.

Signatures is now an app. Then you have these centers. We think that, you know, the appropriate way that we're thinking about verticalization is really on the CRM side. The CRM is verticalized, but there are, of course, functionality and features that certain verticals would like to see. Being able to do those in a more modular app-like way would allow the verticals who want it to adopt it without turning away or turning off verticals who don't. We don't want to give them any reason to think that the platform isn't built for them. So that's really our direction, is really to kind of complete that transformation this year into this center kind of app strategy and really focus on usability.

Rob Oliver (Director and Senior Research Analyst of Software)

Great. Thanks for that. Appreciate it, guys.

Operator (participant)

We will take our next question from Daniel Moore with CJS Securities. Your line is open.

Ross Kesselman (Equity Research Associate)

Hi, guys. Thanks so much for taking the time. This is Ross Kesselman standing in for Dan. Would you mind talking a little bit about how your SMB customers are faring in this, you know, economic environment where customers are pulling back a little bit on discretionary, you know, purchases? I know that you just kind of touched on it, how, you know, you guys are directly in touch with the decision-makers, but could you say maybe about how you're, you know, approaching your customers' decision-making process and if there's, you know, how you're approaching these, you know, difficult, you know, economic headwinds, and if you think there could be any kind of negative impact on your SaaS business despite you guys projecting strong growth?

Joe Walsh (Chairman and CEO)

Thanks for the question. Yeah, I appreciate where you're going with that, you know, just trying to parse it a little bit more. I think in your question is the answer. You used the word discretionary, and there's very little discretionary in the clients that we serve at Thryv. It's the dentist where you know, you cracked your tooth, and you got to go in and have it capped or have a root canal or whatever, have something done. It's the air conditioning doesn't work in your house, and it's hot as hell, and you got to get it fixed. It's a deer ran out and ran into the side of your car when you were driving down the back road, and you got to get the gigantic dent in the side of your car fixed.

I mean, that's our customer base. It's the service-based businesses that care for your home, your body, your car, your family, your life. We really are not selling high-end dining or fancy travel. You know, it's just not there's not a lot discretionary in what our guys do. They're really working with making life keep going. I sometimes say it's the nasty things in life, you know, that our guys do. They do the nasty things in life. Accordingly, those things don't stop. You know, if your roof's leaking, you get it fixed. You know, you don't just sit there with a bucket under it. Having said all that, I just wanna underscore, we're finding that the consumer is fine.

Our customers have jobs, they have backlogs of jobs, they have a lot going on. This environment is incredibly good. The pandemic is quieter. They are able to get supplies now. You can get a two-by-four. You can order supplies and get them much better than you could a couple of years ago. It's not all better, but it's much better than it was. Still takes 11 months to get a Sub-Zero refrigerator, but, you know, you can still get things better now, and people have got kind of accustomed to it. They can hire again. The ability to hire, their staff has improved quite a bit from where it was last spring or last summer. That environment is pretty good.

In terms of your question, peering ahead and saying, "Well, what if things get bad?" you know, I would sort of refer you back to the same question. Our guys are the most established business in their markets. You know, if there's, you know, 12 carpet cleaners in your county, you know, we have the top six or seven, the most successful, the guys that have been there for a while. We don't typically have the new starts. They didn't go buy Yellow Pages. They didn't jump into our customer base usually. We don't have a lot of efforts to try to get the new start business. We're pretty much focused on the more mature ones. You might say, "Well, why is that?" It's churn. Churn is a nightmare.

I mean, you have all the same costs to sell a new start that you do to sell a mature business, but less likelihood that he's gonna be around. We really have focused on the established business as our base. That, and that's, you know, I think borne out when you look at our super low churn. We have that because of this really established base. You know, we don't see a big calamity coming, but we read all the same headlines you do about monetary supply being tightened, and at some point it's gonna kick in and all that. You know, we're, you know, cautiously and guardedly watching all that. Sales right up through yesterday. Yesterday was a kick-ass day for Thryv sales, Marketing Center sales. Everything was really strong right through yesterday.

I can't tell you about today. It's just getting started.

Ross Kesselman (Equity Research Associate)

All right. That sounds great. A quick follow-up. Could you talk about, a little bit about the progress you're making with the Marketing Center? When should we expect to see a more meaningful inflection in growth as a result?

Joe Walsh (Chairman and CEO)

I think you'll see it build steadily, and I think you'll start to, you know, really meaningfully see it reflected in the numbers in the H2 this year. Remember when we sell them, you know, it takes a couple of minutes to get it set up and get it going, and, you know, the numbers that we're selling right now aren't so big to move the needle. I would say in the H2 of the year, this year, you'll start to see Marketing Center revenues really starting to contribute. I think maybe one of the places you'll start to see it lifting is our net dollar retention. That, you know, we're very strong in terms of renewal, logo renewal, and holding onto people.

