Thryv Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Thryv provides marketing services and SaaS business-management tools to small and midsize businesses (SMBs). It completed its acquisition of Australian marketing-services provider Sensis on March 1, 2021; reported results include Sensis from that date.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $291.0 million | $303.6 million | $571.7 million | $622.2 million |
| Gross profit / margin | $178.4 million / 61.3% | $193.0 million / 63.6% | $360.9 million / 63.1% | $393.6 million / 63.3% |
| Operating income | $54.3 million | $51.6 million | $119.0 million | $113.2 million |
| Net income | $24.4 million | $11.5 million | $60.9 million | $39.6 million |
| Adjusted EBITDA (non-GAAP) | $96.8 million | $118.1 million | $201.7 million | $230.9 million |
Q2 revenue fell 4.1% year over year; six-month revenue fell 8.1%. Net income increased, helped in part by lower income-tax provisions and lower impairment charges. Adjusted EBITDA declined 18.1% in Q2 and 12.7% for the six months. Q2 adjusted gross margin was 67.1%, versus 69.7% a year earlier; six-month adjusted gross margin was 68.1%, versus 69.2%.
- Segments: Q2 Marketing Services revenue fell 25.5% to $202.8 million, while SaaS revenue rose 32.3% to $41.4 million. Thryv International, consisting of Sensis, contributed $46.9 million. For the six months, Marketing Services fell 23.0% to $430.7 million, SaaS rose 24.6% to $78.6 million, and Thryv International contributed $62.3 million.
- Cash flow: Six-month operating cash flow was $81.8 million, down from $97.9 million. Investing cash outflow was $188.4 million, including $174.2 million for Sensis. Financing cash flow was $123.5 million. Cash and cash equivalents were $15.8 million at quarter-end; the cash-flow statement reports $18.4 million including restricted cash.
- Liquidity and debt: Current assets were $400.1 million and current liabilities $344.4 million. Debt totaled $647.9 million: $589.9 million under the New Term Loan and $58.0 million under the ABL Facility. A further $70.0 million of term debt was classified as current. ABL borrowing capacity was $77.7 million. The company reported compliance with debt covenants at June 30.
Material changes and management commentary
- Marketing Services’ ongoing decline reflects secular pressure in print, a shrinking client base, and competition in digital search and display. Management said the revenue decline predated COVID-19 and expected these trends to continue.
- SaaS growth reflects demand for the Thryv platform and a strategic focus on higher-spend, higher-retention clients; this is partly offset by churn among legacy lower-spend clients. SaaS monthly ARPU rose 39% in Q2 to $323. Marketing Services clients declined 19% year over year, while SaaS clients increased 2%.
- Sensis was acquired for approximately $215.0 million in cash, funded with new term debt. It contributed $62.3 million in revenue and a $20.3 million net loss from acquisition through June 30. Purchase-price allocation remained preliminary.
- The company refinanced its prior term loan with a $700 million New Term Loan maturing in 2026, at LIBOR plus 8.5% (or base rate plus 7.5%), with quarterly mandatory amortization of $17.5 million. Approximately 29.6% was held by related-party equity holders at June 30. Substantially all debt bears floating rates; management estimated a 100-basis-point rate increase would add about $6.5 million in annual interest expense.
- Management expected cash from operations, available cash, and ABL availability to meet liquidity needs for the next 12 months. It said COVID-19 had not materially affected performance or liquidity to date, while noting uncertainty from future outbreaks and restrictions. No specific full-year financial guidance was provided in the filing.
Risks, contingencies, and unusual items
- Q2 included $3.6 million of impairment charges tied to the remote-first workplace decision. The company also recorded a $3.1 million loss on termination of a Georgia leaseback obligation.
- Tax disputes include IRS challenges to certain Section 199 deductions and research-and-development credits. Related reserves were approximately $32.7 million for Section 199 and less than $0.1 million for the R&D credit at June 30. The company has specified seller indemnification, subject to limits including escrowed shares valued at about $25.2 million. It also reserved $2.6 million for a Texas indirect-tax audit and $2.8 million for a New York audit.
- Other identified risks include competition, client renewal and spending levels, execution of the SaaS transition, acquisition integration, cybersecurity and privacy, third-party platform relationships, and foreign-exchange exposure. The company has not hedged foreign-currency transactions.
- Management said disclosure controls were effective, but its assessment excluded internal controls over financial reporting related to Sensis, which represented 19% of consolidated assets and 16% of Q2 revenue.
Investor verification priorities
- Track whether SaaS growth and higher ARPU can offset continuing Marketing Services revenue and client declines.
- Assess Sensis’ post-acquisition profitability, integration progress, and final purchase-price allocation.
- Review debt service capacity, floating-rate exposure, required amortization, covenant headroom, and ABL availability.
- Monitor operating cash flow and working-capital movements, including receivable collections and tax payments.
- Follow the outcome and potential cash or tax effects of the IRS disputes and state sales-tax audits, including the scope of seller indemnification.