Thryv Holdings, Inc. (THRY) Earnings Call Transcript & Summary

Good morning, everyone. This is KJ Christopher, AVP of Investor Relations with Thryv. We are excited to talk to you today about the company and our direct listing. With you today are Joe Walsh, CEO and President; Paul Rouse, CFO and Treasurer; and Gordon Henry, our Chief Strategy Officer. During our presentation today, management will make forward-looking statements and refer to non-GAAP financial measures. It is possible that actual results could differ from management expectations. We refer you to Slide 2 for more detail. Additionally, Thryv Form S-1 has information on the risks and uncertainties that may bear on our operating results, performance and financial conditions, including those related to the COVID-19 pandemic. Please see our agenda on Slide 3 of our presentation, which is available on our investor relations website at investor.thryv.com. Now I would like to turn it over to Joe Walsh. His remarks will begin with Slide 4 of the presentation.

Thank you, KJ. We're really excited to tell you about our direct listing and all about our business, but before we do, I want to take a minute and just give you a little sense of who we are. I am an entrepreneur who bootstrap started a independent yellow pages company competing against the telephone company Yellow Pages, built it up, sold it and had successful exit and then spent a couple of years with the company I sold it to before joining a very small Long Island company called Yellowbook. And Yellowbook was a yellow pages company that was competing with the telephone company Yellow Pages. I met Paul Rouse, our CFO that's with us today on my first day on the job. We started 2 weeks apart. And together, along with a number of other guys, we built the Yellowbook business a little at a time, one acquisition at a time, one new market at a time. And as the years went by through those acquisitions, we added a number of the current management members that are here today, including Gordon Henry, our Chief Strategy Officer. We made 77 acquisitions and launched into more than 250 markets nationwide, to build more than $2 billion nationwide footprint of that Yellowbook business. We eventually transitioned that to a public company where we had a transaction with BT, and then we took the entire thing public on the London Stock Exchange and created a $4 billion public company before eventually exiting that business. I went on to launch a board advisory practice, Walsh Partners, working with hedge funds and private equity groups and their various management teams, trying to solve some of the problems they had in those businesses. That led me to Cambium Learning Group, which was an education publishing company where we did essentially ed tech software for small businesses. And we had a very successful run there over a 6-year period of time. I was the Executive Chairman. During the Walsh Partners phase of things, Gordon Henry and I worked very closely on a number of projects, one of which was consulting to Dex Media, the company that was the predecessor to this company. And we went in and developed a strategy for Dex that resulted in us joining the company. So that's how we come to be here today. As an overview to our company. Nationwide yellow pages company, nationwide footprint with a scaled SaaS business under the hood, $1.3 billion of trailing revenue, 35% EBITDA margins, headquartered in Dallas, Texas. Thinking about our business in 2 big chunks: Marketing Services, Print Yellow Pages, online yellow pages and the various other digital advertising that we sell; and then our SaaS advertising business, a scaled, more than $100 million SaaS business. Thinking quickly about the history here. When the divestiture of the telephone company occurred in 1984, there were regional Bell operating companies created. They all had their own yellow pages companies. Eventually, those all came back together. In 2013, Verizon's yellow pages and U.S. West Dex yellow pages, SuperMedia and Dex One, merged to create Dex Media. In 2014, this management team came in and took over. Shortly thereafter, we launched our SaaS software offering, and then in 2017, we went and acquired AT&T's yellow pages business YP and put that together to create this national footprint. Over the last couple of years, we've generated $1.1 billion of free cash flow. We fully integrated all those acquisitions. We've got one very efficient national platform and footprint. We've got this scaled SaaS business now under the hood with strong, fast growth and some terrific opportunities ahead. Thinking about our sales force. We have a more than 1,000-person national sales force, one of the largest sales forces out there nationally, mainly feet on the street, plus 4 big inside call centers covering the whole country. Thinking about the COVID-19 impact on our business. We've been pretty fortunate. Because we're in the service-based businesses, home services, personal services, we've -- they've been pretty resilient here during this period of time. So while we felt it, we've been a little bit insulated because the travel, entertainment, dining segments that have been hit so hard are less-important parts of our customer base. We also enjoy a lot of geographic diversity because we cover the entire country. So certain areas that have been harder hit, we -- there have been other areas where we've done better, so it's been kind of a shielding process for us. We have transitioned to work from home like a lot of other businesses. We've actually gone to a remote-first culture. We are greatly reducing our office footprint. That's given us a lot of flexibility where we can hire people really from anywhere, and we've experienced significant cost savings by not having the overhead of those offices. And