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
entrepreneurs
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 three business segments:
Marketing Services, SaaS, and
Our Marketing Services segment provides both print and digital solutions and generated$213.2 million and$208.5 million of consolidated revenues for the three months endedSeptember 30, 2021 and 2020, respectively, and$643.9 million and$767.6 million of consolidated revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Our Marketing Services offerings include our owned and operated Print Yellow Pages ("PYP"), which carry the "The Real Yellow Pages" tagline, 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, which include online display and social advertising, online presence, and video and search engine optimization ("SEO") tools. Our SaaS segment generated$44.8 million and$31.8 million of consolidated revenues for the three months endedSeptember 30, 2021 and 2020, respectively, and$123.4 million and$95.0 million of consolidated revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Our primary SaaS offerings include Thryv®, our flagship SMB end-to-end customer experience platform, and Thryv Add-Ons. Thryv Add-Ons include an automated lead generation service that fully integrates with ourThryv platform, website development, SEO tools, Google My Business optimization, and Hub by ThryvSM. An additional add-on, ThryvPaySM, is our own branded payment solution that allows users to get paid via credit card and ACH and is tailored to service focused businesses that want to provide consumers safe, contactless, and fast online payment options. These optional platform subscription-based add-ons provide a seamless user experience for our end-users and drive higher engagement within theThryv Platform while also producing incremental revenue growth. OurThryv International 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. TheThryv 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. OurThryv International segment generated$39.3 million and$101.6 million of consolidated revenues for the three and seven months endedSeptember 30, 2021 , respectively. Our expertise in delivering solutions for our client base is rooted in our deep history of serving SMBs. In 2021, 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.
Recent Developments - 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, have significantly disrupted the global economy, resulting in an adverse effect on the business operations of certain SMBs. However, many of our SMB clients operate service-based businesses that can 28 -------------------------------------------------------------------------------- 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 nine months endedSeptember 30, 2021 and 2020 was somewhat mitigated as many of our clients continue to operate during this pandemic. Marketing Services segment revenue increased by$4.7 million , or 2.3%, during the three months endedSeptember 30, 2021 as compared to the corresponding period in 2020, and decreased by$123.6 million , or 16.1%, during the nine months endedSeptember 30, 2021 as compared to the corresponding period in 2020, primarily due to the continued decline in demand for print and digital services and increased competition in all areas of Marketing Services. This declining revenue trendin Marketing Services predated the COVID-19 pandemic. In addition, in our Marketing Services segment, inMarch 2020 , we began offering certain pandemic credit incentives to select clients, including free advertising or headings, and payment extensions of up to three months. While the ongoing impact of the COVID-19 pandemic on our revenue depends upon the rate of continued spread of the virus as well as regulatory and private sector response, we expect Marketing Services revenue will continue to be impacted primarily by trends predating the COVID-19 pandemic. In our SaaS segment, we have continued to experience an increase in demand as SMBs seek cloud-based solutions to facilitate virtual interactions with their customers instead of in-person interactions. We have seen continued strength in demand during this period from many of our key categories such as home services and other professional services. Partially offsetting this growth is a decline in our legacy SaaS client base as we shift from lower-spend, less engaged clients that tend to have a higher churn rate, to higher spend, higher engaged clients. Additionally, inMarch 2020 , we began offering certain pandemic credit incentives to select clients, including free digital and SaaS services for two to four months, and payment extensions of up to three months. In ourThryv International segment, we continue to experience a limited negative impact toAustralia in 2021 as a result of the COVID-19 pandemic. During the nine months endedSeptember 30, 2021 , there were a number of Australian cities that have experienced a slight increase in cases and subsequent restrictions, however the number of COVID-19 cases inAustralia have remained relatively low since the initial outbreak and the impact to our clients has been minimal as most have continued to remain open for business throughout the COVID-19 pandemic. We have taken steps to mitigate the overall potential impact of the COVID-19 pandemic on our operating results by enhancing the capabilities of our inside and outside sales force while also actively managing costs. We minimized business disruptions by quickly and proactively transitioning our sales and client support teams into a remote working environment and providing increased training, technical capabilities and resources to enable virtual interactions with our clients. Additionally, inMarch 2020 , we began offering certain pandemic credit incentives to select clients. These pandemic credit incentives resulted in a$0.2 million and$3.2 million reduction in revenue for the three and nine months endedSeptember 30, 2021 , respectively, compared to a reduction in revenue of$7.8 million and$14.2 million for the three and nine months endedSeptember 30, 2020 , respectively. Requests for incentives continued to decline in the first half of 2021, and the majority of clientswho accepted incentives in 2020 have resumed contractual terms and pricing. As ofSeptember 30, 2021 , we have virtually discontinued providing pandemic credits and accepting client requests to pause search campaigns due to the COVID-19 pandemic. All client requests for adjustments effectiveApril 1, 2021 are now being handled as part of normal business operations consistent with historical practices. Depending upon future development and spread of the virus, including existing and new variants, we generally expect the business environment to improve as more people are vaccinated. During the three and nine months endedSeptember 30, 2021 , we incurred total severance expense of$1.9 million and$3.0 million , respectively, none of which was incurred as a result of the COVID-19 pandemic. During the three and nine months endedSeptember 30, 2020 , we recognized severance expense of$3.3 million and$10.6 million , respectively. Of the severance expense recognized in the nine months endedSeptember 30, 2020 ,$5.0 million was