Thryv Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2022

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 who 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: Thryv U.S. Marketing Services, Thryv U.S. SaaS, Thryv International Marketing Services and Thryv International SaaS.

Our Thryv U.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 ended June 30, 2022 and 2021, respectively, and $435.1 million and $430.7 million of consolidated revenues for the six months ended June 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 the Yellowpages.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 Thryv U.S. SaaS segment generated $51.2 million and $41.4 million of consolidated revenues for the three months ended June 30, 2022 and 2021, respectively, and $98.5 million and $78.6 million of consolidated revenues for the six months ended June 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 by Thryv, 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 of Thryv Australia Pty Ltd (formerly Sensis Pty Ltd) (“Thryv Australia”), which the Company acquired on March 1, 2021 (the “Thryv Australia Acquisition”). Thryv Australia is Australia’s leading provider of marketing solutions serving SMBs. The Thryv Australia Acquisition brings under the Thryv banner more than 100,000 existing Thryv Australia clients, many of which we believe are ideal candidates for the Thryv platform. Our Thryv International Marketing Services segment generated $59.2 million and $46.9 million of consolidated revenues for the three months ended June 30, 2022 and 2021, respectively, and $106.9 million and $62.3 million of consolidated revenues for the six months ended June 30, 2022 and the four months ended June 30, 2021, respectively.

Our Thryv International SaaS segment generated $1.0 million and $0.01 million of consolidated revenues for the three months ended June 30, 2022 and 2021, respectively, and $1.9 million and $0.01 million of consolidated revenues for the six months ended June 30, 2022 and the four months ended June 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.

On January 21, 2022 (the “Vivial Acquisition Date”), Thryv, Inc., the Company’s wholly-owned subsidiary, acquired Vivial 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

In March 2020, the World 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 ended June 30, 2022 and 2021 was somewhat mitigated as many of our clients continued to operate.

In March 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 ended June 30, 2021, respectively. Requests for incentives continued to decline in 2021 as clients resumed normal contractual terms and pricing. As of April 1, 2021, we virtually discontinued providing pandemic credits and accepting client requests to pause search campaigns due to the COVID-19 pandemic. Effective April 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 ended June 30, 2022, we have continued to see trends similar to those experienced during the year ended December 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 Marketing 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 our Marketing 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 serve the 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. In August 2020, we launched our first international SaaS reseller pilot, a joint initiative with the leading yellow pages player in the Caribbean, and we also signed a SaaS multi-location franchise client, a home services company with operations in the U.S. and Canada. On March 1, 2021, we completed the Thryv Australia Acquisition. On January 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.

(in thousands)

(1) Clients include total clients from all four of our business segments: Thryv U.S. Marketing Services, Thryv U.S. SaaS, Thryv International Marketing Services and Thryv International SaaS.

(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 of June 30, 2022 as compared to June 30, 2021. 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 spaces, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook.

SaaS clients increased by five thousand as of June 30, 2022 as compared to June 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 June 30, 2022 as compared to June 30, 2021. 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.

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.

(1) Marketing Services and SaaS ARPU include combined results from both our U.S. and Thryv International Marketing Services and SaaS businesses, respectively.

Monthly Marketing Services ARPU decreased by $4, or 2.1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, and decreased by $10, or 5%, for the six months ended June 30, 2022 compared to the six months ended June 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 ended June 30, 2022 compared to the three months ended June 30, 2021, and increased by $41, or 13.1%, during the six months ended June 30, 2022 compared to the six months ended June 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 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. Individuals who 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 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.

(in thousands)

29

Monthly active users increased by 8 thousand, or 27%, during the six months ended June 30, 2022 compared to the six months ended June 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: Thryv U.S. Marketing Services, Thryv U.S. SaaS, Thryv International Marketing Services and Thryv International SaaS. Our primary sources of Revenue in our Thryv U.S. Marketing Services and Thryv International Marketing Services segments are Print and Digital services. Our primary source of Revenue in our Thryv U.S. SaaS and Thryv International SaaS segments 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, 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 in Tucker, Georgia, and foreign currency-related income and expense.

Results of Operations

Consolidated Results of Operations

The following table sets forth certain consolidated financial data for each of the periods indicated:

(unaudited)

(in thousands of $)

(1) Consolidated results of operations includes Vivial's results of operations subsequent to the Vivial Acquisition.

