10-Q: Thryv Holdings Reports Mixed Q2 Results Amidst Strategic Shift to SaaS

Thryv Holdings experienced a revenue decrease in its Marketing Services segment but saw growth in its SaaS segment during the second quarter of 2024, alongside a debt refinancing.

Summary

• Thryv Holdings reported a decrease in total revenue to $224.1 million for the three months ended June 30, 2024, compared to $251.4 million for the same period in 2023.
• The company's Marketing Services segment saw a revenue decline of 22.6%, while the SaaS segment experienced a 24.6% revenue increase in the same period.
• For the six months ended June 30, 2024, total revenue was $457.7 million, down from $497.0 million in 2023.
• The company refinanced its debt with a new $350 million term loan and an $85 million asset-based revolving loan facility.
• Net income for the quarter was $5.5 million, a decrease from $16.0 million in the prior year, and for the six months was $14.0 million, down from $25.3 million in the prior year.
• The company's adjusted EBITDA was $59.3 million for the quarter and $113.4 million for the six months, compared to $69.4 million and $127.9 million in the prior year periods respectively.
• Thryv's total client base decreased to 307,000, with a decline in Marketing Services clients offset by an increase in SaaS clients.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with a decline in traditional business segments but growth in SaaS. The debt refinancing is a positive step, but the overall financial results are weaker than the previous year. The sentiment is neutral to slightly negative due to the challenges in the Marketing Services segment.

Positives

• The SaaS segment experienced a 24.6% revenue increase in Q2 2024, demonstrating strong growth in this area.
• The company successfully refinanced its debt, potentially improving its financial flexibility.
• SaaS client numbers increased by 52% year-over-year, indicating a successful shift in strategy.
• The company's gross margin increased to 66.3% in Q2 2024, up from 63.7% in Q2 2023, due to higher margin SaaS sales and reduced low margin third party services.

Negatives

• The Marketing Services segment experienced a significant revenue decrease of 22.6% in Q2 2024.
• Total client numbers decreased by 18% year-over-year, primarily due to the decline in Marketing Services clients.
• Net income decreased to $5.5 million in Q2 2024 from $16.0 million in Q2 2023.
• Adjusted EBITDA decreased to $59.3 million in Q2 2024 from $69.4 million in Q2 2023.
• Monthly ARPU for Marketing Services decreased by 13% and SaaS ARPU decreased by 12% in Q2 2024.

Risks

• The company faces significant competition in the digital media space, particularly from large, well-capitalized businesses.
• The secular decline in the print media industry continues to negatively impact the Marketing Services segment.
• The company's ability to attract and retain clients is crucial for future revenue growth.
• The company's debt obligations and related covenants could restrict its financial flexibility.
• The company's international tax environment remains uncertain and increasingly complex, potentially increasing taxes.
• The company's reliance on estimates and assumptions could lead to material differences in actual results.

Future Outlook

The company intends to continue to develop and grow its SaaS segment while maintaining profitability in its Marketing Services segment. They plan to improve their SaaS solutions by analyzing user behavior, expanding features, improving usability, enhancing onboarding services and customer support, and making version updates available to SMBs. The company also plans to leverage strategic acquisitions or initiatives to expand its client base domestically and enter new markets internationally.

Management Comments

• Management believes that their performance and future success depend on several factors that present significant opportunities for them, but also pose risks and challenges.
• Management intends to continue to develop and grow a profitable SaaS segment to better help SMBs manage their businesses, while maintaining strong profitability within their Marketing Services segment.
• Management believes that strategic acquisitions of marketing services companies globally will expand their client base and provide additional opportunities to offer their SaaS solutions.

Industry Context

The results reflect the ongoing shift from traditional print media to digital solutions, with Thryv's SaaS segment showing growth while the Marketing Services segment faces challenges. This aligns with broader industry trends where businesses are increasingly adopting cloud-based solutions and digital marketing strategies. The company is facing strong competition from large tech companies in the digital advertising space.

Comparison to Industry Standards

• Thryv's performance in the Marketing Services segment is worse than industry standards, reflecting the ongoing decline in print media and the competitive digital advertising landscape. Companies like Gannett and Yellow Pages Group have also experienced similar declines in their print businesses.
• The growth in Thryv's SaaS segment is comparable to other SaaS providers targeting SMBs, such as Shopify and Intuit, which have seen significant growth in recent years. However, Thryv's SaaS ARPU is lower than some of these competitors.
• The company's debt refinancing is a common strategy for companies looking to improve their financial position, similar to actions taken by other companies in the tech and media sectors. However, the high interest rates on the new debt could be a concern.
• Thryv's adjusted EBITDA margin of 26.5% in Q2 2024 is lower than some of its SaaS peers, which often have margins above 30%. This indicates that Thryv needs to improve its profitability in the SaaS segment.

Legal Proceedings

• The company is subject to various lawsuits and other claims in the normal course of business.
• The company is in continued discussion with the IRS regarding the finalization of the Section 199 tax case.

Related Party Transactions

• 31.8% of the New Term Loan was held by a related party who was an equity holder of the Company as of May 1, 2024.

Stakeholder Impact

• Shareholders may be concerned about the decline in revenue and profitability, but encouraged by the growth in the SaaS segment.
• Employees may be affected by cost-saving initiatives and restructuring efforts.
• Customers may benefit from the company's focus on improving its SaaS solutions.
• Creditors may be impacted by the company's debt refinancing and related covenants.

Next Steps

• The company will continue to focus on growing its SaaS segment and converting Marketing Services clients to the Thryv platform.
• The company will continue to monitor its capital requirements and may undertake share repurchases.
• The company will continue to monitor the international tax environment and its potential impact.
• The company will continue to engage with tax authorities regarding tax matters in various jurisdictions.

Key Dates

Keywords

SaaS, Marketing Services, digital marketing, print media, debt refinancing, revenue, EBITDA, client acquisition, financial results, Thryv Platform