Thryv Holdings, Inc. (THRY) Q4 2021 Earnings Report, Transcript and Summary

Good morning. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Thryv Q4 and Full Year 2021 Earnings Conference Call. [Operator Instructions] Thank you. Cameron Lazard, you may begin your conference.

Good morning and thank you for joining us for Thryv’s fourth quarter and full year 2021 financial results. With me on today’s call are Joe Walsh, Chairman and Chief Executive Officer and Paul Rouse, Chief Financial Officer. Before we begin, I would like to remind you that shortly before today’s call we issued a press release announcing our fourth quarter and full year 2021 financial results. We also published a Q4 earnings supplement on our website. I would like to remind listeners that some of the comments made on today’s call and some of the responses to your questions may contain forward-looking statements about the operations and future results of the company. These statements are subject to the risks and uncertainties described in the company’s earnings release, and other filings with SEC. Thryv has no obligation to update the information presented on the call. Also on today’s call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. Reconciliation of these measures to GAAP will be posted on our Investor Relations website at investor.thryv.com. With that introduction, I would like to turn the call over to Joe Walsh. Joe?

Thank you, Cameron and thank you all for joining us on the call today. I am pleased to report we finished the year on an exceptional note with revenue and EBITDA beating guidance. At the beginning of ‘21, I outlined a growth strategy for our SaaS business and additional areas of investment needed to scale the organization. Looking back, I am really proud of the Thrive organization and the way we executed and implemented those investments into product, into engineering and improving the product and the impact can be seen in the results. Let’s take a minute and just jump into the headlines. We grew total SaaS revenues for the fourth quarter by 36% and for the full year 32%. For context, we grew revenue in the SaaS segment 1% in ‘20. So from 1%, we jumped to 36%. So, really strong performance there. SaaS ending clients for the year, 46,000. So we ended the year with 46,000 SaaS customers, up 5%. So, there has been a lot of discussion about whether or not we can grow our subs, because we made such huge progress on ARPU this last year. I think in the year ahead, you are really going to see balance between ARPU growth and subscriber growth. And the fact that we expect that kind of 5% subscriber growth will accelerate to double-digits in the year ahead. In a minute here, Paul will walk you through the detailed numbers, but I would like to highlight some of the progress that we’ve made on some of our strategic priorities. Since the beginning I’ve been talking about this was the decade of SMB SaaS, but last decade was enterprises moving to the cloud, and this decade would be the decade of mom-and-pop and small businesses running their business on mobile devices. By the end of this decade, that will be just standard fare. And at the beginning of the decade for the most part, none of them were doing it. So, it will be a massive transition. And that move will actually be bigger than when enterprises went to the cloud, because there are so many more small businesses. And we have positioned Thryv over the last 7 years in pole position to lead that gigantic transition. So, this is a unstoppable mega trend that you are playing by investing in Thryv. Just from a macro basis, what we are seeing now is we are seeing small businesses that have been experimenting with perhaps a point solution or two or three become frustrated with logging in and out of all these things. The fact that the data doesn’t share, they don’t talk to each other, they got sticky notes everywhere. They have a hard time, including their employees to use these tools. And they are looking to move up-market to something that’s a more complete end-to-end client experience, an end-to-end solution. And that’s where Thryv sits in that aspirational spot. So as people sort of try a few of these little point solutions, little freemium tools, little odds and ends, and they realize that this is the way to go, I want to modernize. They sort of find their way moving up-market into a Thryv. Thryv is quite a bit more expensive than a lot of those little point solutions are out there. But it does so much more. It’s a more powerful tool. So increasingly, I am talking to customers just in the last couple of days, I have been doing calls into Australia speaking to customers in Melbourne and Sydney about their experience with Thryv so far. Yesterday, I spoke to a client who had been a pretty big MailChimp user. And she has upgraded now from MailChimp to Thryv and she has got so much more capability to do social posting, to setup automated messages to go out to our customers, to responding to her customers through the chat feature and she says, really pleased with the power of Thryv. And she knows it does even more things that she hasn’t accessed yet, but she is excited about the completeness of the solution. She doesn’t need to keep buying other software. And she had a pretty rigorous look to figure out what to use and concluded to go with Thryv. So, hearing that story more and more in the weekly customer conversations that I have, hearing people really beginning to take two or three point solutions and get them and go to Thryv. And I end up saving money when they make the transition. And they get a lot more power and a lot more capability. So, Thryv is an aspirational brand. It’s nowhere near as expensive as an enterprise tool like salesforce. It’s not even as expensive as a mid-enterprise tool like HubSpot, it’s more of a small business tool. But it’s a complete powerful tool. And it’s making a big difference for a lot of small businesses. So, by investing with us, you are playing in that macro trend, that small businesses are going to want to go with almost like a salesforce.com type of thing that a big company would do, they are going to want to do that more complete solution that they can share with their staff. And they can all communicate on that one tool. They can have a centralized inbox where all their messages flow in and it simplifies and organizes their lives, where they can do estimates, invoices, billing, payments. They can use ThryvPay, save on transaction fees. They can manage social media. They can even deal with ratings and reviews. And they can nurture their customers and keep in touch with them and remind them to come back all in one very simple tool. So, we have been recognized this year for a lot of innovation. The Google My Business, helping SMBs get found online. We have got a very deep integration there. So even though it’s software, it’s not advertising, because it’s so SEO-friendly, it works so well as Google My