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

Excellent. Well, thank you for the investors on the line for being here today at the Barclays' TMT Conference. With me today from Thryv is Joe Walsh, CEO and President; Paul Rouse, CFO and Treasurer; and Cameron Lessard, Director of Investor Relations. So Joe, a lot of difference a year makes. I mean we talked a year ago today, and certainly, a lot has changed, but I've been following you guys for over a year now, but for those newer to the story. Would you mind just giving a high level about the background of Thryv and a kind of how we got to where we are today.

Sure. If you don't mind, I'll give you a little bit of mine, too. I'm an entrepreneur. I started a Yellow Pages company, competing against the telephone company Yellow Pages, and we built it nationwide, it was called YellowBook. And we built this big kind of Coke and Pepsi battle between the phone company, Yellow Pages and YellowBook. Some of you might remember it. And then we transitioned that business from the printed directories to online directories and other digital offerings. Eventually, when they took the company public and I moved on. After that, I set up a Board advisory practice working with hedge funds and EE shops that had made a lot of money during our 24-year run, building the other company looking for help operationally. And that led me to Cambium Learning Group, which is a ticker symbol ABCD. It was education companies struggling with the transition from printed textbooks and materials to digital. And I went in as Executive Chairman, and we pivoted this company hard to essentially EdTech, recurring revenue, monthly subscription, what we would call SaaS, I guess, but in education that we did call it SaaS, a monthly recurring revenue thing. And we grew this business to 43 countries around the world and ended up with just this incredible 6.5-year run when the stock went from under $1 a share to $14.50 a share. Everybody made a ton of money and we were taken out by a private equity group in December of '18. So that was a hell of a thing. And for me, a master class really in scaling a recurring revenue model. And then I was still running my Board advisory practice, I was doing work with the old telephone company Yellow Pages, the guys that had originally been my competitors going back, they hired us to do a strategy review. And they liked the strategy we delivered them so much, they basically persuaded us to take over the company. And my management team and I went in and took over this billions-dollar gigantic company that had been part of the phone company. And really pivoted from the declining Yellow Pages business to serving small businesses that would be moving to the cloud. Our philosophy is that the last decade, 2010 to 2020 was the decade of enterprises moving their computing operations to the cloud. This decade, 2020 to 2030 is when small businesses are following. So we're in the golden age of SMB software right now. We're in about the second inning. We're in the early stages, but it's mushrooming very quickly. And because we started almost 7 years ago building this thing, we're now the category leader for small businesses here in the U.S., and we're just now beginning to move internationally. So that's kind of some background. And the thing that changed in the year is, a year ago, we brought in an all-new Board. We impaneled a Board of SaaS experts, software people, people who had scaled software businesses. And really that group kind of greenlighted additional investments to allow this thing, to really accelerate and grow. And grow we have. We're rapidly accelerating our growth. The most recent quarter was 40-plus percent growth of the SaaS business. And our share price has responded with kind of a quadruple over the period.

Yes. So a lot has changed for sure. But also in your end market environment, Joe, I know you do a lot of customer outreach and you really help try to get customers to realize what their pain points are and what Thryv can do for them. So when you talk with customers, what are they asking for today? How can you help them digitize their SMB workflows with software?

Yes. They come in lots of different forms. It's not just one customer with one need. So -- but I will tell you this that there's always tension between keeping it very easy to use, very easy to onboard, and very kind of consumer app level card. So the small businesses really are a lot like consumers. It has to be pretty simple. And then at the other end of the spectrum, there's demand as the businesses that you're working with start to get a little bit bigger for more sophistication, more reporting and all of that. We work with pretty small businesses, a kind of 2 employees to 50, kind of that, and particularly heavily weighted in the 2 to 20, really small businesses. So we're always trying to balance that, easy to use with giving them the power that they need. And we're very happy that both G2 Crowd and Capterra, they're the leading software review sites, cite us as easiest onboard, easiest to use, best service, you can get to value quickly with Thryv. Honestly, we're like a HubSpot but for small businesses. HubSpot is a very good and very powerful solution, but tends to be bought by -- I mean, essentially, they're going after Salesforce's lower-end customer base. And they're doing a great job and they're climbing up through that customer base, and we're sort of right in here behind them. Tucked in like the Tour de France.

Just -- and like some other providers in the space, you do pretty well in home services, right? That's one customer segment I know Thryv is really strong in. And just for customers maybe -- or investors newer to the story, would you mind just like walking through an example, and I know you have tons of customers and there's different slices and dices about how big they are, but like how Thryv helps the home services business go through their like daily workflow?

