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

Good morning, and welcome to the KeyBanc Emerging Technology Summit. I'm Justin Patterson, and I lead the Internet and Digital Media Research team. With me today is Joe Walsh, the CEO of Thryv Holdings. Thryv is a cloud-based software, helps small to midsized businesses modernize their business functions, which in turn helps SMBs reach more customers and grow revenue. In short Thryv is a unique play on digital transformation and empowering local advertisers. Joe, thank you very much for being with us here today.

Yes. I'm glad to be here.

Great. So to kick things up, I was hoping you can provide a quick overview of the Thryv SaaS business. What are the primary problems that you're solving for customers? And in turn, how does that shape your view of the TAM?

So the TAM is about a $10 million business TAM in the U.S. So out of the $30 million or so businesses in the U.S., we think there's about $10 million that are our guys or our sweet spot there. And in terms of what we do, it's really -- we call it an end-to-end client experience platform. And so many small businesses aren't on the cloud at all. Or if they are, they're using maybe 1 element, 1 point solution. And this really brings their whole business into the cloud. It's a CRM. They carry around their phone, their tablet or on their PC. It's with them all the time. It's their entire customer base, all the interactions with them. It manages the marketing front end stuff, their ratings and reviews. There's a scheduler out there, form fills, ways that people can contact them. And then once the customer has acquired or that process has started with a new customer, all of that 2-way communication, there are maybe forms, estimates, invoices, all that's done within Thryv. You can -- and once an appointment is scheduled and maybe your technicians going out there tomorrow morning at 10, they're going to get extra e-mail, whichever they prefer, reminders that the guy is coming, which brings no-shows way down, very important. And then as the job is completed or the sale is completed, it's time to get paid, we offer a variety of payment tools. The one we're really excited about is ThryvPay, which we just rolled out a few months ago, which has taken off. And then after the sale, we'll send a -- Thryv will send a follow-up to the customer, thanking them for doing business and provide a link that they can give a rating or review and then Thryv helps them improve their ratings and reviews. Then there's an ongoing marketing automation follow-up to say, "Hey, we haven't seen you in a while. Come on in for a free whatever or possibly at spring, it's time to clean your filters on your air conditioning system." So it's really a complete end-to-end experience. It really does it all. And Thryv doesn't do bookkeeping and payroll. It doesn't -- there are things it doesn't do. It's not a big, powerful e-commerce tool, but Shopify is on our app store. And QuickBooks is in our app store. And for that matter, Constant Contact, Mailchimp, lots of things are in our app store. We play really well with anything that a customer may have already adopted. The data shares, it works really well. That's part of what drives our really strong engagement number.

That's great. And I appreciate the call out of ThryvPay in there, Joe. That's definitely something we'll sink back to in the commentary. And before I forget, I'd like to encourage the audience to ask questions as we go. There is a chat function. So if you submit questions, I can weave that into the course of discussion. Now Joe, before we go deeper into the business, I thought it would be helpful to just revisit your background. You've got a long history of growing businesses that focus on SMBs and in turn, also focusing on digital transformation. Could you talk about just how that background helps shape how you manage Thryv today?

Well, it's really what informs starting Thryv, honestly. I've been working with small businesses for many years, was very familiar with their problems and the vendor marketplace that was trying to serve them. And I was actually working over in the [ entech space ], it was running Cambium Learning Group, an education publishing company, when the former owners of the Old Yellow pages contacted my Walsh Partners and said, "Hey, can you help us with a strategy?" And while we're out in the field with the sales reps, went and sat in a call center for the day, started talking to customers all day about their current problems, talking to the sales reps about what they were hearing from customers. And it was obvious that they were becoming aware that they needed to modernize, that there was a cloud out there that they needed to figure out how to move forward but really didn't know how to do that. And so the strategy that we recommended to the company was, you could bring the unclouded to the cloud. You could bring these small businesses that have not yet tapped into the cloud or maybe have tinkered with 1 little point solution and meaningfully organize their business cloud setting. And at that time, cloud adoption was in the single digits by small business. And it's ramped up slowly over the last 6 years or so. We're approaching 50%. Obviously, the pandemic has [ split ] things up a little bit. But that's kind of the background of how we got here and the alchemy of the small business problem and my sort of experience with SaaS and bringing those 2 together.