Business. It’s actually helping our customers get more leads, get more customers, which is an unexpected benefit, not necessarily the way we position it. We have launched the verticalized platforms with enhanced CRM, so ThryvHome, ThryvLegal, ThryvHealth. We are beginning to really customize products that once you come in and you tell us you are a roofer, you tell us you are a plumber, you tell us you are a lawyer, we begin to configure everything very quickly around what you are. So, it feels very bespoke for you. And that’s really helped with client satisfaction. And you can see it in the engagement right through the numbers, amazing. We have launched a lot of free online tools to just help businesses with lots of simple things, creating invoices, different – just different simple things. And that’s been a theater full driving new customers to our website, driving new leads in sort of a free content marketing play, it’s very powerful. We have really focused also on faster implementation and getting people to value very quickly. That has been challenging, but amazing results that our team have done. And that’s just shortening up the time from when you realize you want to do this when you are getting value from the software. And we are seeing that in higher engagement and lower churn right through. We have got some external recognition this year, G2Crowd, Capterra and the APPEALIE Awards recognized the Thryv product as number one in a number of categories were placed very highly, really external recognition about what a consumer grade, easy to adopt, easy to use tool this is. Our fast time to value is how good value for money is. And I would invite any of the listeners here to go to these review sites and read the reviews on Thryv. They are outstanding. And we have made such incredible progress here in this process. ThryvPay did north of $60 million in payment volume and has now become the most popular choice of all the payment tools that are available. And we are sort of switcher and we operate with everybody – we interoperate with everybody, so you can bring whatever tool you are using when you come on to Thryv, but lots of people then switch to ThryvPay along the way to save on fees, to recapture convenience fees from customers. And because it has a lot of small business friendly elements to it that allow you to setup the current payments and appointments and classes and lots of things that we’ve custom-built for the clients that we actually serve. So, interestingly, 70% of our clients coming in now are new to the company. And I know we talk a lot about hunting in the zoo, working with our standing base. And that’s still producing about a third of all of our customers. But there is a subtle nuance here. And that’s because we have made so much progress with client satisfaction, engagement and usage, we are now getting loads of referrals from those clients. So, they are actually bringing up there their business adviser and saying, I want you to talk to my friend, he needs help like this. And so that’s really driving that, that sort of referral is driving a lot of the growth that we are seeing. A third or so of our customers are coming from our new channels, the actual inbound marketing and some of those other new areas that we have spoken some about. And as I mentioned earlier, we are seeing subscriber growth accelerate now as we sort of outrun the lower priced offerings we had a few years ago. Retention, we are seeing right now, season churn is 1.5%. 1.5% season churn, so that if we are really proud of that, we think that’s sort of world’s best when you are dealing with very small businesses. Our season net dollar retention is now 94%, which is strongly better than the prior year. And we are continuing to see progress there. It’s not a straight line, because of different anomalies in the customer set, but we have been asked many times do you think you can get to 100% net dollar retention. And we really do. We don’t think it’s a one quarter or two quarter journey, we think it will take a little while, because we are dealing with very small businesses. But we have lots of additional product offerings coming on our product roadmap that will continue to propel that net dollar retention and customer ARPU increases. So, we are highly confident that this is a hundred cents on the dollar type of churn. I’d like to just talk about engagement for a minute. Time in the app, year-on-year is up. User frequency is up. Clients using multiple features is up at CRM, Inbox, Scheduler, social post, sales module are all up. App downloads and installs have doubled. I’d like to turn now to an update on our Sensis acquisition. We now call this Thryv Australia. The focus with Sensis in this first half the year or so was to really focus on client engagement, getting customers betted down, getting them using the product, getting them happy with the product. And we have hundreds and hundreds of customers that are dishing out referrals now and happy about the onboarding experience and the difference that we are making in their business. I think it bodes well. It kind of gives us a broad clean foundation to really accelerate growth. And I think one of the things you will see if you watch ‘22 is you’ll see the Sensis acquisition really come on stream as a source of subscriber ads and revenue growth. So, really excited about that. Finally, I’d like to talk about a small acquisition that we made recently. We acquired a company called Vivial Holdings. Vivial is a marketing services company that publishes directories. It was sort of the last bit of the telephone company, Yellow Pages’ ecosystem that we needed to fill in, that we needed to cover. And it brings us Hawaii, Alaska, Rochester, Cincinnati, some markets that the fire companies that we acquired did not cover. While we do have some customers in those areas, we didn’t have much customer density there. So, this brings us 25,000 digital clients that we can now penetrate with our SaaS offering. It sort of expands the zoo, if you will, we pay $21 million. We used available cash to fund the acquisition. We didn’t borrow or go out and do anything big here, very simple deal. And in terms of the discipline that we always talk about when we make this type of acquisition, we have said that we would be approximately 2x EBITDA on a post-synergy basis. And this one is true to that as well. As I mentioned, it just closed in January. So, integration process is getting cranked up and underway. We are getting everything setup so that they can begin to offer the Thryv solution to their customer base and that will actually begin to flatter our numbers as this year unfolds. so really excited about the progress that we are making in the business. This Vivial acquisition synergistically fits perfectly onto the Thryv platform here in the US. So I am really, really pleased about that and anxious to turn this over to Paul Rouse. Let me give you a run through the financials. Paul?