believe it or not, we've had a strong productivity lift during this period, where our people have really benefited from the focus that working from home has given them. Thinking about our business working with small businesses. You're concerned, "Well, what about small businesses?" We have a Thryv foundation. Our foundation works closely with a lot of small businesses, even making grants during the darkest days, the early days of the pandemic before the government stepped in with some of the assistance programs. We've seen our marketing services really hang steady because most of those customers are on long-term contracts, 12-, 15-month contracts. And the yellow pages ad is kind of the last thing you take out before you go out of business. And the place that we've felt a little bit more, I guess, headwinds, if you will, is in our search engine marketing business, where we sell the keywords for Google. We've had some of those campaigns paused, but it's a fairly low-margin part of our business, so the economic impact hasn't been as strong for us. Overall, 2020, we'll deliver pretty close to our original plan for 2020 despite the economic headwinds that are out there with COVID. So one of the things that's happened during the pandemic, and you've heard this a lot from different -- in business news and headlines talking about the acceleration of trends. There has been a process of small businesses modernizing and really moving their business into the cloud, but it's been in kind of a slow process. And all of a sudden, the pandemic comes along and you need to accept electronic payments and you need to do that right now. You need to be able to do contactless delivery. You need to be able to adjust your store hours. You need to be able to accept appointments at various times. So all of these needs have driven a tremendous additional demand for our Thryv software, and we've been able to help a lot of businesses. This one in particular, Essentially Well Oiled in Colden, New York, they called us to cancel and say that, "We're going to go out of business." And we said, well, "Why?" And they said, "Well, because people can't come into our store. We're forced to be closed." And we said, well, "You can adapt." And we helped them set up a small e-commerce type situation where they began delivering their products rather than having people come into the store. And they have made it through and have been doing very well. And so we've helped a lot of small businesses adapt; and we're continuing to help them adapt as we work through this kind of strange, new environment. Thinking about Thryv sales and just to illustrate the tailwinds that we have. Look at the unit growth that we've seen in January, February, March, April. It's just been up, up, up; and that only goes through June. Obviously I know what July and August were. It's continued in that direction, so strong acceleration in unit sales for Thryv. Thinking about our business in a little bit longer term so you can understand our big picture plan. We expect that Marketing Services will become a smaller part of our business over the -- over kind of the medium term, eventually being less than half of our revenue. We see our very fast-growing and exciting SaaS platform becoming a larger and larger percentage of our business, being more than half of it in the medium term. And within that, in the past, virtually all of our sales were made by our traditional sales force. We've been building new channels. We've been building our reseller channel. We've been building a multi-location and franchise channel. And importantly, we've been building an inbound channel where customers raise their hand, come in to us and buy from us without us sort of going out to seek them. And those new channels have been growing very quickly from the mid-teens percent of revenue today to a very large percentage of our revenue we expect in the medium-term future. That's a very fast-growing area for us. So thinking financially about the business model. The SaaS business today as -- it is profitable. It's a low- to mid-teens-margin business with about 44,000 customers. We expect, thinking out to the medium and longer term, for that to be a $0.5 billion business with closer to 30% margins and over 200,000 subscribers or customers in the medium term. And during that period, we expect our Marketing Services business to continue its sort of 20-ish-percent decline, perhaps slowing a little bit as it gets closer to bedrock looking out, but we expect importantly the high margins, the 35% to 40% margins, to continue right through. We've figured out how to kind of variabilize the cost base around that business, so we expect it to be a really strong cash generator. Thinking about capital allocation, at the bottom of the slide, we expect to, with ease, pay down the debt that we have on our business over this period of time and really create equity value for our shareholders. So thinking now about the yellow pages business, just kind of drilling into the various different pieces of our marketing services. Yellow pages are still used by -- or references this last year were over 3.8 billion references to yellow pages. If you think about our business: It operates under the national brand The Real Yellow Pages. That's one of the brands that we acquired as we were putting all these things together. So it's the only true fully national footprint, only true fully national branded product. The other brand that we carry on each of those directories is the telephone company brands. So it will be the Verizon directory or the AT&T directory, and there's a lot of credibility that comes with including that extra brand there. The directories are profitable and the directories are continuing to be managed in a very cohesive way. One interesting little [ fact