Thryv Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Thryv provides print and digital marketing services and SaaS business-management tools to small and medium-sized businesses (SMBs). It reported approximately 375,000 SMB clients at quarter-end.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $251.4 | $334.0 | $497.0 | $642.4 |
| Gross profit / margin | $160.1 / 63.7% | $228.0 / 68.3% | $314.9 / 63.4% | $425.8 / 66.3% |
| Operating income | $30.7 | $83.3 | $61.5 | $135.0 |
| Net income | $16.0 | $58.0 | $25.3 | $91.5 |
| Diluted EPS | $0.43 | $1.61 | $0.68 | $2.47 |
| Adjusted EBITDA (non-GAAP) | $69.4 | $116.0 | $127.9 | $199.7 |
| Operating cash flow | Not stated for the quarter | $57.7 | $56.9 |
Revenue mix and business trends
- Q2 revenue fell 24.7% year over year; six-month revenue fell 22.6%. Management attributed the decline primarily to contraction in Marketing Services, including print publication timing and secular print-industry declines, a shrinking Marketing Services client base, and digital competition.
- Q2 U.S. Marketing Services revenue declined 38.1% to $137.7 million; International Marketing Services fell 13.4% to $51.3 million. U.S. SaaS grew 17.6% to $60.2 million and International SaaS grew 121.9% to $2.3 million.
- Marketing Services clients declined 12% year over year to 348,000; SaaS clients increased 12% to 56,000. Total clients declined 10% to 375,000. Monthly SaaS ARPU rose 5% to $377, while Marketing Services ARPU fell 13% to $160. SaaS monthly active users increased 18% to 45,000.
- Q2 adjusted EBITDA margin was 27.6%, versus 34.7% a year earlier; six-month margin was 25.7%, versus 31.1%. GAAP gross margin also contracted, by 460 basis points in Q2 and 290 basis points year to date.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $15.2 million; cash plus restricted cash was $17.6 million. The company had $54.2 million of available borrowing capacity under its ABL facility.
- Reported debt obligations were $433.5 million net of $11.7 million of unamortized discount and issuance costs. Principal balances were $376.9 million on the Term Loan and $68.3 million on the ABL Facility. The Term Loan and ABL mature in March 2026; the Term Loan requires $17.5 million of scheduled quarterly amortization.
- Both facilities carry floating rates. The Term Loan margin is SOFR plus 8.5% (or base rate plus 7.5%); the ABL rate is adjusted daily simple SOFR plus 3.0% (or base rate plus 2.0%). Management estimated that a 100-basis-point rate increase would add approximately $4.5 million of annual interest expense.
- Six-month operating cash flow was $57.7 million. Investing used $23.1 million, including $14.0 million for fixed assets and capitalized software and $8.9 million for the Yellow acquisition. Financing used $35.0 million, including $52.5 million of Term Loan payments; ABL borrowings and repayments largely offset.
- Management said available cash, operating cash flows and ABL availability should meet liquidity needs for the next 12 months. The company reported compliance with debt covenants and expected continued compliance over that period.
Material changes, outlook and risks
- On April 3, 2023, Thryv acquired New Zealand marketing-services company Yellow for $8.9 million net cash. Yellow contributed $6.0 million of revenue since acquisition. Its preliminary purchase-price allocation includes $5.1 million of goodwill.
- On June 22, the company settled a seller tax indemnity: $15.8 million was satisfied by the return of 613,954 Thryv shares to treasury. The settlement eliminated the recorded $26.5 million indemnification asset; a $10.7 million noncash remeasurement loss was recorded for the six-month period. The quarter included an $11.5 million loss from remeasurement.
- The IRS provided a draft settlement concerning disputed Section 199 tax deductions. Thryv recorded an $8.9 million reduction in the related uncertain-tax-position liability, but said discussions continued and the matter was not effectively settled. The company had $25.1 million reserved for the Section 199 matter at June 30. It said gross unrecognized tax benefits could decline by up to $15.6 million within 12 months, potentially affecting the effective tax rate.
- Q2 net income included a $3.4 million income tax benefit; the six-month effective tax rate was 4.1%. Pension costs were $1.9 million for the six months, compared with a $9.2 million pension benefit in the prior-year period, reflecting smaller remeasurement gains and higher interest costs.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management described continued SaaS investment and growth efforts, while noting that they may increase expenses. Print revenue is recognized on directory delivery, so publication cycles can make quarterly comparisons uneven.
- Risks highlighted include continued print-industry decline, digital competition, SMB churn or lower spending, higher interest rates, inflation and economic weakness, currency movements, and technology, cybersecurity, privacy and acquisition-integration risks. Thryv had not hedged foreign-currency transactions. The filing also identifies possible additional international tax exposure from OECD Pillar Two rules.
- Management concluded disclosure controls were effective. Its internal-control assessment excluded Yellow; the acquisition represented 1.8% of consolidated assets and 2.4% of Q2 revenue.
Key facts for investors to verify
- Whether SaaS growth and client engagement can offset continued Marketing Services revenue and client declines.
- How much of print revenue weakness reflects publication timing versus underlying demand; management reported publication-by-publication declines of 14% in Q2 and 12% for the six-month period.
- Debt repayment capacity, floating-rate exposure, ABL availability and covenant headroom as operating performance changes.
- The final IRS settlement, remaining tax reserves and indemnity-related accounting and cash consequences.
- Yellow’s integration, final purchase-price allocation, and contribution to revenue and cash generation.