(2) Consolidated results of operations includes Thryv Australia's results of operations subsequent to the March 1, 2021 acquisition date.

(3) See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

(4) See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Profit and a reconciliation to Gross profit, the most directly comparable measure presented in accordance with GAAP.

(5) See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Margin.

Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Revenue

The following table summarizes Revenue by business segment for the periods indicated:

(in thousands of $)

(unaudited)

(1) Thryv U.S. Marketing Services includes Vivial revenue subsequent to the Vivial Acquisition.

(2) Thryv International includes Thryv Australia revenue subsequent to the Thryv Australia Acquisition.

Total Revenue increased by $42.9 million, or 14.8%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase in total Revenue was driven by an increase in Thryv U.S. Marketing Services Revenue of $19.8 million, an increase in the Thryv U.S. SaaS Revenue of $9.8 million, and an increase in the Thryv International Marketing Services Revenue of $12.4 million.

Thryv U.S. Revenue

Marketing Services Revenue

Thryv U.S. Marketing Services revenue increased by $19.8 million, or 9.8%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Print revenue increased by $10.5 million, or 11.2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily driven by the Vivial Acquisition and the result of increasing the terms of our new Print publications from 15 months to 18 months. The increase was partially offset by the secular decline in industry demand for Print services that resulted in a 10% decline in revenue compared to the three months ended June 30, 2021, net of the impact of publication timing differences caused by our Print agreements having greater than 12 month terms. Print revenue is recognized upon delivery of the published directories. Individual directory titles have different lifecycles, with a typical lifecycle of 15 months for books published during the three months ended June 30, 2021 and 18 months during the three months ended June 30, 2022. The titles published during the three months ended June 30, 2022 are therefore different, and have longer terms, than the titles published during the three months ended June 30, 2021 and represented more revenue than the titles published during the three months ended June 30, 2021.

Digital revenue increased by $9.3 million, or 8.5%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was partially driven by Digital revenue as a result of the Vivial Acquisition. The increase was partially offset by a continued trending decline in the Company’s Marketing Services client base and significant competition in the consumer search and display space, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook.

SaaS Revenue

Thryv U.S. SaaS revenue increased by $9.8 million, or 23.6%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was driven by increased demand for our Thryv SaaS product as SMBs accelerate their move away from manual processes and towards cloud platforms to more efficiently manage and grow their businesses, and by our success in re-focusing our go-to-market and onboarding strategy to target higher spend and higher engaged clients. This increase was partially offset by a decline in our lower-spend and less-engaged legacy SaaS clients that tend to have a higher churn rate.

Thryv International Revenue

Marketing Services Revenue

Thryv International Marketing Services revenue increased by $12.4 million, or 26.4%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was driven primarily by an adjustment recognized upon the Thryv Australia Acquisition to reduce the deferred revenue balance assumed, which negatively impacted revenue recognized in the three months ended June 30, 2021 by $27.8 million. The increase in revenue was partially offset by lower Print revenue resulting from the secular decline in industry demand for Print services in Australia.

SaaS Revenue

Thryv International SaaS revenue increased $1.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was driven by increased demand for our Thryv platform as we continue to increase sales to SMBs in Australia.

Cost of Services

Cost of services decreased by $6.6 million, or 5.9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The decrease was primarily attributable to lower depreciation and amortization expense of $7.7 million, due to the accelerated amortization method used by the Company, along with lower expenses resulting from the impact of strategic cost-saving initiatives. These decreases were partially offset by additional Cost of services incurred in the three months ended June 30, 2022 as a result of the Vivial Acquisition.

Gross Profit

Gross profit increased by $49.5 million, or 27.8%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase in Gross profit was primarily due to higher revenue recognized by Thryv Australia. The remaining increase was primarily driven by the impact of the Vivial Acquisition, the result of increasing the terms of our print publications from 15 months to 18 months in our Thryv US Marketing Services Segment and growth in our U.S. SaaS segment. Our gross margin increased by 700 basis points to 68.3% for the three months ended June 30, 2022 compared to 61.3% for the three months ended June 30, 2021.

Operating Expenses

Sales and Marketing

Sales and marketing expense increased by $4.4 million, or 5.1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was primarily attributable to an increase in employee-related costs of $3.3 million, partially driven by the Vivial Acquisition and an increase in sales commissions of $3.2 million. These increases were partially offset by a decrease of $2.3 million in contract services, due to strategic cost-saving initiatives.

