Thryv(US:THRY)2024-05-02 11:46PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2024, and 2023, including Statements of Operations, Balance Sheets, Changes in Stockholders' Equity, and Cash Flows, along with detailed notes, reflecting a Q1 2024 re-segmentation into Thryv Marketing Services and Thryv SaaS, and subsequent debt refinancing and a new share repurchase program | (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Revenue | $233,624 | $245,555 | | Gross Profit | $153,641 | $154,808 | | Operating Income | $31,134 | $30,785 | | Net Income | $8,424 | $9,314 | | Diluted EPS | $0.22 | $0.25 | | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $275,017 | $266,868 | | Total Assets | $786,835 | $783,170 | | Total Current Liabilities | $239,699 | $263,190 | | Total Liabilities | $619,769 | $630,470 | | Total Stockholders' Equity | $167,066 | $152,700 | | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,438 | $32,311 | | Net cash used in investing activities | ($7,278) | ($5,136) | | Net cash used in financing activities | ($1,558) | ($17,055) | - In Q1 2024, the company changed its internal reporting structure, resulting in two reportable segments: Thryv Marketing Services and Thryv SaaS, with comparative prior periods recast to reflect this change2198 - On May 1, 2024, the company refinanced its debt, entering into a new $350.0 million Term Loan Agreement and a new $85.0 million ABL Credit Agreement, which extended maturities to 2029 and 2028, respectively, and provided more favorable interest rates103104105 - On April 30, 2024, the Board authorized a new share repurchase program, allowing the company to repurchase up to $40.0 million of its common stock through April 30, 2029108 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 4.9% year-over-year revenue decrease in Q1 2024, primarily due to a 14.2% decline in the Thryv Marketing Services segment, which was partially offset by strong 24.0% growth in the Thryv SaaS segment, with the company's strategy focusing on growing its SaaS business by converting existing Marketing Services clients, leading to a 12% decrease in total clients driven by Marketing Services, while SaaS clients grew 30%, and Adjusted EBITDA decreased by 7.4% to $54.1 million, while maintaining sufficient liquidity and subsequently refinancing its debt on more favorable terms after the quarter's end Overview and Key Business Metrics The company serves approximately 330,000 SMB clients through its Thryv Marketing Services and Thryv SaaS segments, with total clients decreasing by 12% YoY to 328,000 as of March 31, 2024, driven by a 15% decline in Marketing Services clients to 295,000, while SaaS clients grew by 30% to 70,000, and Monthly ARPU for Marketing Services fell 13% to $145, and SaaS ARPU decreased 3% to $369, reflecting a strategic push to convert clients at lower price points | (in thousands) | As of March 31, 2024 | As of March 31, 2023 | Change % | | :--- | :--- | :--- | :--- | | Marketing Services Clients | 295 | 348 | (15%) | | SaaS Clients | 70 | 54 | 30% | | Total Clients | 328 | 372 | (12%) | | (Monthly) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change % | | :--- | :--- | :--- | :--- | | Marketing Services ARPU | $145 | $167 | (13%) | | SaaS ARPU | $369 | $379 | (3%) | - The decrease in SaaS ARPU resulted from a strategic decision to accelerate the conversion of clients from digital Marketing Services solutions to SaaS solutions at a price lower than some existing SaaS products128 Results of Operations For Q1 2024, total revenue decreased 4.9% YoY to $233.6 million, driven by a 14.2% decline in Thryv Marketing Services revenue to $159.3 million, which saw a 31.0% drop in Digital revenue partially offset by a 9.4% rise in Print revenue due to publication cycle timing, while Thryv SaaS revenue grew 24.0% to $74.3 million, and gross margin improved by 280 basis points to 65.8%, reflecting the shift towards higher-margin SaaS products, and Adjusted EBITDA decreased 7.4% to $54.1 million | (in thousands) | Q1 2024 | Q1 2023 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Thryv Marketing Services | $159,302 | $185,626 | ($26,324) | (14.2)% | | Thryv SaaS | $74,322 | $59,929 | $14,393 | 24.0% | | Total Revenue | $233,624 | $245,555 | ($11,931) | (4.9)% | - Marketing Services revenue decline was driven by a $33.6 million (31.0%) decrease in Digital revenue, stemming from client base decline, competition, and a strategic upgrade of clients to SaaS solutions, partly offset by a $7.3 million (9.4%) increase in Print revenue due to the timing of directory publications138140 - SaaS revenue increased by 24.0% due to higher demand as SMBs adopt cloud platforms, a focus on higher-value clients, and the strategic conversion of Marketing Services clients141 - Gross