10-Q: Thryv Holdings Reports Q3 2024 Results, Impacted by Strategic Shift and Goodwill Impairment

Thryv Holdings' Q3 2024 results show a net loss driven by a significant goodwill impairment, despite growth in its SaaS segment and a strategic shift away from marketing services.

Summary

• Thryv Holdings reported a net loss of $96.1 million for the third quarter of 2024, compared to a net loss of $27.0 million in the same period last year.
• The company's revenue decreased slightly to $179.9 million from $183.8 million year-over-year.
• A significant non-cash goodwill impairment charge of $83.1 million was recorded in the Marketing Services segment due to a strategic decision to terminate those services by the end of 2028.
• The SaaS segment saw revenue growth of 29.2%, reaching $87.1 million, while Marketing Services revenue declined by 20.3% to $92.8 million.
• The company's total client base decreased by 19% year-over-year, with a decline in Marketing Services clients partially offset by an increase in SaaS clients.
• Adjusted EBITDA increased to $19.6 million, up from $7.3 million in the prior year, driven by higher margin SaaS solutions.
• The company refinanced its term loan and ABL facility in May 2024, resulting in a loss on early extinguishment of debt of $6.6 million.
• Thryv acquired Keap for $80 million in cash on October 31, 2024, financed by a public offering and borrowing under its ABL facility.

Sentiment

Score: 4

Explanation: The document presents mixed results. While the SaaS segment shows positive growth and the company is making strategic moves like the Keap acquisition, the significant net loss, goodwill impairment, and decline in Marketing Services revenue and client base are concerning. The overall sentiment is cautiously negative.

Positives

• The SaaS segment demonstrated strong revenue growth of 29.2% in Q3 2024, indicating a successful shift towards cloud-based solutions.
• Adjusted EBITDA increased significantly, driven by the higher margins of the SaaS business.
• The company successfully refinanced its debt, which should provide more financial flexibility going forward.
• The acquisition of Keap expands Thryv's SaaS offerings and customer base.

Negatives

• The company reported a substantial net loss of $96.1 million in Q3 2024, primarily due to a large goodwill impairment.
• Marketing Services revenue declined by 20.3%, reflecting the ongoing challenges in the print and digital marketing sectors.
• The total client base decreased by 19% year-over-year, indicating a loss of customers.
• The company incurred a $6.6 million loss on early extinguishment of debt due to refinancing.

Risks

• The strategic decision to terminate Marketing Services by 2028 poses a risk if the transition to SaaS is not successful.
• The company faces significant competition in both the digital marketing and SaaS sectors.
• The company's debt levels remain high, and changes in interest rates could impact profitability.
• The company is subject to various legal and regulatory risks, including an ongoing SEC investigation.
• The company's future performance is dependent on its ability to attract and retain clients, and to manage its growth effectively.

Future Outlook

The company is focused on growing its SaaS segment and transitioning clients from Marketing Services to SaaS solutions. The acquisition of Keap is expected to further enhance its SaaS offerings. The company expects to contribute approximately $10.0 million to the qualified pension plans and approximately $0.5 million to the non-qualified plans for the fiscal year 2024.

Management Comments

• Management made a strategic decision to terminate its Marketing Services solutions by the end of 2028.
• Management believes that the company's SaaS solutions are well-positioned to meet the needs of SMBs.
• Management is focused on improving the company's SaaS solutions by analyzing user behavior, expanding features, and enhancing customer support.

Industry Context

The results reflect the ongoing shift in the advertising industry away from traditional print and digital marketing services towards cloud-based SaaS solutions. The company's strategic decision to focus on SaaS aligns with this trend, but the transition presents challenges, as evidenced by the decline in Marketing Services revenue and the goodwill impairment.

Comparison to Industry Standards

• The decline in Thryv's Marketing Services revenue is consistent with the broader industry trend of declining print advertising and increasing competition in digital advertising from companies like Google and Facebook.
• The growth in Thryv's SaaS revenue is comparable to other companies in the SMB SaaS space, but the company's overall performance is impacted by the challenges in its legacy Marketing Services business.
• The goodwill impairment is a significant event, indicating that the company's previous investments in Marketing Services may not yield the expected returns.
• The acquisition of Keap is a strategic move to strengthen Thryv's position in the SaaS market, similar to other companies acquiring complementary technologies to expand their offerings.

Legal Proceedings

• The company received a subpoena from the Division of Enforcement of the SEC requesting documents and information related to the company's strategic conversion of clients from its digital marketing services solutions platform to its SaaS solutions platform.
• The company is cooperating fully with the SEC investigation.

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 are negatively impacted by the net loss and goodwill impairment.
• Employees in the Marketing Services segment may be impacted by the strategic decision to terminate those services.
• Customers may benefit from the company's focus on SaaS solutions, but may also be impacted by the transition away from Marketing Services.
• Creditors are impacted by the company's debt levels and refinancing activities.

Next Steps

• The company will continue to focus on growing its SaaS segment and transitioning clients from Marketing Services.
• The company will integrate Keap into its operations and platform.
• The company will continue to monitor its capital requirements and debt levels.

Key Dates

Keywords

SaaS, Marketing Services, Goodwill Impairment, Digital Marketing, Thryv Platform, SMB, Debt Refinancing, Acquisition, Keap, Financial Results