General and Administrative

General and administrative expense increased by $19.6 million, or 59.1%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase was primarily attributable to an increase in bad debt expense of $6.4 million and employee-related costs of $3.7 million, driven primarily by the Vivial Acquisition. General and administrative expenses also increased as a result of higher software development costs and other expenses related to the Vivial Acquisition. These increases were partially offset by a $4.2 million decrease in transaction costs related to the Thryv Australia Acquisition, which occurred in the first quarter of 2021.

Impairment Charges

Impairment charges decreased by $3.4 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Impairment charges of $0.2 million were incurred during the three months ended June 30, 2022, while $3.6 million of impairment charges were recognized during the three months ended June 30, 2021.

Other Income (Expense)

Interest Expense

Interest expense decreased by $4.5 million, or 23.6%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, driven primarily by lower outstanding debt balances resulting from payments made on long-term debt.

Other Components of Net Periodic Pension Benefit

Other components of net periodic pension benefit increased by $8.9 million for the three months ended June 30, 2022. This increase was primarily due to a remeasurement gain of $8.7 million, triggered by settlements occurring during the three months ended June 30, 2022, while no remeasurement gain was recognized during the three months ended June 30, 2021.

Other Income (Expense)

During the three months ended June 30, 2022, the Company recognized other income, net, of $2.4 million, which primarily represents foreign currency-related gains. During the three months ended June 30, 2021, the Company incurred other expense, net, of $3.0 million, which included a loss of $3.1 million on the termination of leaseback obligations associated with land and a building in Tucker, Georgia, and foreign currency related income of $0.1 million.

Income Tax Expense

Income tax expense increased by $14.1 million, or 173.7%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The ETR was 27.7% and 25.0% for the three months ended June 30, 2022 and 2021, respectively. The ETR differs from the 21.0% U.S. Federal statutory rate primarily due to our geographic mix of taxable income in various tax jurisdictions and permanent tax differences attributable to the net impact of non-U.S. taxing jurisdictions.

Adjusted EBITDA

Adjusted EBITDA increased by $19.2 million, or 19.9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase in Adjusted EBITDA was primarily driven by increased revenue in the Thryv International Marketing Services segment due to an adjustment recognized upon the Thryv Australia Acquisition to reduce the deferred revenue balance assumed, which negatively impacted revenue recognized in the three months ended June 30, 2021. The remaining increase was primarily driven by the impact of the Vivial Acquisition, the result of increasing the terms of our print publications from 15 months to 18 months in our Thryv US Marketing Services Segment and growth in our Thryv U.S. SaaS segment. These increases were partially offset by the secular decline in both our Thryv U.S. and International Marketing Services segments. See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

Results of Operations

Consolidated Results of Operations

The following table sets forth certain consolidated financial data for each of the periods indicated:

(unaudited)

(in thousands of $)

(1) Consolidated results of operations includes Vivial's results of operations subsequent to the Vivial Acquisition.

(2) Consolidated results of operations includes Thryv Australia's results of operations subsequent to the Thryv Australia Acquisition.

(3) See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

(4) See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Profit and a reconciliation to Gross profit, the most directly comparable measure presented in accordance with GAAP.

(5) See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Margin.

Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Revenue

The following table summarizes revenue by business segment for the periods indicated:

(in thousands of $)

(unaudited)

(1) Thryv U.S. Marketing Services includes Vivial revenue subsequent to the Vivial Acquisition.

(2) Thryv International includes Thryv Australia revenue subsequent to the Thryv Australia Acquisition.

Total Revenue increased by $70.7 million, or 12.4%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase in total Revenue was driven by an increase in Thryv International Marketing Services Revenue of $44.6 million and Thryv U.S. SaaS Revenue of $19.9 million.