here ]: We no longer publish the directories on just 12-month cycles. We actually long life them and leave the directories on the street for 15 months in many -- most cases, which actually improves our economics and delivers a little bit more value. And it's also very economically friendly. Who uses the yellow pages? It's the 55-and-older demographic typically in suburban or rural areas that are still really strong users. They tend to be homeowners. They tend to have families. They tend to have a lot of buying needs and they tend to have a lot of money. The most affluent part of the market are these kind of 55-, 60-, 65-year-old people that have life changes. They have kids getting married. They're upsizing. They're downsizing. They're moving. They're getting a boat. They're doing whatever. They have a lot of purchasing needs and they have a lot of buying power, and we're delivering a very valuable buyer to the marketplace. Why do companies advertise in the yellow pages? It's pretty simple: bang for the buck. They get low-cost leads out of the yellow pages. We've managed to bring down the costs of yellow pages advertising. We've actually lowered the prices, what it costs to buy a yellow pages ad a lot. And it's delivering today a better return on investment than it was 10 years ago or 15 years ago, when usage was even stronger, because of the way we've managed the cost of the product. And yet as I mentioned earlier, we are continuing to deliver very high margins. So thinking about quantifiable results. We put a custom tracking phone number in the ad so we can tell exactly how many calls are coming in. And looking at the whole big picture, we're delivering $28 leads, if you kind of average everything out. And some of our big advertisers are Roto-Rooter, Aspen Dental. [ GEICO ] is a big advertiser. These folks track everything, and they realize they're getting a really good value by advertising in these products. And they continue to and they're very devoted to them. Turning to Internet Yellow Pages. This is the online version of our yellow pages. So it's yp.com. It's Superpages. It's Dexknows. These are our brands with 35 monthly -- 35 million monthly visits. They also do very well in the services businesses, the contractors, legal services, auto repair, dentists. These are -- and the demographics if who uses it are actually pretty similar too. One interesting thing to note is we extend our own reach by partnering with Yelp and Yahoo! and CityGrid and a bunch of other sites to create what we call the extended search solution. And it gives us a lot more traffic and a lot more reach, and for them, they monetize their products through our big sales force. So this would be an illustration of how Internet Yellow Pages work in a modern economy. At the top, you have a buyer or a consumer. At the bottom, you have a small business. The way the buyer travels down to that business is either over on the left, going to a search engine like going to Google, let's say, and doing a search. And the top search results that come up in the organic results are the content out of our Internet Yellow Pages. They click on it. They go through to the Internet Yellow Pages. They pick their vendor and they go through to the small business. Or in the middle, they might direct navigate and go right to yp.com or Dexknows. Some people have the app on their phone. Some people just go there directly, come right through. And on the far right there you've got our partner network, where maybe they're searching in Yelp or Citysearch or Yahoo!. And the ads that they see, the content that they're looking at was something that our sales force sold; and we make the connection that way. In all cases, we're linking the buyer and seller together in a really simple way in a modern ecosystem. And this is still a very powerful advertising vehicle. It's very profitable for us. Usage is still very strong, so this is a very, very key asset, very strong cash generator for us. Just continuing with Internet Yellow Pages. You might say, well, why do small businesses advertise there? Because they can acquire online leads much cheaper than they can by buying them from Google, by buying -- participating in the auction for the Google keywords. Here are some specific classifications looking at attorneys, dentists, auto repair. And you can see just how much lower the cost per lead is for each one. Google -- good for Google, they've got an auction process that teases out the absolute apex, the top dollars they could get out of each keyword, where we're selling a -- more of a subscription model. And to make sure we're delivering really strong value, we're not pricing to the highest level. And so there's a terrific bang for the buck there. This product enjoys really high customer renewal rates and very high customer satisfaction rates because of the low-cost leads it delivers. So I want to turn now to talk about some of our other digital advertising products. Search engine marketing, where we sell keywords on Google, and we do provide that service. It's a lower-margin part of our business, but it's a service that we do provide to our customers. We're very good at it. We run good campaigns for the customers. And while this business generally has more churn, our version of it is a little lower because we do such a good job and we've been at it for a while. We also do search engine optimization, where we tune up people's websites and help them optimize how they come out organically. We sell digital display ads across the web. We do online listing management all over the web. And we do videos for our customers as well, so we kind of have a complete suite of the digital marketing services. So I'd like to ask Gordon Henry, our Chief Strategy Officer, to tell you a little bit about our SaaS products.

