Q1 2024 Earnings Summary
- Thryv achieved 30% subscriber growth, increasing SaaS subscribers to approximately 70,000 at the end of the first quarter. This strong growth is driven by successfully transitioning legacy Marketing Services customers to their SaaS platform and the increasing adoption of multiple centers by customers.
- The percentage of customers using multiple centers increased from less than 1% last year to 8% at the end of the last quarter, with expectations of significant increases each quarter. This multi-center adoption is anticipated to boost Average Revenue Per User (ARPU) and Net Dollar Retention (NDR), fueling substantial growth.
- The recent debt refinancing provides Thryv with increased financial flexibility, enabling investment in growth initiatives, potential strategic acquisitions in the SaaS space, and share repurchases. This positions the company favorably for future expansion and shareholder value creation.
- Thryv's Marketing Services revenue is declining significantly, with first-quarter billings down 24% year-over-year. The company is actively winding down this segment and accelerating the transition of customers to its SaaS offerings. This strategic shift may not fully offset the revenue loss in the short term, potentially impacting overall financial performance.
- The transition to a SaaS-focused business introduces volatility in financial metrics. Management acknowledges that their metrics are "not always perfectly smooth," with potential "blips in how EBITDA is recorded" due to factors like publication schedules. This could lead to unpredictability in financial results and challenges in meeting investor expectations.
- Thryv faces challenges in executing M&A to accelerate SaaS growth due to its "very, very low valuation," which makes acquiring SaaS businesses dilutive. This limitation may hinder the company's ability to quickly scale its SaaS offerings and compete effectively in the market.
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Accelerating Conversion to SaaS and Margin Impact
Q: With Marketing Services down 24%, will declines continue, and margins hold?
A: Joe Walsh acknowledged intentional efforts to transition customers from Marketing Services to SaaS, aiming to become a SaaS business. Paul Rouse stressed focusing on overall EBITDA rather than segment margins, noting high SaaS margins offset declines in Marketing Services. They expect consolidated margins to remain strong despite the decline in Marketing Services revenue. -
Capital Allocation and M&A Plans
Q: How does debt refinancing affect capital allocation, M&A, and SaaS investment?
A: Joe Walsh explained that the new debt facility provides cash flexibility for acquisitions, share buybacks, and debt reduction. With previous constraints lifted, they are actively exploring SaaS acquisitions to accelerate growth, which could enhance shareholder value. -
Consolidated EBITDA Growth Outlook
Q: Are we nearing the EBITDA trough; will growth resume in '25?
A: Paul Rouse indicated a focus on returning to growth, noting that while EBITDA recognition might fluctuate due to publication schedules, they are getting closer to sustaining and growing consolidated EBITDA. Joe Walsh added that despite metric fluctuations during transformation, the overarching trend is positive as they transition to a SaaS company generating strong cash flow. -
Multi-Center Adoption Boost
Q: Will multi-center adoption accelerate with new sales incentives?
A: Joe Walsh confirmed that increased incentives for selling software and multi-centers have led to dramatic results. The sales force is focused on selling both centers, expecting significant growth in multi-center adoption, which will enhance ARPU, net dollar retention, and support long-term growth. -
Evolving Sales Strategy
Q: How has the go-to-market strategy evolved with new commissions?
A: The sales team now has greater incentives to sell software over legacy products, driving focus on multi-center sales. This shift has resulted in significant success, with expectations for continued positive impact on key business metrics and overall growth. -
New Leadership's Impact
Q: Will Rees Johnson's leadership change your center strategy or plans?
A: Joe Walsh stated that while no immediate changes are planned, Rees Johnson's expertise from leading roles in major tech firms will take their software to the next level, potentially bringing new ideas and improvements to their platform expansion. -
Customer Adoption Patterns
Q: What patterns are you seeing in multi-center customer adoption?
A: Joe Walsh observed that more customers are buying both centers upfront, and others start with Marketing Center and add Business Center later. This trend supports higher ARPU and net dollar retention, contributing to favorable lifetime value and the company's growth objectives. -
Impact of Macro Factors on Marketing Services
Q: Is Marketing Services decline due to pushing SaaS or macro factors?
A: Joe Walsh attributed the decline primarily to their deliberate effort to transition customers to SaaS. While acknowledging some macroeconomic concerns, he noted their core small business clients are resilient, continuing to spend and buy, and the decline is mainly due to their strategic shift. -
Legacy Customers' Reception to SaaS
Q: How are legacy Marketing Services customers receiving the SaaS shift?
A: Joe Walsh reported strong success in selling into the existing customer base, noting 30% subscription growth. The transition to Marketing Center is a shorter leap for customers, leading to increased uptake and optimism for continued results as they buy into the broader platform.
Research analysts covering Thryv Holdings.