Thank you, Joe. Let’s turn to our fourth quarter and full year 2021 financial results. I will first cover our U.S. business segment starting with SaaS. Fourth quarter U.S. SaaS revenue was $47.1 million, an increase of 35% year-over-year. For the full year, SaaS revenue was $170.5 million, an increase of 31% year over year and ahead of our guidance. When adding the contribution of revenue from Thryv International, SaaS revenue increased 36% year-over-year in the quarter and 32% year-over-year for the full year. Fourth quarter U.S. SaaS EBITDA loss was $6.7 million and within our expected guidance range. For the full year, U.S. SaaS EBITDA loss was $14 million, representing a negative EBITDA margin of 8%. Total SaaS ARPU was $351 for the fourth quarter, an increase of 20% year-over-year. Total SaaS clients ended at 46,000 for the fourth quarter, an increase of 5% year-over-year. Fourth quarter seasoned SaaS churn was 1.5%, a 60 basis point improvement year-over-year and a 20 basis point improvement sequentially. Seasoned net dollar retention reached 94% for the quarter, a 400 basis point improvement year-over-year. As a reminder, seasoned churn and seasoned net dollar retention represents clients that have been with us for over 1 year. Moving over to U.S. marketing services, fourth quarter revenue was $153.5 million. As we discussed on prior calls, there is lumpiness in the print publication schedule. We expected lower revenues associated with fewer print publications. For the full year, U.S. marketing services revenue was $797.5 million, a decrease of 19% year-over-year and ahead of our guidance. Fourth quarter U.S. marketing services EBITDA margin was 26.5%. For the full year, U.S. marketing services EBITDA margin was 40%, representing a 330 basis point improvement when compared to our prior year. That improvement in margin is due to a shift in higher margin offerings within our marketing services product mix. Fourth quarter, U.S. marketing services billings were $181 million, a decrease of 22% year-over-year and consistent with previous quarters. Full year, U.S. marketing services billings were $797 million, a decrease of 21% year-over-year. As is consistent with previous calls, we are providing billings an additional operational metric to give our investors better insight into our operational performance. The billings data will show a very consistent and steady decline in our marketing services segment, which is shown to be lumpier on an accounting basis given the 15-month lifecycle of our print directories. This is provided in our fourth quarter investor supplement available on our Investor Relations website. Moving on to Thryv International. Fourth quarter Thryv International revenue was AUD60 million and ahead of our guidance. On a reported basis, given the effect of FX rates, Thryv International revenue was $43.8 million. Thryv International fourth quarter EBITDA margin was 28.5%. For the full year, Thryv International EBITDA margin was 31.8%. On a pro forma basis and backing out acquisition accounting adjustments, EBITDA margins would have been 38% for 2021. Turning now to profitability for the consolidated business, fourth quarter adjusted gross margin was 66.1% for the consolidated business, a 160 basis point improvement year-over-year. For the full year, adjusted gross margin was 68.2%, a 130 basis point improvement year-over-year. Fourth quarter adjusted EBITDA was $46.5 million, representing an adjusted EBITDA margin of 19%. For the full year, adjusted EBITDA was $350.5 million, representing an adjusted EBITDA margin of 31%. Finally, on capital allocation, we repaid $17.5 million of our new term loan in the fourth quarter, which brings our cumulative new term loan repayment to $158 million since the refinance associated with our Sensis Holdings acquisition in March. Our leverage ratio for the fourth quarter in accordance with our credit facility is 1.4x our net debt to EBITDA. In addition to the progress we made on our long-term debt, we have made significant progress in reducing our pension liability over the course of 2021. Our pension liability has been reduced by $51 million and our funded status improved 600 basis points to 76%. We will continue to evaluate our net pension obligations each quarter. Let’s talk about guidance for 2022. As an update, we will continue to report each segment: SaaS, marketing services and Thryv International. However, going forward, we will provide outlook for total SaaS and total marketing services, which includes both domestic and international operations. This should be helpful in modeling the business. Okay. Now, let’s talk about our outlook for 2022. For the full year 2022, we expect total SaaS revenue in the range of $206 million to $208 million, representing growth of 20% to 22% year-over-year and an EBITDA loss in the range of $21 million to $25 million. For the full year 2022, we expect total marketing services revenue in the range of $870 million to $890 million and EBITDA in the range of $305 million to $312 million, representing an EBITDA margin of 35%. We expect Australia to contribute approximately $160 million to $165 million in revenue and expect an average FX rate for Australia of AUD0.73 to the U.S. dollar. As Joe alluded to earlier, we closed the Vivial transaction in January. We expect Vivial to contribute approximately $70 million to $75 million on a full year basis and will represent a headwind of approximately 200 basis points to total marketing services EBITDA in 2022. Consistent with previous calls, we will provide quarterly ranges for marketing services revenue for the remainder of the year, which can be found in our fourth quarter investor supplement materials on our website. We provide these figures because sales canvas process allows for strong visibility into future revenues and because print publication timing is not generally consistent quarter to quarter. Now, I will turn the call back over to Joe.

Thank you, Paul. So, as you can see we are really proud of ‘21. We made a lot of key investments that paid off beautifully during ‘21 and that growth carries through to ’22 and will benefit mightily from the stance that our board is authorized to be more on a growth footing as we go into ‘22. I think we can deliver durable, SaaS growth. The investments in engineering, product, international expansion and go-to-market are driving growth on more and more vectors, were hitting on more and more cylinders as we move forward here. And I think we are doing a really good job of balancing the tension between delivering profitability and staying on top of this unstoppable trend that I have been describing today. We are very familiar with the kind of the Rule of 40. And you will know that this business in the second quarter of 2020 was delivering in the team’s EBITDA margins. So it’s really a fairly recent choice that we’ve made the step on the gas and accelerate that investment. So, our path back to profitability is crystal clear. We can just sort of let up a little bit on how fast we are investing in that international expansion and some of the engineering things that we are doing and return to profitability and delivering 20% of the EBITDA line and 20% growth is not out of reach at all for us. We have chosen to really stay on top of this, because we see this unstoppable trend that we really feel that we can ride. So, the path to profitability is crystal clear for the company. We got an Investor Day coming up in early April. Registration materials are on our website. This event will be focused on the long-term. We are going to be looking at the decade of SMB SaaS, talking about how Thryv will lead small businesses in the U.S. and around the world on to the Thryv platform and then add interconnectivity with lots of other tools and functions that are out there. So that you can really live in your Thryv and run a small business, reach in your pocket, manage your business from your pocket. And we think that, that is where the marketplace is going. And we are out in front of it. We are in pole position to lead that. We are also going to talk about our marketing services business and how it evolves over the balance of the decade and how the interplay between the two companies work. Make no mistake these two businesses belong together, they are benefiting mightily by being together. So we will talk about that and layout our strategy and our thinking. So with that, let me turn it back to the operator.

