Thryv Holdings, Inc. SEC 10-Q Report

Thryv Holdings, Inc., a leading provider of marketing services and SaaS solutions for small businesses, has released its Form 10-Q report for the third quarter of 2024. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces in the current market environment.

Financial Highlights

• Revenue: $179.9 million, decreased from $183.8 million in the same period last year.
• Gross Profit: $112.0 million, increased from $103.6 million in the same period last year.
• Operating (Loss) Income: $(88.6) million, decreased from $(19.4) million in the same period last year.
• Net (Loss): $(96.1) million, decreased from $(27.0) million in the same period last year.
• Net (Loss) Per Common Share - Basic: $(2.65), decreased from $(0.78) in the same period last year.
• Net (Loss) Per Common Share - Diluted: $(2.65), decreased from $(0.78) in the same period last year.

Business Highlights

• Revenue Segments: Thryv Holdings, Inc. operates through two main segments: Thryv Marketing Services and Thryv SaaS. Thryv Marketing Services includes Print and Digital solutions, while Thryv SaaS includes the company's flagship all-in-one small business management platform.
• Geographical Performance: The company's revenue is divided between the United States and International regions. Thryv Australia’s revenue attributed to the International region was approximately 11.2% and 12.5% of total revenue for the three months ended September 30, 2024 and 2023, respectively, and 14.6% and 16.3% for the nine months ended September 30, 2024 and 2023, respectively.
• Client Base: As of September 30, 2024, Thryv Holdings served approximately 295,000 clients globally, with 251,000 clients in Marketing Services and 96,000 clients in SaaS. This represents a 25% decrease in Marketing Services clients and a 45% increase in SaaS clients compared to the previous year.
• Monthly ARPU: The average revenue per unit (ARPU) for Marketing Services decreased by 19% to $126 for the three months ended September 30, 2024, compared to the same period in 2023. For SaaS, ARPU decreased by 16% to $307 for the same period.
• New Product Launches: Thryv continues to enhance its SaaS offerings, including Thryv Command Center, Business Center, Marketing Center, ThryvPaySM, and Thryv Add-Ons, which provide AI-assisted website development, SEO tools, and more.
• Future Outlook: Thryv plans to continue developing and growing its SaaS segment while maintaining strong profitability within its Marketing Services segment. The company also aims to expand its client base through strategic acquisitions and new market entries.

Strategic Initiatives

• Keap Acquisition: On October 31, 2024, Thryv acquired Infusion Software, Inc. (Keap) for $80.0 million in cash. Keap operates a SaaS e-mail marketing and sales platform for small businesses, adding approximately 17,000 subscribers to Thryv's customer base.
• Strategic Shift: Thryv made a strategic decision during the third quarter of 2024 to terminate its Marketing Services solutions by the end of 2028, focusing more on its SaaS solutions. This decision led to an $83.1 million non-cash impairment charge.
• Capital Management: On May 1, 2024, the company refinanced its debt by entering into a new Term Loan Credit Agreement for $350 million, which was used to repay the previous term loan facility. Additionally, the company established a new $85 million asset-based revolving loan facility (New ABL Facility) to replace its previous facility, providing more flexible capital for general corporate purposes. The company also authorized a new share repurchase program of up to $40 million through April 30, 2029, and repurchased approximately 26,495 shares for $0.5 million. Furthermore, the company closed an underwritten public offering of 5,715,000 shares of common stock, generating $76 million in proceeds to finance the Keap acquisition.
• Future Outlook: Looking ahead, the company plans to continue focusing on its SaaS segment, leveraging strategic acquisitions like Keap to enhance its product offerings and expand its customer base. The company expects to maintain compliance with its debt covenants and anticipates that its new capital structure will support ongoing operational needs and strategic investments. The share repurchase program and the recent equity offering indicate a balanced approach to capital management, aimed at providing shareholder value while ensuring sufficient liquidity for future growth initiatives.

Challenges and Risks

• Interest Rate Risk: As of September 30, 2024, the company had $307.8 million in floating rate debt. A hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3.2 million. This exposes the company to significant interest rate risk, which could impact financial performance.
• Foreign Exchange Currency Risk: The company has foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Australian dollar and New Zealand dollar. Currency fluctuations can impact financial results, and the company has not hedged its foreign currency transactions to date. The company is evaluating the costs and benefits of initiating a hedging program.
• Client Retention and Revenue Growth: The company's revenue growth is driven by its ability to attract, retain, and expand the spend of SMB clients. The transition from Marketing Services to SaaS solutions poses a risk if clients do not fully embrace the new offerings. The company needs substantial sales and marketing capital to support this strategy.
• Investment in Growth: The company intends to continue developing its SaaS segment while maintaining profitability in its Marketing Services segment. This requires ongoing investment in product development, user behavior analysis, and customer support, which will increase operating expenses.
• Acquisition Risks: The company's growth strategy includes leveraging strategic acquisitions to expand its client base. Identifying and executing acquisitions may require substantial time and capital. Recent acquisitions include Keap and Yellow, which present integration and operational risks.
• Print Publication Cycle: Revenue from print services is recognized upon delivery of published directories, which have varying publication cycles. This can lead to fluctuations in quarterly revenue, impacting financial stability.
• Secular Decline in Print Media: The company faces a secular decline in the print media industry, which has led to a 25% decrease in Marketing Services clients as of September 30, 2024, compared to the previous year. This decline is driven by the shift to digital media and increased competition.
• ARPU Decline: Monthly ARPU for both Marketing Services and SaaS has decreased, driven by reduced client spend on print media and strategic pricing decisions to accelerate the transition to SaaS solutions.
• Litigation and Regulatory Investigations: The company faces risks from litigation, regulatory investigations, and similar actions. Recently, the company received a subpoena from the SEC related to its strategic conversion of clients from digital marketing services to SaaS solutions. Such actions could result in significant financial losses and harm to the company's reputation.
• Data Privacy and Security: The company is exposed to potential future claims and litigation related to data privacy and security. Clients and users could file claims if data is found to be inaccurate or improperly accessed, which could materially affect the company's financial condition.
• Market Competition: The company faces significant competition in the digital media space from large, well-capitalized businesses such as Google, Yelp, and Facebook. This competition impacts the company's ability to retain clients and grow revenue.
• Economic Conditions: General economic conditions can impact the company's operations and financial performance. Economic downturns or unfavorable market conditions could reduce client spending on the company's services.
• Operational Risks: The company's operations can be impacted by various factors, including the need for substantial sales and marketing capital, the ability to integrate acquisitions, and the ongoing investment in product development and customer support.

SEC Filing: Thryv Holdings, Inc. [ THRY ] - 10-Q - Nov. 07, 2024