Sure. What's unique about Thryv is it's really 2 companies in one. So we have the SaaS software business. What's sitting behind it is this hundreds of thousands of customers, gigantic marketing services business that's throwing off hundreds of millions of cash. So what that gives us is like a super power. It gives us this really entree to have a conversation with these customers because they are our customers. They've been with us for 8, 10, 15 years, they're going to talk to us. They trust us. They'll take our recommendations. So we're able to have that dialogue where maybe another software company would be cold calling them. You go try to cold call a roofer, good luck. It's not going to happen. So getting back to how they use us and how they need it. Really most small businesses have really a pretty simple a kind of life cycle. They have to get the job. They got to manage the job, and then they got to get credit for the job, get paid for it and get credit for it. And so Thryv really thinks about it that way. In terms of initially getting the job, we help them with the whole front end of how they present. We manage all their listings all across the web. We help them manage their social proof, how well their ratings and reviews look. We give them a variety of ways to be contacted, whether it's form fill online or whether they want to be contacted by text, whether the customer wants to go on their website and make an appointment, whether the customer wants to call them. All of those inbound ways we facilitate and help them with. And then once the customer makes contact with them, we capture those customer fingerprints, and we're able to forever and ever keep them in the CRM, and market and remarket to them, and really ring the most out of that very valuable lead that's been generated. So that's on the front end. And once the customer actually begins down the funnel with you, they make an appointment for tomorrow at 10:00. The software is going to send out a confirmation, depending on how you set it up the evening before, maybe an hour before, which cuts down on no shows. No shows kill small businesses. The guy drives 40 minutes across town, only to find that Ms. Johnson forgot and left. And it's super, super frustrating and expensive for them because their time is all they really have to sell. So anyway, it pins down that appointment, it cuts down the no-show. And then when they're there and they're giving an estimate or working with them on the proposal, whatever it might be. They literally can do it right there on the device, right there in the software. The customer can approve an estimate. You can present an invoice, the customer could pay digitally, either through Square or PayPal or all the others or through ThryvPay, our own proprietary tools. So then they can manage the workers, manage the job. They can share documents. It's all stored in the CRM. So let's say, for example, that caterer and you're planning some kind of party and the lady has the details about who's coming and what she wants, typed up into a little note. That document can be shared and exchanged back and forth. And it's all in the CRM card, right within your software. It's in your pocket on your mobile device, and back in your office, it's sitting on your laptop. So it's all able to be tied together. So you can deploy the workers, get the job done. When you've completed the job, the customer can pay you through ThryvPay, you then are going to send them a little thank you note, and the thank you note is going to have a link in it to leave a rating or a review. Thryv's going to then promulgate that review around the web to help build up your social proof. And then lastly, it's going to a kind of stay with you through simple marketing automation, it's going to send reminders, "Hey, we haven't seen you in a while, hey, it's spring. You want us to have to come out and clean your gutters or do your heating and an air conditioning, clean up for the year, get you set for cooling season." And that stimulates a lot of additional work out of the existing customer base. You've read about and heard a lot about inflation these days. There's so much inflation, all this inflation. The most inflation that I've seen anywhere is the cost of a Google lead. Because as the market has recovered and as the auction has become more competitive again coming back out of the pandemic, everybody is trying to get customers, everybody is trying to grow. Guess what, they're bidding up the cost of Gutter Cleaning, Toledo, through the roof. And so Google leads have not gone up 3% or 5% or 8%. They've like doubled. It's incredible how much some of these auctions are fetching. So in order -- when you do win a customer who's indicated interest in doing business with you or contacted you, it's vital that you capture them permanently in your CRM and you're able to market to them, follow up with them, do look alike marketing, other customers just like them. It's no longer good enough to get a lead and you either get the work or you don't, I'll just go get another lead. The leads are too expensive today. And so you've got to really maximize everything out of it. So that's a kind of the life cycle the way of, let's say, a contractor might use us.

No, that was perfect. I mean I love hearing about these examples because it shows you truly, like, understand. It can help these small businesses, the problems they're having today. And I mean what you just described, I mean, that's like a next-generation small business, right? That's not every small business. That's like even the best tools that mid-market enterprises use today. So beyond the Google AdWords inflation, which I think is a good point. Like are you seeing customers having problems hiring? And as a result, they want to do more to squeeze out their efficiency with additional software?

Yes. That's -- I mean -- the big thing we hear about is I can't get a good help. So we have a marketing services side and then we have the software. On the marketing services side, they're saying to us, in some cases, I can't get workers to do the work. I'm struggling with that. And then that will almost be a sales projection, if you will, to maybe increasing their marketing spend or whatever. And we'll say to them, what are you doing to become more efficient as a company. What are you doing in terms of labor saving? There are a lot of tools today, simple tools that you can -- on the devices you already own, you can access the cloud and do a lot of stuff. It's laborious in a business. And that's one of the things that's creating a lot of the sell-through right now for software.