As Ryan detailed in his, in his prepared remarks, we're beginning to offer a nice menu of additional things that customers can buy, whether it's, you know, you know, Signatures or TeamChat or, the big one being Marketing Center. These additional purchases by existing customers. He also mentioned there's actually in-app upgrade capability, which, you know, is another, you know, express path. I think in the H2 you'll start to see... Let me just back up one sentence. I mentioned in our long-term guidance that you should expect us to get to 100% net dollar retention.

These new products that we've been, you know, building for a while now that they're now released and coming into the market are part of why I felt that way and part of why I believed that we would be able to do that. I would expect in the H2 of this year, you will see them start to come through and I'll ask you to kinda keep an eye on net dollar retention and the progress I think we'll make toward our goal of 100.

Ross Kesselman (Equity Research Associate)

Thank you for the additional color.

Operator (participant)

I apologize. Go ahead.

Ross Kesselman (Equity Research Associate)

I was gonna say thank you for the additional color.

Joe Walsh (Chairman and CEO)

Thank you for the question.

Operator (participant)

We will take our last question from Zach Cummins with B. Riley Securities. Your line is open.

Zach Cummins (Equity Research Analyst of Software and Ad Tech)

Yep. Hi, good morning. Thanks for taking my questions. Just diving in a little bit more on that, Joe. As we're thinking about the rollout of Marketing Center this year, are you still thinking of the SaaS growth drivers as kind of a balanced contribution between new customer adds and ARPU expansion, or could we see that fluctuate a little bit this year?

Joe Walsh (Chairman and CEO)

No, I think we're still striving for that balance. I expect good, you know, good solid subscriber growth. I mean, we are, you know, entering new countries. We are entering new segments. You know, there's a lot going on here that should be able to drive that. But if you, if you go back and you think about the Investor Day kind of long-range guidance, we told you that we thought that we would be able to grow ARPU up into the $7,000 range over the next few years. Part of why we believe that is we felt that we could serve more needs in slightly bigger businesses as time goes by. That's exactly what we see happening.

You know, it might be that ARPU, you know, starts to outrace subscribers where it's not perfectly balanced, but I'm not guiding you that subscriber growth is gonna stop or slow down or that we don't see any more of it. It's just that, you know, we've got a lot of juicy ARPU drivers here now. It might, it might pull ahead again a little bit on us, but we are striving for balance, and it would be a high-class problem if we have a big jump in ARPU. We are striving for balance.

Zach Cummins (Equity Research Analyst of Software and Ad Tech)

Understood. That's helpful. A final question from me, and Joe, I know you've made a couple of references to it in your comments, but can you just talk about some of the progress you've made on the international side? Seems like Australia is really humming right now. Canada is starting to ramp up pretty quickly. Just any insight into existing countries and how you're thinking about expansion over time.

Joe Walsh (Chairman and CEO)

Thank you. That's a great question. You'll remember last spring, we hired an international leader, Marie Caron, and she's come in and done a wonderful job of integrating herself into the business, learning, getting to know the company and the team and the people. We have a lot of confidence in Marie, and she's not resting on her laurels. She's working away with plans for us to enter still more countries. Just quickly answering your question specifically, you know, the entry model that we used for Australia was we bought a big, established, mature marketing services business, which allowed us to vault quickly into kind of pole position into a first-mover advantage type situation in Australia. You can see it when you look at our, you know, monthly sales.

The U.S. is broken into regions. Australia is obviously a much smaller company than the country than the U.S., Australia as a region often is beating the U.S. regions. It's like it's really coming along nicely. We have a terrific leader there and a terrific sales organization that are bought in and excited about what we're doing. We started really carefully in the beginning and made sure that we had carefully selected ideal clients, that we got them stood up correctly and that things were working. We've had very low churn. We've had super high engagement. We're getting a lot of referrals already from the still relatively small installed base. The zoo is cranking, and now the referrals are cranking. We're not doing a lot of inbound marketing there.

We're just pretty much working within the zoo, but it's going really, really well. I, you know, I expect that, you know, revenue to grow quite quickly, out of Australia and out of the international segment more generally. Canada, we did not make any acquisitions. We went in and established a partnership with another reseller. We went in online, we have established our own direct sales team there. They're trained up in the market selling and, you know, experiencing very good reception. The Canadian market is not quite as advanced as the U.S. market in terms of software options, so there's a lot of excitement and interest about what we're sharing. You know, we're leaning into it.

As Paul mentioned earlier, you know, about being efficient and all that, we don't wanna throw too much money at growing Canada too fast because we didn't make any kind of acquisition or initial investment. We're, you know, we're growing it in an efficient way. There are plans to enter more countries, and I'm not prepared to announce anything today. If one were to think about our plan to get to $1 billion, our plan to get to $4 billion over time, we don't plan to do all that in just the U.S. and Australia. We plan to continue to enter new markets, we plan to continue to roll out new centers.

That gives us a lot more surface area over which to grow and a lot more growth, kind of growth vectors to get there.

Zach Cummins (Equity Research Analyst of Software and Ad Tech)

Understood. Well, thanks for the additional color and best of luck with the rest of the quarter.

Joe Walsh (Chairman and CEO)

Thank you very much for your question.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.