Thank you. [Operator Instructions] Your first question today comes from the line of Arjun Bhatia with William Blair. Your line is now open.

Perfect. Thank you for taking my questions. Joe, you mentioned and I saw the slide deck in the presentation about all the awards you received for your SaaS platform in 2021. There is G2, Capterra, many others. I am curious what role you are seeing that playing in just building brand awareness for Thryv SaaS solutions? And then for the new customers that you are attracting to the platform, do you have a sense for how much of that is competitive consolidation meaning they are using a SaaS solution already and they want a more full platform that they are getting with Thryv versus a greenfield opportunity where customers are adopting real software solutions for the first time?

Thanks, Arjun. It’s kind of a mix. I am starting with the second part of your question. We are still everyday bringing a lot of unclouded into the cloud for the first time. These tend to be a lot of our service-based customers, maybe people who are very skilled at their craft or their industry, but didn’t have super high educational attainment and maybe weren’t thinking about modernizing and our business advisor working with them on their advertising, their marketing services stuff has been suggesting that they solve some of their business problems using Thryv software perhaps for a couple of years and they are moving over. And so a lot of times, we are introducing people to the potential of what’s possible in the cloud. And I would say that’s still the majority of customer acquisition. But increasingly, we are finding people who have started to use the point solutions, particularly the ones that come in through our websites. Your first question was, does winning these awards help us at all? And what we are seeing as a company is very strong growth in our organic traffic coming into our websites and that’s people hearing about us in the market, that’s people maybe looking at the reviews, that’s people that are beginning to source something like this. And it’s nice, because it’s – you are not out advertising to get them, they are just sort of coming to you organically, which is really nice. One other area, I just want to highlight that I don’t know that a lot of our investors have thought about, but because we sometimes talk about serving our standing accounts as hunting in the zoo, calling on our friends, there is one piece that is just really impressive to me that just keeps growing. And that’s the amount of new business that’s coming from that base. Meaning they are referring their friends to us. So the guy is out on his Saturday morning golf group and his buddies complaining about how difficult social media is and how, he is struggling to try to figure out digital or electronic payments or whatever. And they are strolling down the fairway and the guy says, well, I am using Thryv, I should introduce you to my business advisor, who could help you with that. And we are getting about a third of all of our business coming in. It’s coming in from that referral out of that base. And it’s growing. It’s growing really nicely. So I think just to sum up the answer to your question, the awards are just a telltale piece of the reputation that’s growing around Thryv. And I think you asked how many people are coming from other software solutions. That was a tiny, tiny trickle a year ago. We are seeing it a little bit more now, where people have maybe experimented with a point solution and are now moving up to a more complete kind of small business enterprise wide thing sort of like a little salesforce.com for a small business where they are able to do a lot of things under one login. And they can share login credentials or provide a login credential to their staff and they can all communicate and see the same details about their customers. So yes, I think the awards are helping.

Awesome. That’s very helpful. And then just one follow-up for me on the SaaS guidance, it seems like the numbers imply there is going to be a pickup in net revenue added in the in the back half of the year at least in the last three quarters of the year. I am curious is that – are you seeing international in Australia and Vivial start to layer in the back half of the year? Are there other drivers that we should be thinking about that will come after Q1 in the SaaS business that we should consider when we are thinking about how the year unfolds?

Yes. You are leading the witness. That’s exactly – you got it exactly right. Australia is really beginning to hit Thryv. We were very careful to make sure that we got high engagement and happy good users established there last year and we are beginning to really accelerate now the growth there. And we are hunting at a very big zoo, it’s a large customer base there. We have – the company that we bought Sensis was more than 100 years old, an iconic brand and the trusted company within that market. So, it allowed us to become big and important there right away. So, we wanted to really tread lightly and be absolutely sure that everything worked and worked well in that market. And so yes, we anticipate that accelerating through the year. We are seeing it as we speak. And I was looking at this morning sales report from the overnight there, Australia, another really good day yesterday. It’s accelerating nicely. That’s one piece. Vivial, we only just acquired. So, if any benefit we get from that will be in the second half as we get everything wired up, get everybody trained and get going on that. So that will be a list in the second half. And you are I think aware that, we have been building a franchise multi-location product, hub for franchise, and we’ve been building out that functionality. And for 2 years, we couldn’t go to franchise shows. And that’s really the heart and soul of the franchise business is going to these big franchise shows and conferences. There was one weekend before last in San Diego. And we were there and we were there with a booth and we were there in spades, with meeting lots of people. And if that business is really beginning to develop, now that it’s come back online in-person. And we have got a pretty big reputation within franchise. I just on Monday was checking in with a 48 location franchise company that joined us last year. And he has got very clear plans to grow his franchise operation to 100 locations over the next couple of years. And after an exhaustive search, they looked at a dozen different platforms. They selected Thryv as their sort of operating system that they are going to use. And this guy couldn’t be anymore happy with the onboarding process and the services he has been getting. And he and I discussed a couple of things that he has got suggestions that we are working on for him. And he was really happy with how that’s going. And what’s exciting about that is that these franchises typically sign up for 3-year contracts with us and they escalate on their own. I mean, talk about NVR, I mean, this guy, he realizes his plans is going to more than double the size of his relationship with us over that period of time. So, that’s been a big part. So in terms of kind of growth vectors, you threw out a couple of them that still – and those are going really, really well. And we have also been innovating our local sales channel. We have extended the life of our print directories out a little further, which has created even more selling time for our local sales force. We have been introducing some other innovations in how we sell and how we work, so that productivity on a per BA basis, per business advisor basis, has been steadily rising. So, as we implement the balance of that plan, we see that continuing to accelerate through the year. So really, I wish everything would happen instantly, but it kind of takes time when you are developing some of these things. And we see them continuing to grow through the year. So, thanks for that question.

