THRYV HOLDINGS, INC. The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented and should be read in conjunction with our unaudited interim consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the future of our business, and our liquidity and capital resources as well as other non-historical statements. These statements are based on current expectations and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by these forward-looking statements.
Overview
We are dedicated to supporting local, independent businesses and franchises by providing innovative marketing solutions and cloud-based tools to the entrepreneurswho run them. We are one of the largest domestic providers of SaaS end-to-end customer experience tools and digital marketing solutions to small-to-medium sized businesses ("SMBs"). Our solutions enable our SMB clients to generate new business leads, manage their customer relationships and run their day-to-day business operations. We serve more than 400,000 SMB clients globally through four business segments: ThryvU.S. Marketing Services,Thryv U.S. SaaS, Thryv International Marketing Services and Thryv International SaaS. Our ThryvU.S. Marketing Services segment provides both print and digital solutions and generated$222.6 million and$202.8 million of consolidated revenues for the three months endedJune 30, 2022 and 2021, respectively, and$435.1 million and$430.7 million of consolidated revenues for the six months endedJune 30, 2022 and 2021, respectively. Our Marketing Services offerings include our owned and operated Print Yellow Pages ("PYP" or "Print"), which carry the "The Real Yellow Pages" tagline, and other digital marketing services ("Digital"), which includes our proprietary Internet Yellow Pages ("IYP"), known by theYellowpages.com , Superpages.com, and Dexknows.com URLs, search engine marketing ("SEM") solutions and other digital media solutions, consisting of online display and social advertising, online presence, and video and search engine optimization ("SEO") tools. Our ThryvU.S. SaaS segment generated$51.2 million and$41.4 million of consolidated revenues for the three months endedJune 30, 2022 and 2021, respectively, and$98.5 million and$78.6 million of consolidated revenues for the six months endedJune 30, 2021 and 2021, respectively. Our Thryv Small Business Platform is a SaaS offering comprised of a multi-product, cloud-based business solution that enables small businesses to deliver an exceptional end-to-end client experience, while running an efficient and well-organized business. The Thryv Small Business Platform enables customers to achieve faster and more sustainable growth. SMB's have the ability to customize the platform experience to match their individual business objectives and goals. At its core, the Thryv SaaS solution is a robust and customizable customer relationship management ("CRM") tool. Supporting the entire CRM is a suite of robust functions including scheduling, document organization, social media management, online reputation tools, online presence tools, estimating, invoicing and payment solutions. Within the payment solution,Thryv integrates with a variety of other popular name-brand payment providers in addition to its proprietary processor - ThryvPay. ThryvPay is uniquely integrated within the Thryv Small Business Platform. It also includes an optional multi-location utility, Hub byThryv , which enables multi-location businesses and emerging franchises the ability to centrally command and control many individual Thryv Small Business Platform licenses from a single admin panel. Our Thryv International Marketing Services segment is comprised ofThryv Australia Pty Ltd (formerlySensis Pty Ltd ) ("Thryv Australia"), which the Company acquired onMarch 1, 2021 (the "Thryv Australia Acquisition").Thryv Australia isAustralia's leading provider of marketing solutions serving SMBs. The Thryv Australia Acquisition brings under theThryv banner more than 100,000 existing Thryv Australia clients, many of which we believe are ideal candidates for theThryv platform. Our Thryv International Marketing Services segment generated$59.2 million and$46.9 million of consolidated revenues for the three months endedJune 30, 2022 and 2021, respectively, and$106.9 million and$62.3 million of consolidated revenues for the six months endedJune 30, 2022 and the four months endedJune 30, 2021 , respectively. Our Thryv International SaaS segment generated$1.0 million and$0.01 million of consolidated revenues for the three months endedJune 30, 2022 and 2021, respectively, and$1.9 million and$0.01 million of consolidated revenues for the six months endedJune 30, 2022 and the four months endedJune 30, 2021 , respectively. Our expertise in delivering solutions for our client base is rooted in our deep history of serving SMBs. In 2022, SMB demand for integrated technology solutions continues to grow as SMBs adapt their business and service model to facilitate remote working and virtual interactions. We have seen this trend accelerate following the outbreak of the COVID-19 pandemic. 26 -------------------------------------------------------------------------------- OnJanuary 21, 2022 (the "Vivial Acquisition Date"),Thryv, Inc. , the Company's wholly-owned subsidiary, acquiredVivial Media Holdings, Inc. ("Vivial"), a marketing and advertising company, for$22.8 million in cash, subject to certain adjustments (the "Vivial Acquisition"). The expanding global scope of our business and the heightened volatility of global markets, driven by factors, such as COVID-19 and inflation, expose us to the risk of rising interest rates, increased operating costs and fluctuations in foreign currency markets. Recently the United States Dollar has strengthened significantly against certain foreign currencies in the markets in which we operate, particularly against the Australian Dollar. We also expect further interest rate changes in the future. To date, these factors have not had a material impact on our operational performance, financial performance, or liquidity. However, further changes in global economic conditions may adversely impact our revenue, profit margins, cash flow and liquidity. See 'Impact of Covid' and 'Item 3. Quantitative and Qualitative Disclosures About Market Risk' for a description of interest rate and foreign exchange currency risk.
