Thryv Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Thryv provides marketing services and SaaS business-management tools to SMBs, reporting four U.S. and international marketing-services and SaaS segments. It served approximately 364,000 clients at quarter-end. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $183.8 million | $280.7 million | $680.8 million | $923.0 million |
| Gross profit / margin | $103.6 million / 56.4% | $175.6 million / 62.6% | $418.5 million / 61.5% | $601.5 million / 65.2% |
| Operating income (loss) | ($19.4 million) | $31.1 million | $42.1 million | $166.1 million |
| Net income (loss) | ($27.0 million) | $13.3 million | ($1.8 million) | $104.8 million |
| Adjusted EBITDA (non-GAAP) | $7.3 million | $65.4 million | $135.2 million | $265.1 million |
| Operating cash flow | Not separately provided | Not separately provided | $103.6 million | $104.2 million |
- Q3 revenue fell 34.5% year over year; nine-month revenue fell 26.2%. The main driver was Marketing Services, especially U.S. Print and Digital. SaaS growth partly offset the declines.
- U.S. SaaS revenue increased 16.8% in Q3 and 18.9% for nine months. International SaaS revenue increased 110.1% and 115.5%, respectively, from a smaller base.
- Q3 net loss included a 27.5% effective tax rate; the nine-month effective tax rate was 83.9% despite a pretax loss. Management attributes tax-rate differences from the 21% federal statutory rate to several items, including uncertain tax positions and the indemnification settlement.
- Nine-month investing cash outflow was $32.0 million, including $8.9 million net cash for the Yellow acquisition and $22.9 million of fixed-asset and capitalized-software additions. Financing cash outflow was $72.1 million. Cash, cash equivalents and restricted cash decreased $1.2 million to $17.0 million.
Financial position and material changes
- At September 30, 2023, cash and cash equivalents were $14.7 million; current assets were $274.6 million and current liabilities were $235.9 million.
- Recorded debt was $381.3 million net of $10.5 million of unamortized discount and issuance costs: Term Loan principal of $334.4 million and ABL borrowings of $57.4 million. The Term Loan has a $70.0 million current portion; both facilities mature in March 2026. ABL borrowing capacity was $36.7 million.
- Term Loan pricing is SOFR plus 8.5% (or base rate plus 7.5%); ABL pricing is Adjusted Daily Simple SOFR plus 3.0% (or base rate plus 2.0%). Substantially all debt is floating rate. The company estimated that a 100-basis-point rate increase would add approximately $3.9 million to annual interest expense.
- Debt declined from $469.8 million at December 31, 2022, reflecting $95.0 million of Term Loan payments, partly offset by ABL activity. The company reported compliance with debt covenants at quarter-end and expected continued compliance over the following 12 months.
- The April 2023 Yellow acquisition cost $8.9 million net of acquired cash and contributed $9.1 million of revenue since acquisition. In June, a tax-indemnification settlement was completed through the return of 613,954 shares valued at $15.8 million; the company removed the $26.5 million indemnification asset and recorded a $10.7 million loss in general and administrative expense.
Management commentary, outlook and risks
- Management said it expects operating cash flows, available cash and ABL availability to cover liquidity needs, operations, investment activity and debt payments for the next 12 months. This is an expectation, not a guarantee; the filing gives no specific revenue or earnings guidance.
- Management cited secular decline in print, strong competition in digital advertising, fewer Marketing Services clients, currency movements and publication timing as important factors. Print revenue is recognized upon directory delivery, so quarterly comparisons can be materially affected by publication cycles. Management reported a 29% year-over-year decline in Q3 U.S. Print revenue on a publication-by-publication basis, versus the larger reported decline affected by timing.
- Marketing Services clients fell 10% to 335,000 year over year, while SaaS clients rose 29% to 66,000; total clients declined 9% to 364,000. Monthly active SaaS users increased 22% to 45,000. Marketing Services monthly ARPU fell 11%; SaaS ARPU fell 3% in Q3 but increased 3% for the nine-month period.
- The company identifies risks including SMB spending and retention, execution of the SaaS transition, competition, interest rates, inflation, foreign exchange, cybersecurity and privacy, and execution or integration of acquisitions. It has not hedged foreign currency transactions to date.
- Tax matters remain contingent: the IRS had not finalized the Section 199 settlement at quarter-end. The company reported a $25.5 million reserve for the Section 199 matter and said gross unrecognized tax benefits could decrease by up to $15.6 million within 12 months, with an effective-tax-rate impact if realized. Management did not expect pending legal and regulatory matters, in aggregate, to materially adversely affect results, balance sheets or cash flows.
- Management concluded disclosure controls were effective at a reasonable-assurance level. Its assessment of internal control over financial reporting excluded Yellow, which was being integrated. The filing reported no material change in risk factors from prior filings.
Important facts for investors to verify
- Whether ongoing Print and Digital declines, including publication-cycle timing effects, are being offset by recurring SaaS growth and improved SaaS client retention or spending.
- Cash generation, debt reduction, floating-rate interest expense, ABL availability and continued covenant compliance.
- The final IRS resolution and related tax liability, reserve, cash payment and effective-tax-rate consequences.
- Yellow’s integration, contribution to results and internal-control assessment once included in management’s evaluation.
- The drivers of the sharp year-over-year decline in Q3 Adjusted EBITDA and whether cost reductions can protect margins as Marketing Services revenue contracts.