Thryv Holdings, Inc. (THRY) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. Thryv Holdings, Inc. provides marketing services (Print and Digital) and Software as a Service (SaaS) solutions to small-to-medium-sized businesses (SMBs). The company operates through two reportable segments: Thryv Marketing Services and Thryv SaaS. In Q3 2024, the company executed a strategic decision to terminate its Marketing Services solutions by the end of 2028 to accelerate the conversion of clients to its SaaS platform.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Revenue | $179.9 million | $183.8 million | $637.6 million | $680.8 million |
| Gross Profit | $112.0 million | $103.6 million | $414.2 million | $418.5 million |
| Gross Margin | 62.3% | 56.4% | 65.0% | 61.5% |
| Operating Loss | $(88.6) million | $(19.4) million | $(26.1) million | $42.1 million |
| Net Loss | $(96.1) million | $(27.0) million | $(82.1) million | $(1.8) million |
| Adjusted EBITDA | $19.6 million | $7.3 million | $133.1 million | $135.2 million |
| Cash from Operations (YTD) | $63.6 million | $103.6 million | $63.6 million | $103.6 million |
| Total Debt (Net) | $307.8 million | $348.9 million | $307.8 million | $348.9 million |
| Cash & Equivalents | $12.5 million | $14.7 million | $12.5 million | $14.7 million |
Material Changes vs. Prior Period
- Revenue Mix Shift: Total revenue declined 2.2% QoQ and 6.4% YTD. This was driven by a 20.3% decline in Marketing Services revenue (due to secular print decline and strategic client conversion to SaaS) partially offset by a 29.2% increase in SaaS revenue.
- Goodwill Impairment: The company recorded a non-cash impairment charge of $83.1 million in Q3 2024 related to the Thryv Marketing Services reporting unit. This charge reduced goodwill in that unit to zero and was the primary driver of the operating loss.
- Debt Refinancing: In May 2024, the company refinanced its debt, entering a new $350 million Term Loan and an $85 million ABL Facility. This resulted in a $6.6 million loss on early extinguishment of debt recorded YTD 2024.
- Client Base: Total clients decreased 19% to 295,000. Marketing Services clients dropped 25% to 251,000, while SaaS clients grew 45% to 96,000.
- Liquidity: Cash provided by operating activities decreased 38.6% YTD to $63.6 million, primarily due to changes in working capital and higher tax payments.
Guidance, Outlook, and Risks
- Strategic Pivot: Management is accelerating the conversion of Marketing Services clients to the SaaS platform. The company plans to terminate Marketing Services solutions by the end of 2028.
- Recent Acquisition: On October 31, 2024 (subsequent to the reporting period), Thryv acquired Keap (Infusion Software, Inc.) for $80 million in cash to expand its SaaS capabilities. Financing included a $76 million equity offering and ABL borrowings.
- Regulatory Risk: In October 2024, the company received an SEC subpoena regarding its strategic conversion of clients from digital marketing services to SaaS solutions. The company is cooperating, and the investigation is currently a fact-finding inquiry.
- Tax Contingencies: The company faces ongoing disputes with the IRS regarding Section 199 deductions and R&D tax credits, with $27.7 million reserved as of September 30, 2024.
- Debt Covenants: The company is currently in compliance with its New Term Loan and ABL Facility covenants, including leverage and SaaS revenue thresholds.
Investor Verification Checklist
- Impairment Impact: Verify the long-term strategic implications of writing off all goodwill in the Marketing Services segment and the timeline for the 2028 termination of these services.
- SEC Investigation: Monitor updates on the SEC subpoena regarding the client conversion strategy to assess potential regulatory or reputational risks.
- Keap Integration: Review the financial impact and integration progress of the Keap acquisition, which was closed after the quarter-end.
- Debt Service: Assess the company's ability to meet mandatory amortization payments ($52.5 million annually for the first two years) on the new Term Loan given the decline in operating cash flow.
- SaaS Growth Sustainability: Evaluate whether the 29% SaaS revenue growth can offset the secular decline in Marketing Services revenue without further margin compression.