Thryv U.S. Revenue

Marketing Services Revenue

Thryv U.S. Marketing Services revenue increased by $4.4 million, or 1.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Print revenue decreased by $4.5 million, or 2.2%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily driven by the secular decline in industry demand for Print services that resulted in a 17% decline in revenue compared to the six months ended June 30, 2021, net of the impact of publication timing differences caused by our Print agreements having greater than 12 month terms and the extension of the terms of our Print agreements. Print revenue is recognized upon delivery of the published directories. Individual directory titles have different lifecycles, with a typical lifecycle of 15 months during the six months ended June 30, 2021. The typical life cycle was extended to 18 months for new directories published during the three months ended June 30, 2022. The titles published during the six months ended June 30, 2022 are therefore different, and the terms are longer, than the titles published during the six months ended June 30, 2021 and represented more revenue than the titles published during the six months ended June 30, 2021. This decrease was further offset by an increase in Print revenue as a result of the Vivial Acquisition.

Digital revenue increased by $8.9 million, or 4.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily driven by Digital revenue as a result of the Vivial Acquisition. This increase was partially offset by a continued trending decline in the Company’s Marketing Services client base and significant competition in the consumer search and display space, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook.

SaaS Revenue

Thryv U.S. SaaS revenue increased by $19.9 million, or 25.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was driven by increased demand for our Thryv SaaS product as SMBs accelerate their move away from manual processes and towards cloud platforms to more efficiently manage and grow their businesses, and by our success in re-focusing our go-to-market and onboarding strategy to target higher spend and higher engaged clients. This increase was partially offset by a decline in our lower-spend and less-engaged legacy SaaS clients that tend to have a higher churn rate.

Thryv International Revenue

Marketing Services Revenue

Thryv International Marketing Services revenue increased by $44.6 million, or 71.6%, for the six months ended June 30, 2022 compared to the four months ended June 30, 2021. As the Thryv Australia Acquisition was completed on March 1, 2021, no revenue was recognized for Thryv International during the two months ended February 28, 2021. In addition, upon the Thryv Australia Acquisition, an adjustment was recognized to reduce the deferred revenue balance assumed, which negatively impacted revenue recognized in the four months ended June 30, 2021 by $37.9 million. These increases in revenue were partially offset by lower Print revenue resulting from the secular decline in industry demand for Print services in Australia.

SaaS Revenue

Thryv International SaaS increased $1.9 million for the six months ended June 30, 2022 compared the four months ended June 30, 2021. The increase was driven by increased demand for our Thryv platform as we continue to increase sales to SMBs in Australia.

Cost of Services

Cost of services increased by $5.8 million, or 2.7%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily attributable to $11.9 million of printing, distribution and digital and fulfillment support costs, primarily related to the Vivial Acquisition. Contract Services also increased $9.5 million, primarily related to the Vivial Acquisition and continued investments in the Thryv platform. The increase was partially offset by a $9.1 million decrease in depreciation and amortization expense, driven by the accelerated amortization method used by the Company.

Gross Profit

Gross profit increased by $65.0 million, or 18.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase in Gross profit was primarily due to higher revenue from Thryv Australia and growth in our SaaS segments. Our gross margin increased by 320 basis points to 66.3% for the six months ended June 30, 2022 compared to 63.1% for the six months ended June 30, 2021.

Operating Expenses

Sales and Marketing

Sales and marketing expense increased by $21.8 million, or 13.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily attributable to $9.1 million of additional employee-related costs primarily related to the acquisitions of Thryv Australia and Vivial, an increase in commission expenses of $9.4 million as a result of the Vivial Acquisition and higher Thryv platform sales, and an increase in advertising and sales promotion expenses of $5.4 million, primarily driven by costs incurred to promote the Thryv platform.

General and Administrative

General and administrative expense increased by $30.5 million, or 41.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. This increase was primarily attributable to an increase in bad debt expense of $7.6 million, and higher employee-related costs, driven by the Vivial Acquisition of $12.7 million. General and administrative expenses also increased as a result of higher software development costs and other expenses related to the Vivial Acquisition. The increase was partially offset by a $12.7 million decrease in transaction costs related to the Thryv Australia Acquisition, which occurred in the first quarter of 2021.

Impairment Charges

Impairment charges decreased by $3.4 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Impairment charges of $0.2 million were incurred during the six months ended June 30, 2022, while $3.6 million of impairment charges were recognized during the six months ended June 30, 2021.

Other Income (Expense)

Interest Expense

Interest expense decreased by $5.3 million, or 15.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 driven primarily by lower outstanding debt balances resulting from payments made on long-term debt.