Impact of COVID-19
InMarch 2020 , theWorld Health Organization categorized COVID-19 as a pandemic. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, significantly disrupted the global economy, resulting in an adverse effect on the business operations of certain SMBs, especially during 2020 and to a lesser extent during 2021. However, many of our SMB clients operate service-based businesses that can easily operate remotely, or that have been designated as "essential" by state and local authorities administering shelter-in-place orders, and have continued to operate without significant interruption during the COVID-19 pandemic. Therefore, the impact of COVID-19 and the related regulatory and private sector response on our financial and operating results in the three and six months endedJune 30, 2022 and 2021 was somewhat mitigated as many of our clients continued to operate. InMarch 2020 , we began offering certain pandemic credit incentives to select clients. These pandemic credit incentives resulted in a$0.8 million and$3.0 million reduction in revenue for the three and six months endedJune 30, 2021 , respectively. Requests for incentives continued to decline in 2021 as clients resumed normal contractual terms and pricing. As ofApril 1, 2021 , we virtually discontinued providing pandemic credits and accepting client requests to pause search campaigns due to the COVID-19 pandemic. EffectiveApril 1, 2021 , all client requests for adjustments are now handled as part of normal business operations consistent with historical practices. During the three and six months endedJune 30, 2022 , we have continued to see trends similar to those experienced during the year endedDecember 31, 2021 , including an increase in demand for our SaaS solutions and a continuing decline in our Marketing Services business. The challenges we will face in the future related to COVID-19 will depend largely, we believe, on the impact that the continuing spread of the virus, including existing and new variants, and regulatory and private sector response has on our current and prospective clients, including their ability and willingness to purchase our solutions. To date, the COVID-19 pandemic has not had a material impact on our operational performance, financial performance, or liquidity. Looking ahead, we do not expect any material financial impact related to COVID-19, without a significant increase in cases resulting in another shut down of local businesses. However, it is difficult to predict what the ongoing impact of the pandemic will be on the economy, our clients and our business.
Factors Affecting Our Performance
Our operations can be impacted by, among other factors, general economic conditions and increased competition with the introduction of new technologies and market entrants. We believe that our performance and future success depend on several factors that present significant opportunities for us, but also pose risks and challenges, including those listed below and those discussed in the section titled "Cautionary Note Regarding Forward-Looking Statements."
Ability to Attract and Retain Clients
Our revenue growth is driven by our ability to attract and retain SMB clients. To do so, we must deliver solutions that address the challenges currently faced by SMBs at a value-based price point that an SMB can afford.
Our strategy is to expand the use of our solutions by introducing our SaaS
solutions to new SMB clients, as well as our current
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--------------------------------------------------------------------------------Investment in Growth
We intend to continue to invest in the growth of our SaaS segment. We have selectively utilized a portion of the cash generated from ourMarketing Services and Thryv International segments to support initiatives in our evolving SaaS segment, which has represented an increasing percentage of consolidated revenue since launch. We will continue to improve our SaaS solutions by analyzing user behavior, expanding features, improving usability, enhancing our onboarding services and customer support and making version updates available to SMBs. We believe these initiatives will ultimately drive revenue growth; however, such improvements will also increase our operating expenses.