Perfect. Thank you, Joe and great job on the quarter.

Thank you.

Your next question comes from the line of Scott Berg with Needham. Your line is now open.

Hi, everyone. Congrats on the good quarter. I guess two questions for me. Let’s start off with the year ahead here, Joe. Talked about your SaaS subscriber growth of 5% in the fourth quarter and you expect it to increase to a double-digit level here in calendar ‘22. How much of that kind of increase or shift do you think is related from some of the smaller marketing – excuse me, smaller SaaS customers that churn starting to kind of peak and get in the background versus your increase in sales and marketing efforts over the last year just driving that net new customer increase higher?

I think there is some of each. I mean, as many of you are aware, we, now several years ago at this point, experimented with a lighter version of Thryv offering at a lower price point, with a kind of sign-up by yourself motion online. And it did bring us a bunch of customers. But it also brought us unengaged customers and churn we didn’t want. And we just really came to the conclusion, that’s not where we want to be in the market. It would be like selling an iPhone for $200, we just didn’t want to do that. This is an aspirational product. It’s by far the highest quality product in the market. It’s the iPhone Pro in the market. It’s a really, really high-end high-quality product. So we decided to just nip that in the bud after that experiment. And we took it out and sent out now for quite a while. But the bulge of customers that have brought us took a while to kind of churn off. And we have been in the prior couple of years kind of running on a treadmill, where we would add a $349 subscriber and lose three of the $99 month guys. And we were probably a little bit ahead on money, but it looked like we were going backwards in terms of subscribers. And so that’s mostly done now. And so part of what you are seeing in the subscriber acceleration is just we are not running on that treadmill anymore. I am not saying there aren’t a handful still rolling off, but for the most part that’s out of the numbers. So that’s a piece of it. And that’s a piece of why, in the second half of the year, you saw it getting stronger and stronger. And then the other piece is, as you say, we have been building a more robust, dedicated sales motion around this product. And I know I said it a minute ago, but I want to get props to our very large local sales force, they have really innovated and really figured out how to increase productivity on a per business advisor basis, very steadily. I mean, year-over-year almost quarter-over-quarter, they have been expanding their sales throughput. And that’s continuing to happen. And the innovation in the marketing services business, we have extended the life of our print directories. They used to be 15-month publications. They are now 18-month publications. And that extra time gives a lot of open real estate we call it kind of opportunity zones for our reps to really focus more on the SaaS products. So, between that and the other innovations that they have done, we are getting more productivity there. So, we are quite confident that you will see a desirable blend of subscriber growth and ARPU expansion this year. We were asked more times than I can count last year, what we see that you are expanding ARPU, what we see your revenues growing very nicely, but we are worried that it’s coming from the same size base and you can’t sustain that. And we of course realized that and are working very hard here in the U.S. to grow our subscriber base. In addition to that, we are expanding internationally. We are obviously in Australia. We just entered Canada. And we have designs on additional markets and where there is a lot of investment going into building international, because those markets need Thryv as well.

Super helpful there, Joe. And then from a follow-up question perspective is on ThryvPay. I believe you’ve had the product in the market a little bit more than a year now. How should we think about the traction in the product? Obviously, more customers are using it than when it first got launched, but if we think about, I don’t know ticket sizes or frequency of use on a per customer basis. Any other details are on some of the maybe underlying trends or traction in that solution that you are seeing that might be helpful to us? Thank you.

Sure. Yes, it’s continuing to just melt up in a relatively steady way. As we – I think talked about before, it’s not – these are not like buy a pack of gums and some cigarettes kind of transactions, these are more kind of $400 a month transactions on average. So these are people get getting a deposit for a kitchen remodel and they are running $1,500 or $2,000 through it or a plumber coming out to pop a new hot water heater in for you and you paying over ThryvPay. It’s that kind of stuff. These are good sized transactions. And we are seeing the number of transactions steadily and slowly rise and we are seeing the number of merchants signed up and actively using it steadily rise. The one area that has been a little more treacherous and we have gone a little more slowly with ThryvPay Premium meaning you can go get ThryvPay in the App Store either Google Play or iPhone App Store and download it and sign up and begin to use it. We have had to go really slowly and really carefully there, just to avoid any kind of fraud or any kind of problems. And that’s been – we kind of thought before we started into it that we would be able to really ramp that quickly. And we have decided and we have ended up realizing that it needs to ramp a little more slowly, but it is ramping. And in rough terms, the volume that we saw in ‘21 coming over the transom on ThryvPay in very broad strokes will double at least going into ‘22 just based on the trends that we are seeing. And the gradual but steady uptake of ThryvPay Premium, which we think is a little bit of a Trojan horse help us meet new customers that will eventually buy the broader Thryv solutions. So, ThryvPay is a big, big positive for us and something that we are really excited about. We don’t make very much on the revenue. I don’t want to get too excited that if there is a $100 million plus on revenue, what does that pencil out to? We are really doing it as a convenience for our customers as a lock in. When your software is paying you, you don’t tend to churn. You just don’t. So – but ThryvPay is a big strength for us.