Other Components of Net Periodic Pension Benefit

Other components of net periodic pension benefit increased by $8.5 million for the six months ended June 30, 2022. The increase was primarily due to a remeasurement gain of $8.7 million recognized during the six months ended June 30, 2022, compared to a benefit of $0.2 million recognized during the six months ended June 30, 2021.

Other Income (Expense)

During the six months ended June 30, 2022, the Company incurred other income, net, of $8.6 million, which primarily represents the $7.0 million bargain purchase gain as a result of the Vivial Acquisition. During the six months ended June 30, 2021, the Company incurred other expense of $4.1 million, which included a loss of $3.1 million on the termination of leaseback obligations associated with land and a building in Tucker, Georgia.

Income Tax Expense

Income tax expense increased by $11.9 million, or 59.7%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The ETR was 25.8% and 24.7% for the six months ended June 30, 2022 and 2021, respectively. The ETR differs from the 21.0% U.S. Federal statutory rate primarily due to our geographic mix of taxable income in various tax jurisdictions and permanent tax differences attributable to the net impact of non-U.S. taxing jurisdictions.

Adjusted EBITDA

Adjusted EBITDA decreased by $2.0 million, or 1.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in in Adjusted EBITDA was primarily driven by the secular decline in both our Thryv U.S. and International Marketing Services segments. These decreases were partially offset by increased revenue in the Thryv International Marketing Services segment due to an adjustment recognized upon the Thryv Australia Acquisition to reduce the deferred revenue balance assumed, which negatively impacted revenue recognized in the six months ended June 30, 2021. These decreases were further offset by the impact of the Vivial Acquisition and the result of increasing the terms of our print publications from 15 months to 18 months in our Thryv U.S. Marketing Services Segment. See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

Non-GAAP Financial Measures

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. We also present Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin, as defined below, as non-GAAP financial measures in this Quarterly Report.

We have included Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin in this report because management believes they provide useful information to investors in gaining an overall understanding of our current financial performance and provide consistency and comparability with past financial performance. Specifically, we believe Adjusted EBITDA provides useful information to management and investors by excluding certain non-operating items that we believe are not indicative of our core operating results. In addition, Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin are used by management for budgeting and forecasting as well as measuring the Company’s performance. We believe Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin provide investors with the financial measures that closely align with our internal processes.

We define Adjusted EBITDA (“Adjusted EBITDA”) as Net income plus Interest expense, Income tax expense, Depreciation and amortization expense, Loss on early extinguishment of debt, Restructuring and integration expenses, Transaction costs, Stock-based compensation expense, and non-operating expenses, such as, Other components of net periodic pension (benefit) cost, Non-cash (gain) loss from remeasurement of indemnification asset, and certain unusual and non-recurring charges that might have been incurred. Adjusted EBITDA should not be considered as an alternative to Net income as a performance measure. We define Adjusted Gross Profit (“Adjusted Gross Profit”) and Adjusted Gross Margin (“Adjusted Gross Margin”) as Gross profit and Gross margin, respectively, adjusted to exclude the impact of Depreciation and amortization expense and stock-based compensation expense.

Non-GAAP financial information has limitations as an analytical tool and is presented for supplemental informational purposes only. Such information should not be considered a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP measures used by other companies.

The following is a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, Net income:

(in thousands)

(1) For the three and six months ended June 30, 2022 and 2021, expenses relate to periodic efforts to enhance efficiencies and reduce costs, and include severance benefits, loss on disposal of fixed assets and capitalized software, and costs associated with abandoned facilities and system consolidation.

(2) Expenses related to the Vivial Acquisition, Thryv Australia Acquisition and other transaction costs.

(3) The Company records stock-based compensation expense related to the amortization of grant date fair value of the Company’s stock-based compensation awards. See Note 4*, Fair Value Measurements*, to our consolidated financial statements included in Part I, Item 1 in this Quarterly Report for more information.

(4) Other components of net periodic pension (benefit) cost is from our non-contributory defined benefit pension plans that are currently frozen and incur no additional service costs. The most significant component of other components of net periodic pension (benefit) cost relates to the mark-to-market pension remeasurement.

(5) In connection with the YP Acquisition, the seller indemnified the Company for future potential losses associated with certain federal and state tax positions taken in tax returns filed by the seller prior to the acquisition date.

(6) Other primarily includes expenses related to potential non-income-based tax liabilities and foreign exchange-related expense. Additionally, during the six months ended June 30, 2022, Other includes the bargain purchase gain as a result of the Vivial Acquisition.

