Thryv Holdings, Inc. — Q1 2023 Form 10-Q
Business context and period. The filing covers the three months ended March 31, 2023. Thryv provides marketing services and SaaS business-management tools to small and midsize businesses through four U.S. and international segments. It reported approximately 372,000 clients at quarter-end.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $245.6 million | $308.4 million | Down 20.4% |
| Gross profit / margin | $154.8 million / 63.0% | $197.9 million / 64.2% | Down $43.0 million / 1.2 percentage points |
| Operating income / margin | $30.8 million / 12.5% | $51.7 million / 16.8% | Down $20.9 million |
| Net income | $9.3 million | $33.5 million | Down 72.2% |
| Diluted EPS | $0.25 | $0.88 | Down $0.63 |
| Adjusted EBITDA (non-GAAP) | $58.5 million; 23.8% of revenue | $83.7 million; 27.1% of revenue | Down 30.2% |
| Operating cash flow | $32.3 million | $29.3 million | Up $3.0 million |
| Capital expenditures | $5.1 million | $4.0 million | — |
Revenue and profit figures are GAAP unless indicated. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results.
Revenue mix and operating trends
- U.S. Marketing Services revenue fell 30.7% to $147.3 million; U.S. SaaS rose 22.8% to $58.1 million.
- International Marketing Services revenue declined 19.6% to $38.3 million; International SaaS increased 115.8% to $1.8 million.
- Management attributed the marketing-services decline to secular print-industry contraction, digital competition, lower client counts and, for print, publication timing. U.S. print revenue fell 39.5%; digital revenue fell 23.2%.
- Marketing Services clients declined 17% year over year to 348,000, while SaaS clients increased 15% to 54,000. Monthly SaaS ARPU rose 8% to $379 and monthly active SaaS users grew 25% to 45,000. Marketing Services ARPU fell 9% to $167.
- Cost of services fell 17.9%, including $16.0 million of lower printing, distribution and digital fulfillment support costs. However, gross margin declined as marketing-services revenue contracted.
Cash, debt and liquidity
- Cash and cash equivalents were $15.4 million at March 31, versus $16.0 million at year-end; restricted cash of $12.6 million brought cash plus restricted cash to $28.0 million.
- Total debt was $453.7 million net of $12.9 million of unamortized discounts and issuance costs, compared with $469.8 million at December 31. Principal outstanding was $394.4 million on the Term Loan and $72.2 million on the ABL Facility. The Term Loan matures March 2026 and bears a floating rate of LIBOR plus 8.5% (or base rate plus 7.5%).
- ABL borrowing capacity was $56.6 million. The company reported compliance with Term Loan and ABL covenants and expected to remain compliant over the next 12 months.
- Management believes operating cash flow, cash on hand and ABL availability will be sufficient for expected needs over the next 12 months. The filing notes substantially all debt is floating-rate; a 100-basis-point rate increase would add approximately $4.7 million to annual interest expense.
- Operating cash flow benefited from working-capital timing, including lower tax payments, and was partly offset by lower sales and higher interest payments. Financing cash flow included $35.0 million of Term Loan payments.
Outlook, risks and unusual items
- No specific full-year revenue, earnings or cash-flow guidance is provided. Management expects to continue investing in SaaS product development, customer onboarding and support; those efforts may increase operating expenses. Its strategy is to grow SaaS adoption among existing marketing-services clients and new customers.
- Key risks include continued print and digital marketing-services declines, client attrition or reduced spending, competition, macroeconomic and inflation pressures, higher interest rates, foreign-exchange movements, cybersecurity and privacy exposures, and execution of the SaaS transition.
- On April 3, 2023, after quarter-end, Thryv acquired New Zealand marketing-services company Yellow Holdings for $10.5 million in cash, subject to adjustments. Initial acquisition accounting was incomplete at filing.
- The company recorded a $7.3 million Vivial bargain-purchase gain in Q1 2022, contributing to the prior-year earnings comparison. Q1 2023 included $5.3 million of restructuring and integration expenses and $5.4 million of stock-based compensation.
- Tax matters include approximately $34.8 million reserved for a Section 199 deduction dispute and $0.8 million for disputed R&D credits. Related indemnification assets were $27.3 million, subject to contractual limits. The company said up to $20.7 million of gross unrecognized tax benefits could be reduced within 12 months, with an ETR impact if realized.
- Management said pending legal and regulatory matters are not expected to have a material adverse effect. The filing added uncertainty around potential OECD Pillar Two global minimum-tax rules.
Important facts for investors to verify
- Whether SaaS growth and higher engagement can offset continued Marketing Services client and revenue declines.
- How much of print revenue volatility reflects publication timing versus underlying demand, and how trends compare on a publication-by-publication basis.
- Cash generation, working-capital timing and capacity to service floating-rate debt while funding required Term Loan amortization and pension contributions.
- Current covenant headroom and the availability of the reported $56.6 million ABL capacity under stressed operating conditions.
- Resolution, timing and potential cash impact of tax disputes, and collectability and limits of the related indemnification asset.
- Integration and financial contribution of the Yellow acquisition; the filing does not provide completed purchase-accounting values.
- Potential dilution from equity awards and warrants; warrants exercisable for up to approximately 5.24 million shares were scheduled to expire August 15, 2023.