Hi. I'm Gordon Henry. Thanks, Joe. I'm the Chief Strategy Officer, and I'd like to talk to you quickly about 3 things. One, what's in the SaaS platform? What's in Thryv? Two, what is it like to be a customer of one of the small businesses who uses Thryv? What's interacting with Thryv like? And three, what's the SaaS industry or the piece of the SaaS industry that we participate in? What's going on there? So Thryv is a complete all-in-one solution for the small business. It's a way for them to have an end-to-end client experience all in one platform. It really starts when a customer of the small business books an appointment or somehow interacts with that business and their data gets stored in the CRM and the database of the small business. They can then interact via e-mail and text all on the platform. They can exchange documents, for example, project plans or estimates, invoices, bills. The business can collect payments electronically from their customer. They can build their online presence. They can build an online reputation by seeking out reviews. It's really one place where they can do all they're interacting with their customer through this platform. I want to show you now a commercial that we aired. It was quite well known across the country and helped us build our national brand, and it speaks to the features and functionality that you can find inside of Thryv. [Presentation]

I'd like to show you now just a customer experience, what's it like for somebody to interact with Thryv with a business that uses Thryv as their platform. This woman, her name is [ Dana Smith ]. She lives in Dallas. He has a cat, as you can see, named [ Taby ]. And she wants to go away for the weekend to visit her parents, who are in North Texas, and she needs to board the cat. And so she looks online, of course. She goes to Google. And she types in "veterinarians in Dallas, Texas," and up pops a number of choices, including, you'll note at the top, yellowpages.com, which is the IYP, the Internet Yellow Pages, Joe was mentioning a few minutes ago. And so she clicks on that and she comes to the website of this reliable veterinarian called [ Smith Animal Clinic ] in Dallas, Texas. And she looks around. It looks good, and she books an appointment. And when she inputs her data to make the appointment, that data immediately flows through to the Thryv operated by the small business. And so she has her data in their system; and they see everything about her, including when that appointment is going to happen and every piece of information she needs to share. And then she gets a ping back on her phone saying thank you for booking the appointment and, "We're going to give you now an estimate so you can see what this is going to cost you, and you can make your payment in advance." And she receives the estimate and she reviews that and it looks good. She makes the decision to go ahead, and so she gets an invoice. This pops up on her phone. She can choose a number of different ways to pay, all electronically, so it's very easy for her as a customer. So she makes the payment. And then also the business, by the way, can choose their payment processor. There are a number of different payment processors we offer, including our own private label solution. And [ Dana ] now has a page on a client portal that the business operates within Thryv, and so she can see all of her information all in one place. This is useful for her and the business going forward if she becomes a repeat customer because she and the business can see her customer history all in one place. And then she goes away for her weekend visiting her parents. The cat has a lovely time in the kennel. And then when [ Dana ] comes back after picking the cat up, she gets a coupon, a 15% off coupon, so that she'll return in the future, which is really a good little innovation because many businesses, small businesses, don't do a good job of keeping in touch with their customers. And by sending these automated coupons, it's a way of keeping the customer coming back. And then finally, she can fill out a review. The business sends her electronically through Thryv a request for a review and asking for their 5 stars, which will help them with their Google rankings because Google loves fresh content and high 5-star reviews. And so she goes ahead and does that. And you'll see on this review page, which is on the client's website, her review, along with others, and the 5 stars. And this gets scraped by Google and so it will appear on Google again. That will help that small business, the veterinary clinic in this case, with their rankings. So we'd just like to show you a testimonial from one of our clients and speaks to the features and functionality that they appreciate that helps them run their business better on Thryv. [Presentation]

So just turning to the last piece of my part of the presentation, I wanted to talk about the SaaS industry that we participate in. So back in 2018, only about 30% of the 30 million small businesses in the U.S. were in the cloud, but that was starting to take -- pick up speed and grow. And it was projected, by 2022, that 60% or over half of the 30 million small businesses in the U.S. will be in the cloud. We believe that's actually accelerating now. It's happening faster for the reason Joe said before, COVID-19. We've seen a strong pickup in demand for our service as a result of COVID-19 because so many businesses realize you now must do business virtually. It's just it's that important because people don't want to see you in person. So we are seeing this acceleration in the SaaS market that we're participating and growing even faster than originally expected. Thryv is a proprietary solution. We built about half of thrive in-house. We also have about half of it built by best-of-breed vendors who we partner with. We have unique relationships with them. And many times, these are exclusive relationships, so it's a proprietary product stack that only we have. We have IP and trademark protection on a number of the features in the product. As Joe mentioned before, we have a sales force, both our own sales force as well as partner sales force, partners that we leverage who sell Thryv to their customers. So it's a nationwide sales force at this point and, as Joe mentioned, in the future probably going international. And we're continuously improving the product. We've been around now -- the product has been around for 5 years. We're on version 4.0, working hard now on version 5.0, so it continues to improve. When you look at the competition, we believe we're more comprehensive, more complete as an experience than any of our competitors. We compete with some very well-known companies, HubSpot, ServiceTitan, but these companies, many of them charge more than we do. For HubSpot or ServiceTitan, you're talking in the thousands of dollars a month. Thryv is priced between $199 a month and $499 a month, so most of the plumbers or roofers in a town can afford it if they're a successful business, whereas some of our competitors, only the top performer in that town might be able to afford it. So we think we have an edge both in the pricing as well as the completeness of the product. When you look at the size of the business that we cater to. There are a lot of very small businesses out there who maybe only have one employee, the owner. We don't really reach down and cater to those one-employee businesses. They can often get by using a free tool like Gmail or Square. The meat of the market is -- who we cater to is 2 to 20 employees really in the SMB space, maybe going up to 50 employees. That's our target market. Once you get north of there, like 50-plus employees, those businesses turn to more of an enterprise solution like Salesforce.com or Oracle. So just to wrap up, 3 points I hope you take away: one, that Thryv is really a unique end-to-end client experience platform; two, that for the consumer who's using, who's interacting with one of our small business clients, it's extremely easy. They can really do most of this from their phone. And thirdly, we are on top of a hot, fast-growing SaaS space; and we believe we are the market leader, a $136 million, profitable, growing business. We've been doing this for 5 years. We're really excited about the opportunities for the future. Back to you, Joe.