Exactly. And you're seeing that with your own customers, right? Like you're seeing a lot more engagement on your platform with their existing drive users and more active users as well, so.

Yes. Remember, we've got a big base of customers. We call this affectionately hunting in the zoo because we're calling on people who are already our customer. And we've had a lot of success over the last 2 years hunting in the zoo. But some of those customers have said to us, "You know what, I'm doing okay. I don't really need to update my business. I'm fine the way I am. A lot of those customers, the pandemic shook them up and caused them to realize, I have to go to work remotely. I have to be able to present a contactless payment. I have to be able to arrange delivery and do all this stuff. Well, what's happened most recently is some of the customers that had before said no, are now saying yes, and that's because the need is that much more clear. And I'll be honest with you, the software is getting way better. We've created tremendous interoperability now. If they happen to use QuickBooks for their bookkeeping, no problem to have. You just go into the App Store, connect it through an API to your QuickBooks. And the data shares back and forth between the 2, no data entry, all businesses hate data entry. It just all populates and the information flows between your bookkeeping and your CRM, your sales on the front end, no problem. And we have, let's say, you want to e-commerce enabled, go in connect with Shopify, connect the API, and you're fully e-commerce enabled, no problem, and so on and so on and so on. Let's say you have a special intake form for your psychological consulting that you're doing or something like that. You can create a job form in 5 minutes through an API in our App Store that ask people the 8 questions you want to ask them and populate it right there, connected to your Thryv and sit right in the CRM card . So it's so easy. I mean, it's not hard at all. We have a team of people in Dallas that spend all day coaching and teaching and working with small businesses. The service is a big part of our edge because a lot of these guys just can't buy the software from some company in India or something, and then download and figure out how to use it. They need to have their hands held a little bit. And so that's what we do. We teach.

Yes. And then once they upload any type of like customer information or contactless or data on the platform, right, becomes much less likely that they'll churn and I think you've seen better results in that area of the business over the last year. And I agree with you overall like I think COVID was a call to action when it comes to this digitization opportunity for SMBs. I think it's like a no doubter at this point, just how to capture it. So Joe, like we talked about over the last year, what's someone like the blocking and tackling from either a go-to-market or a product standpoint that you guys have done with those investments to just become a stronger software business.

Well, we had been making a profit before because we were owned by basically debt distressed kind of guys, and they were like show me the money. We had a double-digit EBITDA margin in 2019 for our SaaS business, and we made money in 2020 as well. And then with our new Board, they said, "This is nuts". You should be at least putting the money it's making back into it. This company is making $300-plus million of cash flow. Why would we milk 20 or 30 out of the SaaS business? Why don't we just let it go? And so we took that money and the first priority was engineering. We spent a lot of money on engineering and product to speed up the road map, to speed up the interoperability with other software, and to grind off any of the rough edges where customers said, how come it can't do this? I'd like it to be able to do that. We really -- we've got this Facebook group, we call the High-Thryver's. And we're in there every day talking to the High-Thryver's about their suggestions, their ideas. We make them force rank what they think is most important. And there's a dialogue every day with them and our product team. And what we're trying to do is innovate the software very quickly. So the first priority was engineering and product. The next priority was to begin to build out dedicated channels for the software business because for the first few years, we just existed on the marketing services, sales force, mentioning it to their clients. And there was enough uptake there that we sold like 40,000 customers just doing that. So now we've got a dedicated -- well, several dedicated channels, probably the biggest of which is an inbound channel where we're doing demand generation online with content marketing and even buying some keywords and other strategies to bring people to our website. When they get there, they poke around and they often watch demos or request a personalized demo. And then we have a team of SDRs that follow-up with them and book those demos, qualify and make sure it's worth our time. And we have a faster and faster and faster close rate of that coming through. And that's a kind of the motion to see in most software companies. For us, it's relatively new, but ramping very quickly. So we're adding every month, more leads to the top of the funnel, more SDRs, more closers closing the leads as they come through. And that's why you see this methodical march up now as we're going. And we've added a franchise multi-location group. It turns out that this is like the Holy Grail for emerging franchise with 10, 15, 20 locations. I mean they basically can have a whole IT backbone in the CRM, and we've created a master franchise or hub that the master can see what all the individual locations are doing. So that's selling very well, and we're building now a franchise, multi-location sales channel which was tough, by the way, the last 1.5 years, there's been no conferences. We can't go see anybody. It's all online, which is tough. So that's all coming along pretty well.