The following tables set forth reconciliations of Adjusted Gross Profit and Adjusted Gross Margin, to their most directly comparable GAAP measures, Gross profit and Gross margin:

(in thousands)

(in thousands)

40

(in thousands)

(in thousands)

Liquidity and Capital Resources

Thryv Holdings, Inc. is a holding company that does not conduct any business operations of its own. We derive cash flows from cash transfers and other distributions from our operating subsidiary, Thryv Inc., who in turn generates cash flow from its own operations and operations of its subsidiaries, and has cash and cash equivalents on hand, funds provided under the Term Loan (as defined below) and funds available under the ABL Facility (as defined below). The agreements governing our debt may restrict the ability of our subsidiaries to make loans or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of our senior credit facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions or the making of loans by such subsidiaries to us. Our and our subsidiaries’ ability to meet our debt service requirements is dependent on our ability to generate sufficient cash flows from operations.

We believe that expected cash flows from operations, available cash and cash equivalents, and funds available under our ABL Facility will be sufficient to meet our liquidity requirements, such as working capital requirements for our operations, business development and investment activities, and payments for our debt obligations, for the following 12 months. Any projections of future earnings and cash flows are subject to substantial uncertainty. Our future success and capital adequacy will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flows from operations and our ability to address our annual cash obligations and reduce our outstanding debt, all of which are subject to general economic, financial, competitive, and other factors beyond our control. As a result of COVID-19, many SMBs may continue to experience a reduction in revenues and cash flows and may not have the ability to pay amounts owed to us. While COVID-19 has not had a material impact on our liquidity to date, we continue to assess our business operations and the impact that COVID-19 may have on our financial results and liquidity. We continue to monitor our capital requirements to ensure our needs are in line with available capital resources.

In addition, our board of directors authorizes us to undertake share repurchases from time to time. The amount and timing of any share repurchases that we make will depend on a variety of factors, including available liquidity, cash flows, our capacity to make repurchases under our debt agreements and market conditions.

For a discussion on contingent obligations, see Note 13, Contingent Liabilities, to our consolidated financial statements included in Part I, Item 1 in this Quarterly Report.

Sources and Uses of Cash

The following table sets forth a summary of our cash flows from operating, investing and financing activities for the periods indicated:

(in thousands)

(unaudited)

Cash Flows from Operating Activities

Net cash provided by operating activities decreased by $24.9 million, or 30.4%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primary due to changes in working capital. This was partially offset by lower restructuring and integration and transaction cost payments of $14.7 million, related to the Vivial Acquisition on January 1, 2022 compared to the Thryv Australia Acquisition on March 1, 2021, and lower interest payments of $12.7 million compared to the six months ended June 30, 2021.

Cash Flows from Investing Activities

Net cash used in investing activities decreased by $156.0 million, or 82.8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily due to the difference in the cash paid of $174.2 million in connection with the Thryv Australia Acquisition on March 1, 2021, compared to the cash paid of $22.8 million in connection with the Vivial Acquisition on January 21, 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities decreased by $145.0 million, or 117.4%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily driven by net proceeds received from the Term Loan of $679.0 million and cash used to repay the remaining outstanding principal balance of the Senior Term Loan of $449.6 million, used to finance the Thryv Australia Acquisition and refinance the Senior Term Loan, during the six months ended June 30, 2021. This was partially offset by payments made on the Term Loan of $42.5 million during the six months ended June 30, 2022, compared to payments made on the Term Loan of $88.0 million during the six months ended June 30, 2021. The decrease was further offset by an increase in net proceeds from the ABL Facility of $37.9 million, as a result of lower proceeds of $57.3 million and lower payments of $95.2 million on the ABL Facility during the six months ended June 30, 2022.

Debt

Term Loan

On March 1, 2021, the Company entered into a Term Loan credit agreement (the “Term Loan”). The proceeds of the Term Loan were used to finance the Thryv Australia Acquisition, refinance in full the Company's existing term loan facility (the “Senior Term Loan”) and pay fees and expenses related to the Thryv Australia Acquisition and related financing.