Thank you, Gordon. Just kind of thinking about the investment highlights, looking at the big picture here. Gordon just said it very well: We're the market leader in a very hot space. We feel like it's a giant wave that's forming and we've got our surfboards sitting right up on top of that wave and about to ride it. And not everybody even knows that it's under the hood here, I mean, so it's a tremendous opportunity. So you've got the SaaS platform. Then you've got the directory business that's providing these powerful, predictable cash flows. We've managed to variabilize the cost base to deliver really strong margins throughout. We're delivering significant amounts of cash flow. And that cash flow is paying down debt, basically creating equity value for our shareholders. And you've got a very experienced, proven management team that have been together for many, many years operating and executing the strategy. So just thinking about that high-growth business. From inception, you can see very strong compound annual growth of this Thryv platform. Gordon mentioned briefly, when he was showing that pyramid slide, that we don't target the kind of "solopreneur," one person in a business, the "Chuck in a truck" business. We did experiment with going down market briefly, and that did cause us a little bit of extra churn. And you can see a little bit of a pause in the up-up-up growth there, but we've shifted and developed really an ideal client profile. We've refined our onboarding and engagement approach. And of course, the software has been continually getting better with new releases. So as you saw on the unit sales growth that I showed you earlier, we've been experiencing very strong sales this year, and we really feel like we've cracked the code and are really back growing this thing very quickly again and really tapping into that significant market that's out there. This slide illustrates the steady reduction we've seen in churn. Churn is a killer in a SaaS model. When you're dealing with small businesses, they do tend to behave a little bit more like consumers. So you're never going to get down to enterprise-level churn of 1.5% or something like that, but we do believe that we can get this churn down in the kind of 2.5% range. And we think that that's a really workable level of churn. And we're seeing very high levels of engagement by our clients using the product on a regular basis. We monitor. We have tools that look at what they use, when they use, how many minutes a week in a month they use it. And we've got a client experience team who's working closely with the customers, encouraging more usage, helping line up new elements of Thryv so that they can get more and more benefit from what they're buying out from us. So again, strong, strong tailwinds with the pandemic. This is something that was happening, anyway, where small business people were figuring out they needed to modernize, but the urgency that they have to do it now has really been happening. So when you think about what our recognized revenues are going to be in Q4 and Q1 of next year, it's these kind of ads sold unit sales that are coming over the transom now. And there's steady growth coming and it's continued right through the summer. So just thinking about how long Thryv has been around. We've been at it for 5 years. HubSpot has been at it for 14. Mindbody has been at it for 19. Keap has been at it for 19, Signpost for 10. There are people who started before us. Some of them had a different aim, some of them more software people that invented something and trying to figure out who to sell it to. In our case, we were guys who worked with small businesses for many years and really understood the problems that the smartphone age was bringing to a small business and decided to help them solve that problem by creating an end-to-end client solution with best-in-class elements that would give them a dashboard where they could basically write on the device they already own, just deliver it through the cloud. They could just operate their business, have a dashboard there where they could see everything that was going on and would interact with everything. And through our app marketplace, we've been able to plug in more and more capabilities into what Thryv does. And so we really in a space of 5 years risen to become the category leader in this kind of end-to-end horizontal small business solution. I'd like to ask our CFO, Paul Rouse, to just give us some of the financials, if you would. Paul?