Yes. A whole lot happened over the last year. I mean, I think that's reflected in your results, right? I mean in the third quarter, revenue was up 41% year-over-year in the SaaS product, ARPU expansion up 31% year-over-year; and you saw net dollar retention improved 95%. So your stock reacted well after last earnings. I guess, would you mind just hitting the highlights for investors maybe do the story just on some things that you think led to those results?

Yes, sure. Look, there's -- once you -- we've cut our churn more than in half over the last 2 years by just focusing on user engagement and getting the ideal client profile, finding the people who we know after the experience over the last bunch of years who can really benefit from the software. So that's given us this really highly engaged base. And they're now buying all kinds of add-ons. We've got a bunch of Google My Business kind of add-ons plug-ins that they end up buying. We've got this sort of leads package they can buy. We've got a HIPAA-compliant version. They've got some social boosting they can buy as all of these add-ons are being purchased. And so we're seeing the ARPU just rise. In addition to people, we have a good, better, best model, where you come in at a lower price and then you can potentially move up. We're seeing people bump up and buy the bigger and bigger packages of Thryv, which gives them more seat licenses, gives them more memory, more functionality, more they can do with marketing automation. So we've seen a lot of ARPU growth. We think we'll see more of it ahead. To give you an idea, I guess, to put it in perspective, HubSpot is about $11,000 a year per customer, and we're under 4. So we could double and still be nowhere near where HubSpot is. But it just gives you some idea. It's early days. We're not filling that many of these small business needs yet. We -- there's more areas that we're going to be branching out into it. We've got quite a product road map. Most recently, we launched ThryvPay, which is our own proprietary Thryv payments tool. And initially, it was just launched inside the software. And now more recently, we put a freemium version out there in the app stores, and it's doing quite well, getting downloaded, and we think that, that will be a kind of a freemium funnel for us, of people who discover Thryv payments, and then end up backing into using the software. So that's something we're excited about.

Yes. You beat me to it, Joe. Yes, I was going to ask about ThryvPay. Is there like -- in home services, are you seeing good uptake in that? Or just like how is that coming along?

That's been the killer, because if you think about, let's say, a kitchen contractor, right? He's going to come in and remodel your kitchen. He's going to get an opening draw from you of like $3,000 probably. If you write him a check, he's got to wait 8 or 9 days to see if the funds are good. If you try to put it on a credit card, it's going to cost them close to 3%. You can pay through ThryvPay, and we've got an ACH version, he pays $9. He has next-day funds. Clean as a vessel, you can do them by text, you can do it by e-mail, easy as pie, and all the records are stored right there in your Thryv. So you can see who paid what, when they paid. It's been fabulous. And I'd say we've got good uptake across the Board, but particularly a lot of these contractors are getting bigger payments. This is not people buying a pack of gum and a magazine. Our average payments are like $450. So it's -- these are big payments and tens of millions of payments. I mean it's coming -- it's really ramping quickly. So payments is a whole area that we kind of backed into from requests from our customers. They wanted to be able to recapture credit card fees. They wanted to have recurring payments. They wanted to be able to have lessons like you could pay for 10 and get 12. So every time you go for your yoga class or whatever, just the [ Dex One ], then we get down to only 1 or 2 left, it hits your credit card again. Like they wanted those kind of simple tools, card on file when you come in for your chiropractor appointment, you don't have to do the whole payments thing. The guy says, "You're good. Just go ahead" and she just charge your thing for another chiropractor appointment. We made it silky smooth for them. And it's worked out really well.

Yes. And these are things that they have no ability to do themselves, right? So it makes sense, and it's great that your customers are asking you to do more, Joe. In the last earnings, you mentioned M&A could be an increased focus going forward. I'd love to hear how you're thinking about that. Is it -- acquire more zoos as we like to say, like more territories? Or is it acquire more capabilities or mix of both?

