Thryv Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Thryv provides print and digital marketing services and SaaS business-management tools to small and midsize businesses. It completed a direct listing on Nasdaq on October 1, 2020.
Financial performance
Amounts are in millions, except per-share data and where noted.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $240.3 | $319.1 | $862.5 | $1,076.2 |
| Operating income | $21.4 | $40.9 | $134.6 | $153.7 |
| Operating margin | 8.9% | 12.8% | 15.6% | 14.3% |
| Net income (loss) | $(0.1) | $(0.3) | $39.4 | $37.6 |
| Adjusted EBITDA (non-GAAP) | $69.3 | $98.3 | $300.2 | $359.1 |
- Revenue mix: Marketing Services revenue was $208.5 million in Q3, down 27.6%; SaaS revenue was $31.8 million, up 1.6%. For the nine months, Marketing Services revenue fell 21.7% to $767.6 million, while SaaS declined 1.3% to $95.0 million.
- Cash flow: Nine-month operating cash flow was $174.6 million, versus $188.1 million. Capital spending was $17.0 million; cash decreased $0.1 million to $1.8 million.
- Debt and liquidity: Debt totaled $585.8 million at September 30, comprising $504.1 million under the Senior Term Loan and $81.6 million under the ABL Facility. ABL availability was $77.0 million. The company reported covenant compliance and expected to remain compliant for the next 12 months.
- Balance sheet: Total assets were $1,214.0 million and stockholders’ equity was $36.9 million. Pension obligations, net, were $198.3 million.
Changes versus prior comparable periods
- Q3 revenue declined 24.7%; nine-month revenue declined 19.9%. Management attributed the primary decline to ongoing contraction in print and digital Marketing Services, including competition and secular shifts in advertising. Q3 print revenue also reflected directory publication timing.
- Q3 operating margin narrowed, while nine-month operating margin improved despite lower revenue, reflecting lower expenses and cost reductions. Nine-month Adjusted EBITDA fell 16.5%.
- Q3 net loss was largely affected by a $29.5 million pension remeasurement loss, compared with $13.6 million in Q3 2019. Lower interest expense partly offset this impact.
- SaaS client count was 44,000 versus 49,000 a year earlier, but monthly SaaS ARPU rose to $260 from $225 in Q3. Management said it is prioritizing higher-spend, higher-retention clients; monthly active SaaS users increased 13% year over year to 27,000.
Outlook, commentary, risks and unusual items
- Management provided no numerical revenue or earnings guidance. It reported that post-quarter trends remained similar: SaaS demand was increasing and Marketing Services continued to decline. It expected COVID-19 customer incentives would not extend beyond 2020, subject to future developments.
- COVID-19 contributed to customer credits that reduced revenue by $7.8 million in Q3 and $14.2 million year to date. The company also cited cost reductions, workforce actions, payment extensions, and an increase of $2.5 million in its expected-credit-loss allowance attributable to the pandemic.
- The company adopted a “Remote First” work model and recorded $18.2 million of nine-month impairment charges, principally related to office and lease assets. It incurred $10.6 million of severance expense year to date.
- Management said cash from operations, available cash, and ABL capacity should meet liquidity needs for the following 12 months, while noting uncertainty about the economy, SMB customers’ ability to pay, revenue trends, and debt reduction. A 100-basis-point increase in interest rates would add an estimated $5.9 million to annual interest expense.
- Tax matters include an approximately $8.7 million combined New York tax exposure, including $5.1 million already paid and a further $3.5 million accrued. The company also reported reserves for federal tax disputes and reserves of $2.4 million for a Texas indirect-tax audit and $1.9 million for a New York audit.
- After quarter-end, the company entered into a group annuity transaction on November 4, 2020, transferring projected pension obligations for approximately 500 participants, funded with plan assets. Other key risks include sustained Marketing Services decline, competition, customer churn and credit losses, floating-rate debt, covenant restrictions, privacy and cybersecurity, and the volatility and share-supply risks of a direct listing. Mudrick Capital controlled 59.9% of voting power as of September 30.
- Management concluded disclosure controls were effective at the reasonable-assurance level as of September 30 and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of the reported Marketing Services decline reflects underlying demand versus directory publication timing, and whether SaaS growth and higher ARPU can offset that decline.
- The components and sustainability of Adjusted EBITDA, a non-GAAP measure, and the effect of pension remeasurement and other unusual items on GAAP earnings.
- Cash generation, the very low cash balance, ABL availability, debt repayment requirements, floating-rate exposure, and continued covenant compliance.
- The outcome and cash impact of tax matters, including New York assessments, federal tax positions, and state sales-tax audits.
- Post-listing share trading, potential sales by existing holders, warrants and equity awards, and the implications of concentrated voting control.