Ability to Grow Through Acquisition
Our growth prospects depend upon our ability to successfully develop new markets. We currently servethe United States and Australian SMB markets and plan to leverage strategic acquisitions to expand our client base domestically and enter new markets internationally. Identifying proper targets and executing strategic acquisitions may take substantial time and capital. InAugust 2020 , we launched our first international SaaS reseller pilot, a joint initiative with the leading yellow pages player in theCaribbean , and we also signed a SaaS multi-location franchise client, a home services company with operations in theU.S. andCanada . OnMarch 1, 2021 , we completed the Thryv Australia Acquisition. OnJanuary 21, 2022 , we completed the Vivial Acquisition. We believe that acquisitions of marketing services companies will expand our client base and provide additional opportunities to offer our SaaS solutions. Our success largely depends on our ability to identify and execute acquisition opportunities and our ability to establish relationships with new SMBs.
Key Business Metrics
We review several operating metrics, including the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and they may be used by investors to help analyze the health of our business.
Total Clients
We define total clients as the number of SMB accounts with one or more
revenue-generating solutions in a particular period. For quarter- and
year-ending periods, total clients from the last month in the period are
reported. A single client may have separate revenue-generating accounts for
multiple Marketing Services solutions or SaaS offerings, but we count these as
one client when the accounts are managed by the same business entity or
individual. Although infrequent, where a single organization has multiple
subsidiaries, divisions, or segments, each business entity that is invoiced by
us is treated as a separate client. We believe that the number of total clients
is an indicator of our market penetration and potential future business
opportunities. We view the mix between Marketing Services clients and SaaS
clients as an indicator of potential future opportunities to offer our SaaS
solutions to our Marketing Services clients.
As of June 30,
(in thousands) 2022 2021
Clients (1)
Marketing Services (2) 395 422
SaaS (3) 50 45
Total (4) 417 440
(1) Clients include total clients from all four of our business segments:
Thryv
(2) Clients that purchase one or more of our Marketing Services solutions are included in this metric. These clients may or may not also purchase subscriptions to our SaaS offerings.
(3) Clients that purchase subscriptions to our SaaS offerings are included in this metric. These clients may or may not also purchase one or more of our Marketing Services solutions.
(4) Total clients is less than the sum of the Marketing Services and SaaS, since clients that purchase both Marketing Services and SaaS products are counted in each category, but only counted once in the Total.
Marketing Services clients decreased by 27 thousand as ofJune 30, 2022 as compared toJune 30, 2021 . The decreasein Marketing Services clients was related to a secular decline in the print media industry. The decline in the Digital portion of our Marketing Services business was due to significant competition in the consumer search and display spaces, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook. 28 -------------------------------------------------------------------------------- SaaS clients increased by five thousand as ofJune 30, 2022 as compared toJune 30, 2021 . This was the result of an increase in new clients and decreasing churn, and is consistent with our continuing strategy to target higher spend, higher retention clients in lieu of lower-spend, higher churn clients.