Great. Thanks for taking my questions. Congrats again.

Thank you.

Your next question comes from the line of Daniel Moore with CJS Securities. Your line is now open.

Good morning, Joe and Paul, and thanks for the detail and taking the questions. Maybe digging into the SaaS growth guide a little bit for ‘22. I think you mentioned double-digit client growth. Maybe just talk a little bit more about your expectations, both for ARPU growth and client growth. And what’s embedded on the SaaS side in Australia. If it’s somewhere in the deck, and I missed it, I apologize, but just trying to tease that out a little bit more. Thanks.

Yes. I don’t want people to think Australia is the same size as the United States. It’s more like the same size as Texas. I mean, it’s going to be an important growth driver for us this year. But it’s not like a whole another U.S. coming on stream or something like that. So, they are growing, they are growing nicely, and they are going to really flatter our growth because their comp for last year is so small. So, it will be very important. Back to your question about, how we see ARPU and sub growth working together. There is a lot of momentum and a lot of rise in the ARPU growth is going to continue to rise. I think I have mentioned before, if you look at like a HubSpot, that’s above us in the market, they get about $11,000 per subscriber per year. We are at four. There is a long gap between there. We have a roadmap with additional products coming. We have an Investor Day coming up in April, we are going to share some of that that we believe will continue to propel ARPU up. And our current offering even before we add anything, we see customers coming in at the entry level is kind of a good better, best construct here. And they often pretty quickly upgrade themselves to higher levels of Thryv. There are so many Thryv’s add-ons that we are able to offer them. And we see people self upgrading to those add-ons, which is pretty exciting. And then of course we have a monetization team who is actually teaching, coaching, showing people how to use more aspects of the software. And they tend to take a lot of orders to upgrades, too. So, the general upgrade motion and momentum is very much underway and building. And the big ARPU gains that you saw over the last most recent periods, part of that came from burning off those lower value ones I mentioned in the earlier part of the call, maybe a $99 customer going away replaced by a $349, that’s going to move your ARPU up. As I mentioned, that trend is mostly behind us, now we are looking at more just genuine people upgrading. As you see us integrate these acquisitions, the Sensis acquisition, the Vivial acquisition. They had various digital product offerings, some of which we have been mapping over to our products. And we will be doing some migration bringing some of those customers over. And depending on how all this plays out, still early days, but that could end up adding a few subscribers that are less than the full rate card as we are trying to kind of offer them the migration and kind of finding a way to map them over. And so, ARPU may not just go straight up on a rocket ship straight line, if we add a little burst of some lower value ones or something. But these are not – we are never ever going to offer the product like we did have a stripped down lower price version, to be more just finite groups of people as we are integrating these products together. So, I wouldn’t be surprised if ARPU doesn’t go in a perfect straight line, it might be a little bit bumpy as we saw some of these customers. But I think overall for the year, you will see a nice kind of two-horse race there of subscriber growth into the double digits, and ARPU continuing to move forward so that it will drive up to that 20% plus growth that we are guiding to.

Very helpful. And I think you partially answered my next, which was just in terms of globally thinking about SaaS pricing. Do you see opportunities to take pricing, given that big gap between yourselves and HubSpot to the world, or is it more likely to come through additional functionality as we move forward?

I think it’s more additional functionality and add-on sales. I will concede to you, as our investors here. There is a little bit of unbundling going on, right. When we started, we sort of put the kitchen sink and made that sale. And as time is going by, there is sort of a very subtle unbundling going on. And that unbundling has the effect of driving ARPU and driving rate, even though the basic prices of the Thryv offerings, $199, $349 and $499 have been the same for quite a while. We haven’t been imputing a rate up into that. One of the things we are really proud of is we think we have world’s best churn. When you look at feeling in the very small business sector, we don’t have any big companies at all in our base. This is all very small businesses. And our season churn is 1.5%, which we have never seen anything like this. We have looked and talked to everybody we possibly can. And that’s been our focus is just not just serving, but literally thrilling one customer at a time. And they become now sources, referrals, and are a big source of the melting up growth that we are seeing. So, we aren’t anxious to take the base prices and just start jacking them up, which is not to say we never would, we just – I mentioned before, we are an aspirational brand in the market. We are quite a bit more expensive than a lot of these other point solutions. And the point solution providers sort of exaggerate the capabilities what they have a lot of time, and try to make it sound like it was just like we do advise even though maybe they do 120 out there or 220, so that drives that. And so we are conscious that it’s competitive market and in such a – with so much liquidity in the market you have got a lot of money out there, financing, all kinds of deals, we want to ensure that we remain really competitive. So, we have decided at least up until now, not to raise the base rates. But there is very strong rate coming through that unbundling and the sort of the up-sell motion that you see.

Really helpful. Last, just a quick clarification that I was listening and typing, but Vivial $70 million, $75 million of revenue, did I hear that correctly? And what was the projected EBITDA for 2022? And those are not included in your marketing services in EBITDA guidance, I assume, just want to verify that. Thank you.

Yes. Well, as we have said, we paid $21 million for it. We have been honest about that, it’s only about that. And we told you that we like to bring these acquisitions in on a two times post synergy basis. So, for 2022, you don’t get a full year of the deal, because we bought it at the end of January. So, it’s sort of like $0.11, so it’s not a perfect math. Otherwise, you could take, kind of $0.10 or $0.105 divided into year ‘21. And you would be all done. It’s more like kind of $0.08 or $0.09 that it will be for the year, because it’s just a sort of a partial year. But and yes, you had the revenue, right. We think it will bring up I forget the precise number, but right around there $70 million, $75 million in revenue this year.