Got it. And I like how you characterize that, bringing -- transforming the unclouded and bringing them to the cloud. And it looks like you're already having some very great proof of concepts with that journey. Last night, you did pre-announce Q4 results, showed healthy SaaS revenue growth, 8% year-over-year, revenue and EBITDA, both ahead of expectations. And then also very solid guidance for 2021. So I'd love to hear just more about what was driving those trends during the quarter? And what's contemplated [ that ] preliminary view for 2021?

Well, we got off to a really, really fast start. I mean the SaaS business is a little over 5 years old. And you might say, well, how the heck did you get to 40-plus thousand subscribers so fast? We sustained 40-plus percent compound annual growth year over year over year. How did you do that? But I'd like to say we're great, but we really had the opportunity that nobody else has when they do this. We were hunting in the zoo. Most people that start a software company are out in the forest hunting 1 customer at a time. We had over 350,000 existing customers to go talk to about this. And very quickly, thousands and thousands of them signed up. So we got off to a really fast start. What we didn't do until later, and we're now doing, is build a dedicated sales channel for the SaaS business. We were just relying on the marketing services sales force to go sell it. And they were selling so many, it was all we could do to fulfill them there for a while. So we went through kind of a growth plateau for a minute as we were shifting gears. But now we've really got a -- more of a traditional software company's sales channel, where we've got an inbound motion. We're doing content marketing, driving leads, SDR, setting appointments, demo guys closing them. We've got a partner channel with resellers, more than 225 and growing very quickly. We've got a multi-location franchise channel. These all didn't exist a couple of years ago. These are all new. And so it's a very methodical kind of cookie-cutter growth that we're doing now, building on the success of hunting in the zoo, where we're out to -- going to that next level. And so that's why we've got so much confidence in the growth that we've seen over the second half of last year that's accelerating coming into this year.

Awesome. And lots to unpack there. I heard a bit about cultural transformation, shifting from the marketing side toward the SaaS side and then hunting in the zoo just implies a really large CAC advantage, customer acquisition cost. So I'd love to hear just -- let's start at the high level. How do you manage that cultural transformation and where traditionally, you have competed on 1 side, that marketing service area? And now you've shifted Thryv more towards Saas, and that's the future vision of that, the business. How do you just manage that shift internally and operationally?

Well, I mean, the people that were working in the Yellow Pages business, the marketing services aspects of our business. We're looking for the next thing, and we came in and laid out this strategy, which, frankly, they stood up as one and said, "That's right, that makes so much sense." So we had agreement from the beginning. And I think anybody could see that the cloud was really impacting enterprise 6, 7 years ago, but had really not yet affected the SMB. And you could see that, that would be next. I mean, once it's -- once we explained it, everybody could see it very clearly. So we always had endorsement of the idea. Then it became a question of the learning curve for the organization. And frankly, some people didn't make the learning curve, didn't make the jump. This is a company that had been around for many, many years. There are lots of people that have already been here for a long time. They choose to kind of take their chips and go someplace else, which allowed us to really make a transition with a blend of really experienced people and a lot of new kind of software-oriented people. So it's a dynamic mix that we have in our company of talent now, which really gives us the [ strength effect there ].

Got it. And stepping back, just more of a macro view. One of the trends my team and many others at [ Keap ] observed throughout the pandemic is that this really catalyzed a lot of digital transformation across companies. So let me hear about just how your business itself changed your day-to-day operations? And in turn, how that also affected the challenges that your customers are facing and created potentially new opportunities for you?