Thank you, Joe. Let's now talk about our print business for a moment. Our print business, while in decline, is a highly profitable business with predictable strong cash flows. As you can see here, we have been able to increase our variable margins each year for the past 3 years to 87% as we consolidate our position as the last publisher of scale printing directories in the United States. Our team has decades of experience and a proven track record of managing a profitable print business. From a consolidated level, this is a business with solid margins and positive free cash flow driven by a flexible cost structure, financial discipline and the experienced leadership of our management team. As this slide demonstrates, we are thoughtfully managing the declining Marketing Services business to provide free cash flow to pay down debt and invest in our SaaS business. The chart on the left is a last-12-month EBITDA walk to unlevered free cash flow. During this period, we delivered $452 million of EBITDA. Now I will review each of the adjustments and provide a few remarks on how to think about it in the future. Most of the adjustments here are slightly higher due to timing of expense payments over the period. Capital expenditures. We have a low-capital-expenditure business. Our normal range of CapEx is approximately $25 million to $30 million a year. Working capital was slightly negative. Working capital will jump around positive and negative, depending on the period measured. Cost to achieve was $39 million. Cost to achieve represents onetime costs such as severance, costs of going public, runoff payments on abandoned lease facilities, costs of IT systems consolidation and abandonment. For the full year 2020, we expect cost to achieve to be in the range of $30 million. Pension payments on our frozen pension plans were $41 million. We are expecting pension payments to be in the range of $30 million for 2020. This resulted in unlevered free cash flow of $330 million. The chart on the right represents each quarter's cumulative unlevered pretax free cash flow. As you can see, unlevered free cash flow grows each consecutive quarter. Let's now discuss leverage ratio on net debt-to-EBITDA. During 2017, upon the acquisition of YP, we levered up to 1.6x, and we quickly delevered to less than 1x. At December 31, 2018, we relevered to 1.8x to execute a tender offer to repurchase shares. We again quickly delevered to less than 1.5x thereafter, where we sit currently. Thryv has repaid over $1 billion and returned $500 million to shareholders since 2016. Now back to Joe.

Thank you, Paul. So the management team that you get here is across the bottom of the screen there. Most of us have been together for many years. As I mentioned, we built Yellowbook together and have been together here in this company over the last -- most of the last 6 years. Some people came along the way, but you've got a very proven, very experienced team that have worked across this business. So the variabilizing the cost structure, the -- managing the decline of the old business, that part is completely in hand. And we're very focused on small businesses and their needs and have been growing the SaaS business in, I think, a pretty smart way and in a pretty consistent way. We've assembled a new Board, effective at the beginning of September, bringing in more SaaS experience; bringing in more software experience; bringing in people from the bay area, people who have been directly involved with this. We've got 2 CMOs from big Silicon Valley companies who are really bringing a lot of demand gen and understanding about inbound marketing and how to really rapidly grow a very scaled software business. We're bringing in a couple -- several CEOs who've got background in this transition, this digital shift, and in technology, so we're going to have very strong resources to draw upon in terms of contacts, relationships, ideas; and to help guide the acceleration of growth as we break away and really become a very large SaaS platform. So I'd like to bring Paul back here. Paul?

Thanks again, Joe. As we have emphasized throughout this presentation, Marketing Services is a declining revenue segment but strong cash flow business. Print remains strong within its target demographic. IYP is a highly profitable and owned and operated asset that we are working to stabilize. SEM is a highly competitive low-margin business that we are in for the benefit of our client base. We are focused on maintaining Marketing Services' high profitability and maximizing its cash flow to pay down debt as we migrate its client base to our Thryv software, which we expect to result in stickier and more recurring revenue streams. As we have established throughout this presentation, Thryv's software has achieved comparable scale with longer-established competitors in just 5 years since its launch. We have adjusted our strategy to focus on upmarket clients that can benefit the most from our software, thereby increasing engagement and lowering churn. We believe we are well positioned to grow again given our strong unit sales trends which we presented on Slide 14. Let's now look at the profitability of these 2 segments. Both segments are profitable. We have a high-margin Marketing Services business and a growing and profitable SaaS business. From a free cash flow perspective, our business generates significant free cash flow, which we have used to pay down our debt. Since 2017, we have generated $1.1 billion in free cash flow. Now back to Joe.

Thank you, Paul. So just to sort of wrap this whole thing up. We're really excited about this direct listing. We feel like this is a wonderful opportunity to showcase what we've accomplished. You've got a high-growth, profitable SaaS platform combined with this powerful free cash flow generation for the Marketing Services business, guided by a very experienced, very proven executive leadership team. So we think this can provide a very predictable growth and really a dynamic upside for the business. I'd like to now open things up for questions.

[Operator Instructions] Right now I'd like to turn the call over to Brinlea Johnson to take some questions from the web until our Q&A roster fills.

Our first question is, how did you come to the decision of a direct listing?

Well, I'll take that one. So our company is a highly profitable company with very strong cash flow. We almost think of it like having a captive [ VC ] because you've got the Marketing Services business pumping out cash that can be used to fund the growth of Thryv. It's really a pretty exciting time for our company. The SaaS business has felt a lot of tailwinds right now and a lot of energy behind it with the accelerated transition that's been happening in the country toward digital. So the timing seemed right in the business. And as far as our balance sheet and the capital markets, we really didn't need to raise any money, but a direct listing, we've seen the success of some of the other direct listings, seemed like the right play for us and also would give flexibility to some of our shareholders over time.