Alright. That’s helpful. I will follow-up with any others. Thank you.

Okay. Thanks.

Your next question comes from a line of Zach Cummings with B. Riley Securities. Your line is now open.

Hi, good morning, Paul and Joe. Thanks for taking my questions and congrats on the solid end of the year. Joe, can you talk a little bit more about some of the plans, SaaS investments that you are making this year? I mean, obviously, you are continuing to still lean into the momentum that you are seeing on that side of the business?

Yes. One of the things that you will notice if you really study the numbers is a little front loaded the way we made the investments. We are really putting a lot into engineering and products and trying to get some of these things done quickly and early. Some of the integrations that we have come up with that makes the product much easier to adopt and use. You meet a customer and he says, “Well, I am on this point solution.” And you are able to say, “Oh, no problem, we integrate with that.” It’s really, really makes the conversation flow from there, because I don’t know if you know this, but small businesses hate data entry, they don’t do data entry. So, when they hear that the two tools just connect to an API, and integrate, it makes adaption snaps. So, that’s been really good. So, it is a little front loaded. We also – I am not going to make any secret of it. We are working hard at international expansion at the moment. And so there is some engineering things that we need to do, there is GDPR compliance that we need to do. There is a lot of things that we are working on, that we kind of front loaded a little bit into the year. So, I think most of you are aware that this is a fully scaled already profitable SaaS company. We have just made a recent choice to step up investment that’s pushed it into a small EBITDA loss, which is no big work, because we are making $300 million plus on the other side of the house, it’s just the choice. So, we have to have even if you look at this year, by the time you get to the back half of the year, losses in the final quarters will be very small, because we kind of front loaded it. So basically, those are the areas, products and engineering, international, a little bit on go-to-market. There were some things we need to set up and to do that we kind of pulled it in the front part of the year, so we get the benefit of the whole year. That’s your answer.

Understood, that’s helpful and nice to see the strong SaaS guidance especially in the current market environment comping a pretty tough year from 2021. But just given the current environment with some of the inflation numbers, have you seen this impacting any of your customers in terms of sentiment or willingness to spend in the current environment?

Look, sales are very good at the moment. I have just – first thing I do every morning is I get up and look at the volumes from the prior day, which I get early in the morning and I have already gone through them today and we had another really great day yesterday. So, we are building momentum beautifully. But I talk to customers every week, it’s a part of my week, every week, just have a free flowing chat with our customers and I never stopped, most of my other executives do the same thing, just trying to stay really close to our customers. And we spend time talking to our business advisors about what they are hearing, and what they are seeing. We are not getting this from reports, which is the reason of live conversations we are having with people. And I hear gas prices being brought up by a lot of people that have trucks on the road, because they are sort of freaking out that rates are going up, and one only needs to turn on the news and see that they are going to stay up for a while. And so that’s got people just grousing and uncomfortable. Supply chain issues have caused a lot of the contractors just try to get a sub-zero refrigerator right now. It’s like 11 months late or something like that, or any kind of other, no fancy or custom things. It’s just really tough to get things to supply chain. And that’s something that we constantly hear. The great resignation, we hear a lot about, people have a tough time right now, keeping their staff and are having a tough time attracting employees. And so we hear a lot about that. Well, we don’t hear curiously, is people complaining that they don’t have enough work, they are getting jobs or getting calls or getting sales. It’s more fulfilling it, that’s the hard part. They feel a bit of a squeeze. So, I would say, in my little survey, which is ever ongoing, talking to these local businesses, small business sentiment is medium at the moment, not terrible. But it’s certainly not great. It’s not as good as it was at points over the last year. And we took all that into account, when we guided the way we got it, we want to – we take very, very seriously the promises that we make, to our investors. This is not my first public company experience or Paul had spend a lot of time making sure that we can fully deliver on the commitments that we make. So, yes, we took all that into account when we set dimes where we did.

Understood, it’s helpful. And Paul, for my last question, in terms of capital allocation, how are you thinking about free cash flow generation and potentially using that excess cash for either debt pay-down versus additional M&A?

We get this question just about every call. Right now, we are focused on paying down the debt as rapidly as possible. If we happen to come across another Vivial where it’s very attractive, but we consider that absolutely. But at the moment, we are going to be focused on debt repayment.

Understood, that’s helpful color. Thanks for taking my questions. And best of luck in the quarter head.

If you don’t mind, I would like to just expand on that just a little bit, I think might be helpful for the broader audience. I want to be clear that acquisitions are not our plans. We feel like we can accomplish the entire mission here without acquisitions. We have an organic plan to grow around the world and build our SaaS business. I would describe acquisition for us as more opportunistic, if we can get them in call strike zones, which costs cheap by the way, if we can get them in strike zones, then we do it. And we had actually been talking with Vivial about this combination for 6 years, 6 years. And they just finally decided that it made sense to do it at a price that we could do it. So, we have such conversations going on all the time. We are pretty active out there. But I just want to be clear, don’t take this away that there was a roll up or that they are going to just make one acquisition after the next. It’s been a year since we made an acquisition, Sensis. And it might be a year or more before we make another one. We are not spending all of our time looking at deals. We are planning to grow our business organically. We have the engineering talent to develop our software the way we want. And we feel confident that we can expand and we have figured out how to do that without acquisition. So, if you hear us talking about an acquisition, it will be because it hit our very disciplined strike zone.