Total clients decreased by 23 thousand as of
Monthly ARPU
We define monthly average revenue per unit ("ARPU") as our total client billings
for a particular month divided by the number of revenue-generating units during
the same month. For each reporting period, the weighted-average monthly ARPU
from all the months in the period are reported. We define units as SMB accounts
with one or more revenue-generating solutions in a particular month. Units are
synonymous with clients. As monthly ARPU varies based on the amounts we charge
for our services, we believe it can serve as a measure by which investors can
evaluate trends in the types and levels of services across our client base. Our
measurement of ARPU helps us understand the rate at which we are monetizing our
client base.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
ARPU (Monthly)
Marketing Services (1) $ 183 $ 187 $ 184 $ 194
SaaS (1) 358 323 355 314
(1) Marketing Services and SaaS ARPU include combined results from both our
Monthly Marketing Services ARPU decreased by$4 , or 2.1%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , and decreased by$10 , or 5%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The overall trend has been a decrease in ARPU related to reduced spend by clients on our Print media offerings due to the secular decline of the industry caused by the continuing shift of advertising spend to less expensive Digital media. This decrease in ARPU was further driven by a reduction of our resale of high-spend, low margin third-party local search and display services that were not hosted on our owned and operated platforms. Periodic increases in quarterly ARPU are temporary and caused by timing of publishing our directories, which have variable lengths (usually 12 to 18 months). Monthly SaaS ARPU increased by$35 , or 10.8%, during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , and increased by$41 , or 13.1%, during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase in ARPU was driven by our strategic shift to selling to higher spend clients and, at the same time, discontinuing our sale of the lower-priced tiers of ourThryv platform. In addition, the sale of add-on features to ourThryv platform such as Thryv Leads and Thryv Pay contributed to ARPU growth. Monthly Active Users - SaaS We define a monthly active user for SaaS offerings as a client with one or more userswho log into our SaaS solutions at least once during the calendar month. Individualswho register for, and use, multiple accounts across computer and mobile devices may be counted more than once and, as a result, may overstate the number of unique userswho actively use ourThryv platform within a month. Additionally, some of our original SaaS clients exclusively use the website features of theirThryv platform which does not require a login and those users are not included in our active users count. For each reporting period, active users from the last month in the period are reported. We believe that monthly active users best reflects our ability to engage, retain, and monetize our users, and thereby drive increases in revenue. We view monthly active users as a key measure of user engagement for ourThryv platform. As of June 30, (in thousands) 2022 2021 Monthly Active Users - SaaS 38 30 29
-------------------------------------------------------------------------------- Monthly active users increased by 8 thousand, or 27%, during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The number of monthly active users increased period-over-period as we undertook efforts such as enhancing the sales process, the client onboarding experience, and lifecycle management in order to increase engagement among our SaaS clients. The increase was also driven by the focus by our sales team on obtaining higher retention, higher spend clients as these clients are more engaged with our platform. Additionally, we experienced an increase in engagement from existing clients as SMBs increased virtual interactions with their customers in lieu of in-person interactions as a result of the COVID-19 pandemic.
Key Components of Our Results of Operations
Revenue
We generate Revenue from our four business segments: ThryvU.S. Marketing Services, ThryvU.S. SaaS, Thryv International Marketing Services andThryv International SaaS. Our primary sources of Revenue in our ThryvU.S. Marketing Services and Thryv International Marketing Services segments are Print and Digital services. Our primary source of Revenue in our ThryvU.S. SaaS andThryv International SaaS segments is ourThryv platform.
Cost of Services
Cost of services consists of expenses related to delivering our solutions, such as publishing, printing, and distribution of our Print directories and fulfillment of our Digital and SaaS offerings, including traffic acquisition, managed hosting, and other third-party service providers. Additionally, Cost of services includes personnel-related expenses such as salaries, benefits, and stock-based compensation for our operations team, information technology expenses, non-capitalizable software and hardware purchases, and allocated overhead costs, which includes depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.
Operating Expenses
Sales and Marketing
Sales and marketing expense consists primarily of base salaries, stock-based compensation, sales commissions paid to our inside and outside sales force and other expenses incurred by personnel within the sales, marketing, sales training, and client care departments. Additionally, Sales and marketing expense includes advertising costs such as media, promotional material, branding, online advertising, information technology expenses and allocated overhead costs which includes depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.
General and Administrative
General and administrative expense primarily consists of salaries, benefits and stock-based compensation incurred by corporate management and administrative functions such as information technology, finance and accounting, legal, internal audit, human resources, billing and receivables, and management personnel. In addition, General and administrative expense includes bad debt expense, non-recurring charges, and other corporate expenses such as professional fees, operating taxes, and insurance. General and administrative expense also includes allocated overhead costs which includes depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.
Other Income (Expense)
Other income (expense) consists of interest expense, other components of net periodic pension benefit, and other income (expense), which includes a bargain purchase gain as a result of the Vivial Acquisition, a (loss) resulting from the termination of leaseback obligations associated with land and a building inTucker, Georgia , and foreign currency-related income and expense. 30
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