[Operator Instructions]

I'll move forward. I have another question that's coming. How does pricing work? Is it an all you can eat or sold by module? And how does pricing scale?

It is sold by module. There is sort of a "good, better, best" pricing theme, and the price points are in the hundreds of dollars range. So this is not a freemium or a very-low-price thing. We're selling at a full good value. We're getting customers to commit both financially and commit to engagement in the product. That's been one of our big successes is very strong client engagement, and yet there is a lot of scope for upsell in the future. We've got the ability to sell more seats, additional licenses for more employees. We can sell more services to the customer. We've got a couple that we've developed. There are more coming. There are some payment tools where we've got some volume coming in through payments now. That's relatively new but growing very rapidly. So it's we are entering at a relatively high price point initially, as opposed to some freemium or very-low-cost approach.

Great. And can you speak to how long your pension will be ongoing?

I'm going to turn that question over our CFO, Paul Rouse, and let him speak a little bit about the pension.

This is Paul Rouse. The pension plan that -- right now it's a frozen plan. It is underfunded. So we are constantly reviewing, each year, what's the best strategy and use of cash for us, whether to accelerate our ability to fully fund the pension plan and spin it off. Or is it better use of cash to go with minimum payments and invest back in the business? So that's really a decision we make year-to-year and also taking a look at changes in law and requirements. So it's something we have no specific plan on retiring the plan right now, but we're looking at it every year.

Okay, great. I think a lot of people are interested in the SaaS business here. Can you give us a further sense of how the business has been impacted by COVID and your strategy for growing this part of the business?

Yes. That's an excellent question. As we've all seen, COVID has been an accelerant, and it's driven a lot of companies to move more quickly to digital. We have a lot of small business in America that were still operating with paper and pencil or on e-mail. And with the economy booming the way it was, a lot of them felt like things were going pretty well. "And I'm so busy. I don't really have time to stop and do this." Well, when COVID came along, they had the time and they had the absolute necessity to take electronic payments, to be able to do contactless delivery, to set and change their store hours frequently or their offerings frequently. And our Thryv product accommodated all of that. And accordingly, we've seen just a significant tailwind and "month over month over month" growth in Thryv, in part driven by the tailwinds around COVID.

Okay, great. Your next question: Can you also speak to your interest expense going forward and your expected cash taxes?

I'm going to turn that one over to Paul as well. Paul?

This is Paul. Well, the interest expense, we are planning to delever each here, so you can expect a decline in our interest expense as we move out. As for taxes, look, in medium term, we're returning to roughly statutory tax rates. And there is -- so I would guide that way as you look at medium term.

Okay. Joe, it seems like 2 businesses, a high-cash-flow, declining business; and a potential high-growth SaaS business. Can you separate the 2? It would seem to be value accretive, if you could.

Yes. I mean that's exactly -- that's a terrific way to think about it. It's really 2 companies. The Marketing Services business, very, very high margin, very predictable cash flows. Customers are on long-term contracts. Typically a customer will sign a 15-month contract. And they're in a -- that sort of gives us a lot of forward visibility. And we've been able to variabilize the costs of that business completely so that, even as it shrinks over time, and we do plan for it to shrink, it will continue to throw off similar margins and a significant amount of cash flow. Moving over to SaaS, you've got a business that is really at the beginning of a very big macro trend, macro wave really, where small businesses need to [ modernize ]. They need to learn to use the devices they already own, their cell phones, their iPads, their tablets, to run their business and get themselves organized. And the Thryv product, the Thryv whole line really taps into that. And we've really, I think, hit it at a great time, very strong demand. We've had confirmation really from day 1 when we started the product that we were on to the right direction. So that business is a growing business. We did have a couple of quarters where it didn't grow as we kind of went through a transition, but there were really, I guess, 3 big catalysts to the acceleration of growth that we've seen. Our 4.0 software is the street is ahead of our earlier versions. And it's very easy to onboard, very easy to use; and that's made a big, big difference. We've added a marketplace, an app store that's given a bunch of additional functionality. We've launched new channels beyond just the traditional channel that we had in the past. We've now got a multi-location franchise channel. We've got a partner channel where we're working with resellers. And we've got a pretty significant inbound channel with customers coming our way, as opposed to just the outbound of our traditional. And then lastly, COVID. COVID has been wind in our sales. So that's sort of how we think about the 2 segments.

Okay. Next question: Can you remind us how much debt is on the books currently; and your plans to draw that down, if any?

I'm going to have Paul Rouse, our CFO, take that one.

