Thryv Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Thryv provides print and digital marketing services and SaaS business-management tools to small and medium-sized businesses. The company reported more than 400,000 clients globally.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $308.4 million | $280.6 million |
| Gross profit / margin | $197.9 million / 64.2% | $182.4 million / 65.0% |
| Operating income / margin | $51.7 million / 16.8% | $64.6 million / 23.0% |
| Net income | $33.5 million | $36.5 million |
| Diluted EPS | $0.88 | $1.07 |
| Adjusted EBITDA (non-GAAP) | $83.7 million | $104.9 million |
| Operating cash flow | $29.3 million | $14.2 million |
| Capital expenditures | $4.0 million | $3.7 million |
Revenue rose 9.9%, while net income fell 8.2% and Adjusted EBITDA fell 20.2%. Adjusted gross profit was $207.7 million and adjusted gross margin was 67.4%, versus $193.8 million and 69.1%. These adjusted measures are non-GAAP and should be considered alongside GAAP results.
At March 31, 2022, cash and cash equivalents were $21.4 million (plus $2.4 million of restricted cash). Total assets were $1.370 billion and stockholders’ equity was $356.4 million. Recorded debt was $569.3 million, net of unamortized discount and issuance costs, including $70.0 million current debt, $524.5 million Term Loan principal and $63.0 million drawn on the ABL Facility. A further $68.9 million was available under the ABL Facility. The Term Loan bears floating interest, generally LIBOR plus 8.5%, and matures in March 2026.
Cash from investing activities was an outflow of $26.0 million, including $22.0 million net cash paid for Vivial. Financing activities provided $6.4 million. Management said cash flows, cash on hand and available ABL capacity should cover liquidity needs for the next 12 months. The company reported compliance with debt covenants and expects to remain compliant over that period.
Material changes and business drivers
- Marketing Services: Revenue declined 6.8% to $212.5 million. Print revenue fell 13.3%, reflecting secular industry decline, partly offset by publication timing and Vivial. Digital revenue was down 0.3%; management cited client attrition and competition.
- SaaS: Revenue grew 27.1% to $47.3 million. SaaS clients increased from 44,000 to 47,000 and monthly active users from 31,000 to 36,000. Monthly ARPU rose 16% to $352, which management attributed to targeting higher-spend clients and selling add-on features.
- Thryv International: Revenue was $48.5 million versus $15.4 million. The comparison is not like-for-like: Thryv Australia was acquired March 1, 2021, so the prior-year quarter included only one month, compared with a full quarter in 2022.
- Total clients declined from 464,000 to 439,000, primarily due to Marketing Services declines. Overall gross margin contracted 0.8 percentage points; operating expenses increased 24.0% to $146.1 million.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided in the filing. Management described continued SaaS demand and a continuing decline in Marketing Services, and said it plans to invest in SaaS sales, product development, onboarding and support.
- Vivial was acquired on January 21, 2022 for $22.0 million net of cash acquired. It contributed $23.3 million revenue and $0.8 million net income after acquisition. Preliminary purchase accounting included a $7.3 million bargain-purchase gain, contributing to reported other income; valuation remains subject to finalization.
- Floating-rate debt creates interest-rate exposure: a hypothetical 100-basis-point rate increase would raise annual interest expense by approximately $5.9 million. The company had not hedged its foreign-currency transactions.
- Key business risks include print-sector decline, digital-advertising competition, client churn or lower spending, successful SaaS migration and growth, acquisition integration, cybersecurity and privacy, and economic or COVID-19 effects. Management said COVID-19 had not materially affected results or liquidity to date, but future effects remain uncertain.
- Tax matters include IRS disputes over historical Section 199 and research-and-development tax positions. The company had reserved approximately $32.3 million for the Section 199 matter and less than $0.1 million for the research-credit matter, with a related indemnification asset of $24.7 million. Separate New York and Ohio tax-audit reserves were $3.3 million and $1.3 million. Management did not expect pending legal and regulatory matters to have a material adverse effect.
- The company expects 2022 pension contributions of approximately $25.0 million to qualified plans and $1.1 million to non-qualified plans. Management reported effective disclosure controls, while its control assessment excluded Vivial.
Important facts for investors to verify
- Underlying performance by segment, particularly whether SaaS growth and improved engagement can offset ongoing Marketing Services decline.
- Comparability of reported growth given the partial prior-year Thryv Australia contribution and the Vivial acquisition; also verify the final Vivial purchase-price allocation.
- Debt balances, floating-rate exposure, ABL availability, covenant compliance and the ability to generate cash while meeting scheduled debt and pension payments.
- The sustainability of profitability and Adjusted EBITDA, including acquisition, restructuring and other adjustments excluded from non-GAAP measures.
- Developments in the IRS disputes, indemnification coverage and state tax audits, and potential dilution from equity awards and outstanding warrants.