related to employee separations as a result of the COVID-19 pandemic. During the three months endedSeptember 30, 2020 , none of the severance expense recorded was related to employee terminations as a result of COVID-19. The economic downturn caused by COVID-19 resulted in an incremental amount of$2.5 million recorded to allowance for credit losses for the nine months endedSeptember 30, 2020 . No incremental impact was recorded for the three and nine months endedSeptember 30, 2021 . In addition, we remain committed to our variable cost structure and to limiting our capital expenditures, which will allow us to continue operating with relatively low working capital needs. While the effects of the COVID-19 pandemic have impacted our financial results for the three and nine months endedSeptember 30, 2021 , the overall impact was somewhat mitigated by the nature of our client base (SMBs offering services related to home, health and wellness, automotive, etc. and certain SMBs designated as "essential" by state and local authorities), the terms of our print agreements (typically 14 to 15 months), and the gradual increase in demand for ourThryv 29 --------------------------------------------------------------------------------
platform. The increase in demand for our
During the three and nine months endedSeptember 30, 2021 , we have continued to see trends similar to those experienced during the year endedDecember 31, 2020 , including an increase in demand for our SaaS solutions and a continuing decline in our Marketing Services business. The challenges we 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 currentMarketing Services and Thryv International clients. This strategy includes capitalizing on the increased needs of SMBs for solutions that facilitate a remote working environment and virtual interactions. This strategy will require substantial sales and marketing capital. 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 acquisition ofThryv Australia ,Australia's leading provider of marketing solutions serving SMBs. 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. 30 -------------------------------------------------------------------------------- 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. Total clients does not includeThryv International clients, as we are in the process of recalculating theThryv Australia data using our calculation methodology. We plan to include the total clients ofThryv International in our future filings.
Marketing Services Clients
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.
SaaS Clients
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.
September 30,
(in thousands) 2021 2020
Clients
Marketing Services 268 333
SaaS 45 44
Total (1) 286 349
(1)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. Total clients does not
include Thryv International clients, as we are still in the process of
recalculating the Thryv Australia data using our calculation methodology. We
plan to include the total clients of Thryv International in our future filings.
Marketing Services clients decreased by 65 thousand, or 20%, as of September 30,
2021 as compared to September 30, 2020 . The decrease in 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 space, particularly
from large, well-capitalized businesses such as Google, Yelp and Facebook.
SaaS clients increased by 1 thousand, or 2%, as of September 30, 2021 as
compared to September 30, 2020 . 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 63 thousand, or 18%, as of September 30, 2021 as
compared to September 30, 2020 . The primary driver of the decrease in total
clients was the secular decline in the print media business combined with
increasing competition in the digital media space.
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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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
ARPU (Monthly)
Marketing Services $ 212 $ 222 $ 213 $ 223
SaaS 340 260 323 244
Total (1) $ 251 $ 244 $ 248 $ 243
(1)During the three and nine months ended September 30, 2020 , the Total monthly
ARPU is higher than the monthly ARPU for Marketing Services due to clients that
purchase both Marketing Services and SaaS solutions. During the three and nine
months ended September 30, 2021 , SaaS ARPU is higher than the Total monthly ARPU
as we shift to selling to more higher spend SaaS-only clients. The Total monthly
ARPU does not include Thryv International , as we are in the process of
recalculating the Thryv Australia data using our calculation methodology. We
plan to include the monthly ARPU of Thryv International in our future filings.
Monthly ARPU for the Marketing Services segment decreased by $10 , or 5%, for the
three months ended September 30, 2021 compared to the three months ended
September 30, 2020 , and $10 , or 4%, for the nine months ended September 30, 2021
compared to the nine months ended September 30, 2020 . The decrease in ARPU for
these periods was 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.
Monthly ARPU for the SaaS segment increased by $80 , or 31%, during the three
months ended September 30, 2021 compared to the three months ended September 30,
2020 , and increased by $79 , or 32%, during the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 . The increase in ARPU
for these periods 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 our Thryv platform. In addition, the sale of add-on features to our Thryv
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
users who log into our SaaS solutions at least once during the calendar month.
It should be noted that the inherent challenge is that one individual may
register for, and use, multiple accounts across computer and mobile devices
which may overstate the number of unique users who actively use our Thryv
platform within a month. Additionally, some of our original SaaS clients
exclusively use the website features of their Thryv 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 our Thryv
platform.
As of September 30,
(in thousands) 2021 2020
Monthly Active Users - SaaS 31 27
Monthly active users increased by 4 thousand, or 15%, during the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020 .
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
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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 three business segments, Marketing Services, SaaS
and Thryv International . Our primary sources of revenue in our Marketing
Services and Thryv International segments are print and digital services. Our
primary source of revenue in our SaaS segment is our Thryv 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, non-capitalizable software and
hardware purchases, and allocated overhead costs which includes information
technology expenses, 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, and allocated overhead costs which includes information technology expenses, 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 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 information technology expenses, 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 (cost), and other expense.
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