That's you can always refer to the S-1 to keep me honest, but it's roughly net debt is just under $660 million.

And next question. What is your target leverage ratio? Where are you now? And where do you want it?

Paul will also take that -- yes.

Right now -- yes, yes. The target ratio at 1.5x, we're pretty comfortable with that range. So obviously, as we delever, we expect to pay down our debt certainly through the medium term, but we're very comfortable at the target 1.5x where we are at this moment.

Okay, next question. As you look to expand the SaaS platform, how are you thinking about build versus buy, versus partners?

I'm going to bring our Chief Strategy Officer, Gordon Henry, in and have him make some comments to this question. Gordon?

Yes. Thanks, Joe. We have a best-of-breed vendor-partner relationship where we have numerous vendors who we have often exclusive relationships with and we continue to enhance the features that they provide us. And they account for roughly half the platform. The other half of the platform is built by our in-house team. We've got a sort of lean, mean engineering team that has built fantastic features and functionality. And basically, over time, we've increased slowly but carefully the portion of the product that's built in house. We're not looking to have teams that are huge, but we want to add features that we think are beneficial and unique in the marketplace. So as one example, we recently built something we call hub for Thryv (sic) [ Hub by Thryv ] or -- and what hub does is it's built for franchisors so that they can really use it as a console to see what's happening in all of their franchisees. And that's unique to us. That's a piece totally built in house. It's been really well received in the franchise space. And so I would say that, over time, the portion of the product that's built in house will slowly creep up, but we will continue to be judicious about that and utilize best-of-breed vendors when and where it's appropriate.

And Gordon, if I may just add a little bit to your comments and to your answer. Another strategy that we've used that's worked really well is, some of the key marketplace vendors that have leading technology choices that allow us to have best of breed on our platform, we've partnered with. And we paid them specifically to develop some unique functionality or unique features that we wanted to incorporate into Thryv. And we own that IP, so even though we didn't develop it in our building, we expressly paid to have it built for us and is available only to us through Thryv. So it's an interesting blend, a very modern approach to really developing and quickly developing a powerful software platform.

Our next question: Given that this will be a direct listing and not an underwritten offering, how should we think about liquidity with such tight ownership?

Well, we do have a concentration of ownership, and that's something that we believe will change over time. Historically, the people following and the investors in this business were focused on the yellow pages business. They were investing in the yellow pages business, which is a super cash-generative business but not growing. It's actually shrinking. And so we're -- really today is kind of the first day that we're revealing that we have this scaled SaaS business inside and that's available for investment, and we think it will attract a different type of investor over time. I mean a $100-plus million fully scaled national SaaS business with international aspirations, with the kind of TAM that this thing has, we think, should attract a different investor group and should allow the company to transition from the kinds of investors that invested in the former yellow pages to more SaaS growth-type investors in the future.

Our next question. When will the stock begin to trade? What are the terms on the outstanding warrants? And what was the price per share on the recent private placement?

Paul, I'm going to turn that one over to you to discuss the timing and some of the particulars.

What -- I think, on this question, it's best I refer you to our S-1, where it's fully disclosed. I think that's you'll get your best and most correct answer there.

In terms of timing, though, in answer to that question, early to mid-October is when we believe the trading will begin.

We've got question on the competitive landscape, question on competition. You mentioned HubSpot, Mindbody and a few others. GoDaddy, Wix, Squarespace have all been building out capabilities here serving SMBs with a broader range of solutions. In addition, they have been building out Internet registry work, and you're currently competitors. If they do not -- sorry. There's -- and if not, how do your offerings differentiate themselves?

We really have an end-to-end client solution. It's a -- we started with the small business in mind. The small businesses that we were calling on were yellow pages customers every day. We were talking with them about their needs, their needs to be able to schedule appointments for customers; their needs to be able to accept electronic payments; their needs to do estimates, invoices, billing; their needs to try to manage social media; their needs to do marketing automation campaigns and reminders and things like that. And so we basically constructed our product around the client services needs of a small business. And that gave us a much broader solution that's -- that also addresses the market horizontally. Basically, the entire A to Z kind of former yellow pages marketplace, we have a pretty good solution for. And while we're building out more and more verticalization within that, we really have a good, broad solution. There are obviously many participants in the digital market. And some of them are in fact edging into offering more of the kinds of services that Thryv offers, but a small business is really faced with having to have many different subscriptions that they're going to try to buy point solutions to piece together what Thryv does. And they end up with having a lot of log-in issues. And then the services don't talk to each other, where Thryv is one integrated, unified place, kind of a dashboard where they can operate their whole business out of their pocket or on their smartphone. So that's sort of the way we approach the market and the way we think about the competitive landscape.