margin increased to 65.8% from 63.0% YoY, primarily due to an increased sales mix of higher-margin SaaS solutions and the reduction of low-margin third-party services144 - Adjusted EBITDA decreased by $4.4 million (7.4%) YoY, driven by the decline in the Marketing Services segment, which was partially offset by growth in the SaaS segment150 Liquidity and Capital Resources The company believes its liquidity is sufficient for the next 12 months, with net cash from operating activities decreasing significantly to $5.4 million in Q1 2024 from $32.3 million in Q1 2023, mainly due to working capital timing differences, and total debt at $347.6 million at quarter-end, followed by a major debt refinancing on May 1, 2024, securing a new $350.0 million term loan and a new $85.0 million ABL facility with improved terms and extended maturities | (in thousands) | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Cash from Operating Activities | $5,438 | $32,311 | ($26,873) | | Cash from Investing Activities | ($7,278) | ($5,136) | ($2,142) | | Cash from Financing Activities | ($1,558) | ($17,055) | $15,497 | - The $26.9 million decrease in operating cash flow was primarily due to changes in working capital, impacted by the timing of annual bonus payments and the overall decline in sales162 - On May 1, 2024, the company refinanced its debt, establishing a new $350.0 million Term Loan Facility maturing in 2029 and a new $85.0 million ABL Facility maturing in 2028170171172 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate fluctuations on its floating-rate debt and foreign currency exchange risk from its Australian and New Zealand operations, where a hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3.6 million, and the company does not currently use hedging instruments for foreign currency risk - The company is exposed to interest rate risk on its floating-rate debt, where a hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $3.6 million, based on debt outstanding at March 31, 2024175 - The company has foreign currency risks related to revenue and expenses denominated in Australian and New Zealand dollars but has not used hedging for these transactions to date176177 Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of March 31, 2024, with no material changes to the internal control over financial reporting identified during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024178 - There were no changes in internal control over financial reporting during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, internal controls179 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal matters in the normal course of business, specifically referencing an ongoing tax case with the IRS concerning Section 199 deductions and R&D credits, for which the company has reserved $26.6 million as of March 31, 2024, with settlement discussions ongoing - The company is in ongoing settlement negotiations with the IRS regarding a tax case related to Section 199 deductions and research and development tax credits9293 - As of March 31, 2024, the company has reserved $26.6 million in connection with the Section 199 disallowance, and a draft settlement document has been received but is not yet finalized9496 Risk Factors This section provides an updated risk factor concerning the company's use of artificial intelligence (AI), highlighting potential risks including competitive harm, reputational damage from inaccurate or biased AI-generated content, cybersecurity incidents, and emerging ethical and regulatory challenges associated with AI - The company has identified new risks associated with its use of artificial intelligence (AI), including competitive harm, reputational damage, legal liability, and cybersecurity incidents181 - The rapid evolution of AI, including potential government regulation, will require significant resources to manage ethically and effectively182 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the quarter - None reported for the period183 Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None reported for the period184 Mine Safety Disclosures This item is not applicable to the company - Not Applicable185 Other Information The company reported that none of its officers or directors adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024 - No officers or directors adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024186 Exhibits This section lists the exhibits filed with the Form 10-Q, with notable exhibits including the new Term Loan Credit Agreement and the new ABL Credit Agreement, both dated May 1, 2024, as well as required officer certifications - Key exhibits filed with this report include the new Term Loan Credit Agreement and ABL Credit Agreement from the May 1, 2024 refinancing187