Thryv Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 13, 2021. Amounts below are in U.S. dollars. Financial statement amounts are converted from thousands to millions where shown.
Business context
Thryv provides print and digital marketing services and SaaS business-management tools to small and midsize businesses. It reports Marketing Services, SaaS and Thryv International segments. On March 1, 2021, it acquired Australian marketing-services provider Sensis; Q1 results include Sensis for one month only. Thryv reported serving more than 400,000 SMB clients globally, although its disclosed client metrics exclude Sensis.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $280.6m | $318.6m | Down 11.9% |
| Gross profit / margin | $182.4m / 65.0% | $200.6m / 63.0% | Profit down 9.0%; margin up 2.0 points |
| Operating income / margin | $64.6m / 23.0% | $61.6m / 19.3% | Income up 4.8% |
| Net income | $36.5m | $28.1m | Up 29.9% |
| Diluted EPS | $1.07 | $0.80 | Up 33.8% |
| Adjusted EBITDA (non-GAAP) | $104.9m | $112.8m | Down 7.0% |
| Operating cash flow | $14.2m | $45.6m | Down $31.4m |
Segment revenue was $227.9m for Marketing Services, $37.3m for SaaS and $15.4m for Thryv International. Marketing Services fell 20.5%, while SaaS grew 17.0%. Management attributed the Marketing Services decline to continuing print-industry contraction and digital competition; SaaS growth reflected demand for the Thryv platform and a strategic shift toward higher-spend clients. Cost reductions helped lift reported gross and operating margins despite lower total revenue.
Cash and cash equivalents were $29.8m at March 31, compared with $2.4m at December 31, 2020. Current assets were $463.6m and current liabilities $346.2m. Investing cash outflow was $177.9m, primarily reflecting $174.2m paid for Sensis, net of cash acquired. Financing cash inflow was $191.8m, primarily from new borrowing. Management said operating cash flows, cash on hand and ABL availability should meet liquidity needs for the next 12 months, while noting projections are subject to uncertainty.
Total recorded debt was $720.2m: $676.6m under the new term loan and $43.7m under the ABL facility. The term loan has a $700m principal amount, matures March 2026, bears interest at LIBOR plus 8.5% or base rate plus 7.5%, and requires quarterly principal payments of $17.5m beginning June 30, 2021. The ABL facility has a $175m maximum revolver and $113.1m of borrowing capacity at quarter-end. Substantially all debt bears floating rates; a hypothetical 100-basis-point rate increase would add about $7.2m of annual interest expense. The company reported covenant compliance at March 31 and expected continued compliance over the next 12 months.
Material changes and unusual items
- The Sensis acquisition was funded through the new term loan, which also refinanced the prior term loan. Sensis contributed $15.4m of revenue and a $4.0m net loss after acquisition. The preliminary purchase allocation included $71.7m of goodwill; the allocation remained subject to finalization.
- Reported revenue includes only one month of Sensis. Pro forma results, assuming acquisition on January 1, were revenue of $318.8m and net income of $52.4m for Q1 2021; the filing cautions these figures are not indicative of actual or future results.
- Operating cash flow fell substantially, which management attributed mainly to timing of receivable collections, billing and payments, the sales decline, and higher income-tax payments.
- Adjusted EBITDA declined despite higher GAAP net income. It excludes items including restructuring and integration expenses ($9.2m), transaction costs ($10.5m), depreciation and amortization, and stock-based compensation; it is a non-GAAP measure and should not be viewed as a substitute for GAAP earnings.
- The company recognized $2.2m of COVID-related customer credits in Q1, versus $0.7m a year earlier. It said such credits were virtually discontinued from April 1, 2021.
Outlook, commentary and risks
The filing provides no specific financial guidance. Management expected continued SaaS demand and a continuing decline in Marketing Services, with Marketing Services trends largely predating COVID-19. It expected SaaS client growth to return in fiscal 2021 and SaaS ARPU to continue trending higher. Monthly SaaS ARPU increased 27% to $304, while Marketing Services ARPU declined 7% to $212. Management also cited increased SaaS engagement: monthly active users rose 19% to 31,000.
Key risks include the secular decline in print, intense digital competition, SMB client losses or reduced spending, execution and integration of Sensis, international expansion and foreign-currency exposure, floating-rate debt, and uncertainty around the pandemic and customer demand. The company also disclosed unresolved tax matters: reserves included approximately $32.3m for a federal tax deduction dispute and $0.2m for disputed research-and-development credits, with a related indemnification asset valued at $24.3m. It reported $2.6m and $2.9m reserves for Texas and New York indirect-tax audits, respectively. Management did not expect pending legal and regulatory matters to have a material adverse effect, but outcomes remain uncertain.
After quarter-end, on April 30, 2021, the largest shareholder’s ownership fell below 50%, so Thryv ceased to qualify as a Nasdaq controlled company. The company said it remained compliant with applicable listing standards.
Most important facts for investors to verify
- Whether SaaS growth and higher ARPU can offset continued Marketing Services revenue and client declines.
- Whether Sensis integration, customer retention and expected strategic benefits progress as planned; acquisition accounting is preliminary.
- Debt-service capacity under high floating-rate borrowing, required amortization and credit-facility covenants.
- Cash conversion and working-capital trends, given the sharp year-over-year decline in operating cash flow.
- Developments in tax disputes, audit reserves and the value or availability of the related indemnification.
- Performance against management’s stated expectation of renewed SaaS client growth in fiscal 2021; the filing provides no quantified financial outlook.