Well, we were already moving in the direction of becoming really a work-from-anywhere virtual company. And the pandemic just finished that off. I mean we went the rest of the way. So we have an HQ operation in Dallas with a giant server farm that runs yellowpages.com and Superpages and DexKnows. It's got office space for lots of employees. But many of our 5 building campus we have out for sublet. We're pulling back in. And most of our people work from home and will continue to do that. We've got all the automation, all the tools that we need to track what people do. And we've had a lot of great productivity lift from it. So that's what's happened in our company. For our customers after a bit of a seize moment when everything first happened in the second half of March and April of last year, things loosened up and got going. And the demand to modernize my business just as we've had people, this sort of work from home thing, same small businesses are working remote. So they have to do contactless delivery and payments. They have to have their safety [ sub ] protocols out there. Their store hours and service offerings are changing. Well, Brian keeps that message up-to-date all the time and well SEO-ed to help your search engine optimization. So -- and I would say probably cloud adoption was pulled forward at least a year or 2 by the pandemic, maybe more. I haven't really measured it. But we certainly saw customers that had bought Thryv, who weren't really using it very much yet. Go to it, really start to use it, call us and say, "Help me, I want to get better at this. I need to do this now." This isn't like a nice to-do, this is now a must-do.

Got it. So you've got some pull-forward of the cloud trend on top of the fact that, to use your words earlier, you're hunting in a zoo from a customer adoption perspective. When I think about just the drivers of customer growth going forward, how do you envision both the sales channel and the partner channel evolving to really drive penetration higher over the coming years?

Well, I think that the partner channel is big. We always had people who wanted to do it. We just weren't ready to do it. And now we've built a whole partner engagement team. We've bought some cool partner engagement software. That's working really well, plugged to another SaaS company, and off we go. So we're adding nearly 1 a day, new partners. They're coming in fast and furious. We've only been at this a short time. And we're seeing sales from that channel go from a comparable period last year, was very, very low but really growing. So that -- we're very excited about that. And they're accessing customers that we've never talked to before, that we wouldn't probably have ever gotten to. So that's a whole new channel. And then it turns out for multi-location and franchise, one of the leaders in the franchise space called this the holy grail for an emerging franchise because it's just a turnkey, everything they need. And we developed this, we call it a Thryv hub, it's the franchise parent tool where they can peer into the Thryvs of all their franchisees, which also helps them keep track of all their sales and get credit for all their sales because one of the [ dirty ] little secrets is that some people that have a franchise work around the franchise system with some of their volume. And having a CRM that is controlling everything keeps that from happening, which is really valuable to the master franchisor. And so we're signing these things up very quickly, and we're typically signing them on 3-year contracts with built-in escalators. And then we're seeing that the franchises we're focused on -- this is not Burger King. We're out here working with people who've got maybe 15 or 20 franchises on the way to 100. So they're adding franchises, which is giving us growth. So pretty excited about that. That's really -- those areas are really where we see that and our own direct inbound, the bulk of the growth. We see continued sales out of the zoo. We think that will continue about the way it's been going, but with opening up all these new areas. And the next leg for us that we're heading into in '21 here is international. We've got 2 international initiatives going right now, one in the Caribbean. We've got a reseller down there who's figuring it out. And even with the tourism mess that's going on down there, they're still making sales and beginning to grow a SaaS business down there. And then we're just in the process of acquiring Sensis in Australia, which gives us 130,000 small business zoo to go hunt in, in Australia. So it should make us the category leader in 18 months in that market.

That's a great segue to my international question, Joe. I would love to hear just more about how you see that international opportunity evolve? And also, just what attracted you to this Sensis acquisition?

The biggest thing that attracted me was John Allan, the CEO. We've been business friends for a while. He's been to the U.S. to spend time with my team. I've been over there and spent time with his team. Our teams have met multiple times over the years, sharing best practices. And they run a really great business. It's basically the Thryv company without the software. It's like they're doing all the rest of it, the directories, the marketing services, and they do it, I mean, arguably better than we do. They're really good. These guys are great. And they have wanted to pursue this sort of software platform strategy. And they've been owned by a private equity group that was toward the end of their holding period, they've been in over 7 years. And they had a very successful investment and They were great investors. This comment is not to knock them, but they weren't prepared to start investing in something that would have a 3-, 5-, 8-, 10-year return when they were at the end of their holding period, which is completely understandable. So John and his management team were really enthused about partnering with Thryv. We had brief flirtation with whether or not they should be a reseller. And then given the holding period where their PE shop was, we had the opportunity to make what we think is a very accretive acquisition in terms of the price that we're paying and we get this tremendous customer base to go and work. And it should allow us to become the category leader for small business software very quickly in Australia, which is a few years behind the U.S. in terms of adoption.