Your last question today comes from the line of Shrenik Kothari with Baird. Your line is now open.

Hey, good morning, Joe and Paul. This is Shrenik on for Rob. Great quarter and exciting shift towards subscriber growth versus just ARPU as the growth lever. I think you have said 70% of your clients coming in are new company and an inbound marketing partner, etcetera and new channels contributing about one-third, if I caught that right up nicely from about 15% or so, sometime back, if I recall that right. So, if we can speak to the mix of that growth as a percentage and a little more granularity in terms of partners, we sell those franchisee channels, inbound marketing and referrals? That would be great.

Yes. I don’t know that I have lots of really specific details for you. I don’t know, Paul, if you or Cameron, any other guys there have that. And I can speak actually to what we are doing. But I don’t know that I can parse that into specific little pieces for you. I don’t have it really, our franchise motion is building beautifully. And they have already signed up in ‘22, more than they did in ‘21. I mean they are they are rocket. And as I have said, we kind of finally let them out of their home offices get out and see people. And it’s made a really, really big difference. And yes, our partner and affiliate network is building and we are seeing that we have a lot of optimism about that. And I have talked about this before our inbound motion is just really boring, sorry and bouncing, if you are listening. It’s just one foot in front of the other. Every quarter, we add a few more leads to the top of the funnel. Every quarter, we add a few more SDRs and people talk to them. And every quarter, we close a few more. It’s really, really boring. We are just one step at a time. And you might say, well, Joe, why don’t you go faster and that’s because it would get inefficient really quickly, if we went faster. We kind of cannot run our supply line. We cannot run the rate at which we are growing organic traffic, because you have a really strong mix of organic traffic into the lead flow, or your cost of acquisition to lifetime value start getting out of whack. And that’s the reason we just don’t go straight up with this thing, because we would be like a lot of other software companies that we have seen that every new dollar revenue costs them the dollar, which seems like madness. So, we are allowing that to bubble up at a rate that we feel comfortable with. And I would say the blend between those three things. It’s really a nice blend. And each has slightly different economics. But overall they fit beautifully into our plans.

Got it. Thanks a lot, Joe, really helpful. And then one quick one for Paul, maybe I think you have talked about the strategic investment and go-to-market in the deck and the call. So, in the context of the medium-term EBITDA margin target just set out looks like low-mid teens. What timeline should we be thinking of as of now, just your color there.

I am sorry, you want more clarity on what the…?

On the timelines around the medium-term EBITDA margin target that you set out in the Analyst Day, like just some rough ballpark timelines?

I think Paul drilling in on the SaaS piece of it when we are going to allow it to pop back to profitability. And I will let you talk them out, trample on you but I just want to be clear to the group here. It’s just a choice that we make. We sit in the room with our Board, and we decide, what we want to invest. If we were to decide that we wanted EBITDA profitability within a quarter or two quarters, we could be back delivering in the teens EBITDA margin. This is the underlying – software business is currently fully scaled, and fully profitable. We are just taking advantage of the fact that we make so much money on the marketing services side and we have a lot of flexibility in our capital allocation and debt structure to choose, to take $25 million or $26 million and put it on international expansion and faster growth process. We are not diluting our shareholders by raising new equity. We are not doing round a, round b, round c. We are not doing any of that stuff. This is just us deciding just to benefit from these two attached businesses. And if for any reason, we decided that what we – it’s very important that we run this at a breakeven or a profit, we can just slowdown a little bit how fast we are pushing the international envelopes, or how fast we are pushing the product roadmap and allow that profitability to come through. So, I want to be clear, it’s a choice. Right now, we haven’t constructed a plan that says, we are going to – we are going to switch to more of a profit footing. We are kind of taking it 1 year at a time with our Board. And our Board was really very, very happy with what we were able to do last year. They gave us a very, modest little investment. And we turn that into an ROI, return on investment that was extraordinary, to the point during the year that we are going, well, could you invest more, and we put a little bit more in. And that was the backdrop for ‘22 was, we were keeping losses at about the same level as last year as a percentage, comes with a little bit more as absolute dollars, because the company is bigger. But I just want to be clear, this is not a money losing business that we could find a way to get a tourniquet on. These are considered investments one at a time that we are making on a profitable business. So Paul, I didn’t mean to trample on your answer. But if you have more to add, you can I just – I wanted to make sure we are clear about that.

Thanks, Joe. That definitely makes sense. Appreciate the color and you had a great quarter again. Thanks.

Thank you.

This concludes our Q&A, as well as our conference for today. Thank you all for attending.

I am just going to make – yes, I was just going to make a wrap up comment or two. And then we will break away here. So, we believe that this is the decade of SMB SaaS. We think that last decade, enterprises move to the cloud and small businesses kept doing things the way they had in the past. This decade, we think SMBs will move to the cloud, by the balance – by the end of the decade, we think it will be standard operating procedure to reach into your pocket, punch a button, see your Thryv pop up. And look at the details of the customer you are about to meet with, the documents have been shared, what their last payment was, what they bought last time, who the decision makers are, it will all be right there touch a button in your pocket. And we think that that’s where the market is going. And we are working to keep up with that adoption curve. We think it’s an unstoppable trend that it’s going to happen with or without Thryv. We happen to be leading it or in pole position to capitalize on it. But the choice that our Board has made is to step up investment a little bit is to stay on the front edge of that wave. And we think that’s a good decision, we are excited about it. We think that there is durable growth available for this company for more than a decade looking out just in the market adoption of tools that we offer. We see a clear path back to profitability anytime we make that choice. So, thank you very much, everybody for listening to the call.

This concludes today’s conference call. Thank you for attending. You may now disconnect.