Thryv Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless stated otherwise, financial amounts below are in millions of U.S. dollars. Thryv provides marketing services and SaaS business-management tools to small and medium-sized businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $297.3 | $240.3 | $868.9 | $862.5 |
| Gross profit / margin | $193.1 / 65.0% | $134.9 / 56.1% | $554.0 / 63.8% | $528.5 / 61.3% |
| Operating income / margin | $65.8 / 22.1% | $21.4 / 8.9% | $184.8 / 21.3% | $134.6 / 15.6% |
| Net income (loss) | $35.6 | $(0.1) | $96.5 | $39.4 |
| Adjusted EBITDA (non-GAAP) | $102.4 | $69.3 | $304.0 | $300.2 |
| Operating cash flow | Not separately presented | Not separately presented | $121.5 | $174.6 |
Q3 revenue rose 23.7%, including $39.3 million from Thryv International, which reflects the Australian acquisition. SaaS revenue grew 40.8% to $44.8 million; Marketing Services revenue increased 2.3% to $213.2 million, partly due to print publication timing. For the first nine months, revenue grew 0.7%: SaaS rose 30.0% to $123.4 million and Thryv International contributed $101.6 million, while Marketing Services fell 16.1% to $643.9 million.
Q3 gross margin and operating income improved, with management citing cost savings and revenue mix. Nine-month Adjusted EBITDA increased 1.3%, substantially less than the increase in GAAP net income. Prior-year pension remeasurement losses were a significant comparison item: pension costs included a $30.2 million expense in Q3 2020 versus a $0.3 million benefit in Q3 2021, and a $31.3 million expense for the first nine months of 2020 versus a $1.0 million benefit in 2021. Adjusted EBITDA is a non-GAAP measure with multiple adjustments; it should not be treated as a substitute for GAAP earnings or cash flow.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $10.4 million; cash plus restricted cash was $12.7 million. Current assets were $391.3 million and current liabilities $320.5 million.
- Nine-month operating cash flow was $121.5 million, down $53.1 million year over year, primarily due to higher income-tax payments and acquisition-related transaction payments. Investing cash outflow was $195.4 million, including $175.4 million paid for the Australia acquisition, net of cash acquired.
- Recorded debt was $612.4 million net of $20.8 million of unamortized discounts and issuance costs; principal balances included a $577.0 million term loan and $56.2 million drawn on the ABL facility. The term loan carries LIBOR plus 8.5% (or base rate plus 7.5%), matures in 2026, and requires quarterly amortization. ABL borrowing capacity was $92.1 million.
- The company reported compliance with its term-loan and ABL covenants and expected to remain compliant for the next 12 months. Management said cash flows, cash on hand and available ABL capacity should meet liquidity needs for that period. A 100-basis-point rate increase was estimated to add approximately $6.3 million to annual interest expense.
Material changes, outlook and risks
- The March 1, 2021 acquisition of Thryv Australia expanded the business internationally. The filing reports $101.6 million of post-acquisition revenue and $28.6 million of net loss since closing. Purchase-price allocation remained preliminary. Acquisition-related costs and integration, as well as acquisition financing, affect comparability.
- Marketing Services faces continuing print-industry decline and strong competition in digital search and display. Marketing Services clients fell 20% year over year to 268,000; nine-month segment revenue declined 16.1%. Q3 print revenue benefited from publication timing, which management cautioned can distort period comparisons.
- SaaS growth reflects stronger demand, higher-spend client targeting and add-on sales. SaaS clients increased 2% to 45,000, monthly SaaS ARPU rose 31% to $340, and monthly active users increased 15% to 31,000. Management also noted churn among lower-spend legacy SaaS clients.
- Management provided no quantitative revenue or earnings guidance in the supplied filing text. It expects continued SaaS investment and says Marketing Services will remain affected by pre-existing industry declines. COVID-19 had not materially affected liquidity or operating performance to date, but renewed restrictions, client finances and future variants remain uncertain. Pandemic credits were largely discontinued; they reduced revenue by $3.2 million in the first nine months of 2021 versus $14.2 million in 2020.
- Other notable items include a $3.4 million loss associated primarily with terminating a Tucker, Georgia leaseback obligation; $3.6 million of nine-month impairment charges; and $15.0 million of restructuring and integration expenses used in the Adjusted EBITDA reconciliation.
- Tax matters include a $33.1 million reserve related to the IRS Section 199 position, partly covered by an acquisition indemnification asset of $25.6 million, and a $3.0 million reserve for a New York indirect-tax audit. The company said it may resolve certain tax matters within 12 months and that up to $21.6 million of unrecognized tax benefits could be reduced, affecting the effective tax rate if realized.
- Disclosure controls were deemed effective at a reasonable assurance level. However, management excluded Thryv Australia from its internal-control assessment while integration continued; the acquired business represented 20% of consolidated assets and 13% and 12% of Q3 and nine-month revenue, respectively.
Important facts for investors to verify
- Whether SaaS growth and higher ARPU can offset the continuing decline in Marketing Services clients and revenue.
- Thryv Australia’s ongoing profitability, integration progress, preliminary purchase-price allocation and cash/debt implications.
- Debt amortization, floating-rate exposure, covenant headroom and the availability of the reported ABL borrowing capacity.
- The sustainability of cash generation, given lower operating cash flow and acquisition-related outlays.
- Resolution and potential cash or earnings effects of tax disputes, indemnification limits and other contingencies.
- How much reported earnings improvement reflects recurring operations versus pension remeasurement, cost reductions and non-GAAP adjustments.