So earlier this year, we made our first really big international move. We bought a similar company to our legacy company in Australia called Sensis. We bought it from Telstra, the AT&T over there, the phone company. And this is a 130-year-old iconic company. The brand over there yellow and white. And this is like Coca-Cola, like McDonald's, this iconic business. And admittedly, directories are in a long-term structural decline, and we paid a price that reflected that. When it gave us 100,000 customer footprint, and this big sales organization and this big brand to go penetrate that market. And we're off to a flying start there, excited about that. And I must say, we would buy other zoos, if you will, other customer bases and other markets in order to become big in a new market quickly if we can get it for that really favorable price. We paid them what ended up being about 2x EBITDA for it. So it was a really favorable price. There aren't a lot of people who want to buy declining Yellow Pages or marketing services businesses. So that's like [ Liam Neeson ], a particular set of skills that we have, as a limited supply of those out there, but we'll do that. Our main focus now, though, is SaaS acquisitions. We're looking to add more SaaS and more SaaS focused. So you'll see us as '22 unfolds, 2 big things. You'll see us beginning to make SaaS acquisitions, and you're going to see us accelerating the move internationally. We are pushing into more countries because they need this in these other countries. And maybe they are a couple of years behind the U.S., but we feel like there's a first mover advantage available to us. So you're going to see us pushing out more international.

No, I appreciate that. And just -- I've been asking each of the companies today like -- we had a COVID period last year, and I think certain businesses either definitely benefited toward a headwind for that and then coming out of COVID. Same thing. You faced tough comps versus the prior year or you're rebounding coming out of COVID. But for 2022 for Thryv, what excites you about the SMB opportunity? And what do you think could really move the needle for you guys next year?

Well, we fared pretty well during the pandemic ourselves, because we didn't really have a lot of high-end retail, we didn't have travel, we didn't really have a lot of dining. Our base was really more of the service industry, and they actually did quite well. Just try to get a plumber or somebody to put a deck on your house at the moment. I mean they're -- or build a swimming pool. And those are our customers. So they were pretty flush, and we did pretty well throughout and are continuing to do well. But I think the biggest thing is this heightened demand for modernization. I think the old ways of working in paper and pencil or living by e-mail or one-on-one, just on the regular text tool, texting your customers, you need a system in order to keep track because it just drives you nuts, trying to keep track of everything. And Thryv is a very simple thing on your phone. It just pulls it all together. We had a customer, Shayne, one of our business advisors went into this customer and the lady was almost in tears and she said, "what's wrong, what's wrong?" And the customer said, "I've been sued. One of my customers sued me. And the lawyers are telling me I've got to pull together all these records, it's going to kill my whole weekend. I don't even know. I'm not that -- I'm good at my craft, but I'm not that organized. It's just going to -- this is awful." And our business advisor said, "well, you have Thryv, right? And she said, "Yes", and you did business with this guy in your Thryv, right? She said, "well, yes. "what's the customer's name?" And she went into the Thryv and printed out the entire record of every interaction with that customer from when they first called, all the way to the dispute. And it was all in there, and she said, "give this to your lawyer." And the customer hugged our rep and said, "I never thought of that. I mean, wow". But it's that sort of at the bones, getting you organized and buffing you up, that it does. And I think a lot of businesses really want to do that. And keep in mind one more thing. The baby boomer generation is going to be retiring now, like that's what's next for them. And a lot of these business owners are baby boomers. And as they maybe have done business in an analog way or kept it in their head or whatever, now as they think about selling the business, or potentially transitioning it to somebody else or another generation. You've got to sort of figure out how to get it in a system and get it organized. So even if you're thinking of maybe in a year or 2, actually transitioning the business, getting on Thryv, getting everything in there and getting it sorted. We will make it your business worth a turn or 2 more of valuation when you sell it. And that's something we actually talk to a lot of these 65-year-old business owners about, and they're receptive to it.

No, I think that's a really important point, right, just being the system of record for SMBs. Like there's no standard out there today. Like it is certainly a fragmented marketplace, but I mean you really have an opportunity to gain mind share. And I bet that with that customer example, that's a new High-Thryver's, has joined the group because they definitely love you now. But Joe, I mean, I think that was a good recap of Thryv and what a year it's been. And I can't like to see what happens next year and we're on the same conversation.

Yes, I'm not taking back to the conversation we had last year, and we were hoping that the market would start to think of us as a sum of the parts, right? They would value marketing services, and they would value SaaS. At that time, we were just being valued like a dying phone book. And over the course of the last year, people have begun to look at the SaaS business discretely, and it's getting a pretty low valuation, but it is getting a valuation now, and then the marketing services business has kind of a DCF valuation on. So we're -- I would say, still going through our IPO right now. We did a direct [indiscernible]. We had no thundering herd in telling our story. You're looking at the thundering herd, I'm telling the story. I'm not thundering, but hopefully, I'm heard.

Joe, you've got a particular set of skills, right? So no, I think you guys have done a great job over the last year. And look, excited to see what comes next. So look, if you're rewatching this over webcast, and you want to get a question to Joe, Cameron or the rest of the Thryv team, please email me at ryan.macwilliams and we'll get this over with them. Joe, thanks again. Appreciate the time.

Thanks, Ryan.