The Term Loan established a senior secured term loan facility (the “Term Loan Facility”) in an aggregate principal amount equal to $700.0 million, of which 38.4% was held by related parties who were equity holders of the Company as of March 1, 2021. The Term Loan Facility matures on March 1, 2026 and borrowings under the Term Loan Facility bear interest at a fluctuating rate per annum equal to, at the Company’s option, LIBOR or a base rate, in each case, plus an applicable margin per annum equal to (i) 8.50% (for LIBOR loans) and (ii) 7.50% (for base rate loans). The Term Loan Facility requires mandatory amortization payments equal to $17.5 million per fiscal quarter. As of June 30, 2022, 7.4% of the Term Loan was held by related parties who were equity holders of the Company on that date.

ABL Facility

On March 1, 2021, the Company entered into an agreement to amend (the “ABL Amendment”) the June 30, 2017 ABL Facility (the “ABL Facility”). The ABL Amendment was entered into in order to permit the Senior Term Loan refinancing, the Thryv Australia Acquisition and make certain other changes to the ABL credit agreement, including, among others:

• revise the maximum revolver amount to $175.0 million;
• reduce the interest rate per annum to (i) 3-month LIBOR plus 3.00% for LIBOR loans and (ii) base rate plus 2.00% for base rate loans;
• reduce the commitment fee on undrawn amounts under the ABL Facility to 0.375%;
• extend the maturity date of the ABL Facility to the earlier of March 1, 2026 and 91 days prior to the stated maturity

date of the Term Loan Facility;

• add the Australian subsidiaries acquired pursuant to the Thryv Australia Acquisition as borrowers and guarantors, and establish an Australian borrowing base; and
• make certain other conforming changes consistent with the Term Loan Facility.

We maintain debt levels that we consider appropriate after evaluating a number of factors, including cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities), and overall cost of capital. Per the terms of the Term Loan Facility, payments of the Term Loan balance are determined by the Company's Excess Cash Flow (as defined within the Term Loan Facility). We are in compliance with all covenants under the Term Loan and ABL Facility as of June 30, 2022. We had total recorded debt outstanding of $539.2 million (net of $16.9 million of unamortized original issue discount (“OID”) and debt issuance cost) at June 30, 2022, which was comprised of amounts outstanding under our Term Loan of $499.5 million and ABL Facility of $56.6 million.

As of June 30, 2022, we had borrowing capacity of $76.2 million under the ABL Facility.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those described in our 2021 Form 10-K, under “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.”

Recent Accounting Pronouncements

For a description of accounting pronouncements recently adopted and issued, see “Part I, Item 1. Note 1, Description of Business and Summary of Significant Accounting Policies.”

Interest Rate Risk

As of June 30, 2022, we had total debt outstanding of $539.2 million (net of $16.9 million of unamortized OID and debt issuance costs), which was comprised of amounts outstanding under our Term Loan of $499.5 million and ABL Facility of $56.6 million. Substantially all this debt bears interest at floating rates. Changes in interest rates affect the interest expense we pay on our floating rate debt. A hypothetical 100 basis point increase in interest rates would increase our interest expense by approximately $5.6 million annually, based on the debt outstanding at June 30, 2022.

Foreign Exchange Currency Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the Australian dollar. Since we translate foreign currencies into U.S. dollars for financial reporting purposes, currency fluctuations can have an impact on our financial results.

We have experienced and will continue to experience fluctuations in our Net income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. We recognized immaterial amounts of foreign currency gains and losses in each of the periods presented. We have not hedged our foreign currency transactions to date. We are evaluating the costs and benefits of initiating a hedging program and may in the future hedge selected significant transactions denominated in currencies other than the U.S. dollar as we expand our international operations and our risk grows.

Acquisition

We are in the process of integrating Vivial, a marketing and advertising company that we acquired on January 21, 2022. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2022 excludes an assessment of the internal control over financial reporting related to the Vivial Acquisition. The Vivial Acquisition represented 9% and 8% of our consolidated revenue included in our consolidated financial statements for the three and six months ended June 30, 2022, respectively.

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.

Changes in Internal Control over Financial Reporting

We have completed one acquisition in the past 12 months. As part of our ongoing integration activities, we continue to implement our controls and procedures over the business we acquired and to augment our company-wide controls to reflect the risks inherent in our acquisition. Throughout the integration process, we monitor these efforts and take corrective action as needed to reinforce the application of our controls and procedures. Other than the foregoing, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.