This is conference ID number 7068595. At this time, I'd like to introduce the conference to KJ Christopher, Thryv's AVP of Investor Relations, Treasury & Tax..

Good morning, everyone, and welcome to this recorded management discussion of Thryv's first quarter 2021 results. By now, you should have received a copy of the company's First Quarter 2021 Earnings Release and Investor Supplement, which is also posted on our Web site, at investor.thryv.com.

With me today are Joe Walsh, Chief Executive Officer and President; Paul Rouse, Chief Financial Officer; and Ryan Cantor, VP or Product and Marketing. Before we begin, I would like to remind you that some of our comments made on today's call and some of the responses to your questions may contain forward-looking statements.

These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the SEC. Thryv has no obligation to update this information presented on the call.

Also on today's call, our speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors. Reconciliation of those measures to GAAP will be posted on the investor relations Web site at investor.thryv.com. With that introduction, I would like to turn the call over to Joe Walsh..

Thank you, KJ. Good morning, and thanks to everyone for joining us on our first quarter 2021 earnings call. Over the past few quarters as a public company, we've demonstrated Thryv's category leadership in end-to-end cloud software for SMBs.

This quarter validates another point, showcasing the massive opportunity for cloud adoption within the SMB space and the strength of our strategy and execution. We're off to the strong start to the year in our SaaS business, with growth in revenue and client. Our revenue accelerated 17% year-over-year in the first quarter.

This acceleration is fueled by a demand for small businesses to modernize and transition to the cloud. We feel that we're in pole position to seize this massive opportunity. We continue to penetrate our captive legacy client base, as well as activating new clients through our new channel.

Even in our existing client base, there are more and more of those customers that see now as the time to move to the cloud, customers we may have proposed this to a year or two ago that are now realizing, "Okay, this cloud this is real. I need to modernize." So, that's working really well now.

And then we are methodically scaling our new channel, our inbound channel, each month we had more leads at the top of the funnel, we've billed out more FDRs, we do more demos, and we close more each month; it's becoming a very large part of our sales volume. And then we're adding partners through our reseller channel.

Each month, there's more and more partners we've brought to new technology and to make the reseller channel run smoother. That's really going well and beginning to scale nicely. And then, of course, we sort of stumbled on to the multi-location franchise opportunity by having one chase us down and buy.

And that's now become a really big part of our plan, and we're doing very well with franchises in multi-location. So, these new channels are growing very nicely. We feel very good about where we are, and as a result we're updating our guidance accordingly. Paul will walk you through that a little bit later in the call.

Some metric I'd like to share with you. Our ARPU has continued to grow, and it's a result of that move upmarket, you'll see that in the data. Our churn is stable in the mid 2% range, and this is really good for SMB churn. We're revealing today net dollar retention.

We hadn't revealed that in the past, it's a new metric for us it's up 16% year-over-year to 89%. And I know you'll sometimes see enterprise churn that's over 100%, and so on. We're still a very young software company, and 89% is very strong when you consider the 16% growth momentum year-over-year.

As we solidify out strategy, we expect that that's going to continue to grow moving out in time. We're pretty excited about the opportunity that that represents for us.

The point I would just make to you as you compare us to enterprise-type software is that we're in a much earlier innings with small businesses moving to the cloud, maybe top of the second innings. Enterprises are probably in the fifth or sixth inning; they're much deeper into that transition.

I'd like to just talk to you about what this means in terms of client. One of our customers, Andy Robel from Tree Masters, they're in Berlin, New Jersey. They have seven staff members, and they're in our app every single day, in the mobile app. They've been a customer with us for a little over two years, and their usage is steadily growing.

Looking at last month, they were up around 11 hours in the app. I appreciate the seven employees, they're in and out of that in a few seconds when they need to consult something, but collectively, over the course of the month, 11 hours. When they signed up for ThryvPay, they were one of the early people who signed up. They switched from Stripe.

And we've seen steady volume coming out of them, and steadily growing volume. They've had over 400 transactions so far, with an average ticket of $612. So, we're seeing that sort of engagement where whole teams are completely running their company within the app.

And it's that sort of usage that's driving the ARPU, it's driving the NDR growth, it's driving the improvement that we're seeing. So, engagement was the big priority for us the last couple of years; we watch it like a hawk. It's on our [crawler] [Ph] every day that goes across the screen in the morning, and we watch that.

And we've seen really nice gains in daily, weekly active usage. Our goal was to be at least 20%, and we've just blown that away. Logins are up; time in the app has more than doubled in the last year.

The number of clients using our core features, CRM, payments, communication, campaign management, our scheduling tool; we see more and more of them using more and more features. And so, that's part of what gives us confidence as we look forward, and part of why we feel good enough to actually upgrade our guidance.

So, we think it's a payoff of us improving our onboarding process, improving the software itself, and just looking at the results that our customers are getting. Next, I want to bring in our Head of Product, Ryan Cantor. He's going to share with you some product improvements, and talk to you about what we're doing on the verticalization process.

Before I do that, I want to touch on an announcement that we put out this morning in regards to ThryvPay. ThryvPay has, up until now and we sort of soft launched it, it's only been available within the Thryv customer base. But as you now know, if you saw the announcement, we've now rolled it out as a standalone app. It's available at no monthly charge.

We do make a little bit when customers use it. But we think this will be a terrific feeder pool helping us identify thousands of new small businesses that are interested in modernizing and interested in more efficient payment methods. And well, will be really able to help drive client acquisition going forward.

We're finding that our customers that are using ThryvPay absolutely love it. And we're seeing volumes grow week over week, month over month. And there's no question that it's driving more engagement. And this and other add-ons are driving the ARPU well. So, look, it's still early days, but we're really excited about ThryvPay.

And I think with the ThryvPay free app out there it's only going to increase the footprint and increase our brand. So, with that, I'd like to now bring Ryan Cantor on.

Ryan?.

Thank you, Joe. The COVID-19 pandemic drove Thryv to adjust our product roadmap prioritizations around the most basic needs of the everyday small business owner. We focused on both improving existing functionality and adding new functionality to make it easier for small businesses to maintain a healthy and safe cash flow.

We improved our estimating and invoice functionality, we improved how the system handled taxation and other backend services. We added new features to manage and sell products. Packages or the ability to sell bulk services was created. And near the end of 2020, we launched ThryvPay.

ThryvPay was developed to fill the void in supporting growing service-based small businesses. These businesses often need to process large payments with more affordable options, while still providing convenience and safety to end-consumers.

ThryvPay has already processed more than $15 million in payments, with an overall average transaction size greater than $400. Just yesterday, we announced the launch of a dedicated ThryvPay mobile app, available in the iOS and Android app stores now.

Not only does this app add convenience to our existing Thryv and ThryvPay subscribers, but it is available at no monthly charge to all service-based small businesses.

Our flat-rate credit card fees, cost-effective ACH payment option, scheduled payment, tips, dispute assistance services, and options pass-through convenience fees are all included in our free app. We know that not every growing business is ready for the full price solution yet.

And so, we are excited to offer the ThryvPay app to these businesses providing a safe and convenient way to get paid while also providing friction less upgrades to the full price platform when the time is right.

To further support the financial needs of our users, Thryv also recently announced our completed integration with QuickBooks desktop and MYOB accounting software. These two additions to the Thryv app market make it easier for small business owners to run their day to day businesses while simplifying their accounting and tax process.

Earlier this year after a full-year of development, Thryv launched our enhanced CRM functionality. This product improvement provides an industry specific CRM across 20 plus industries while adding support for important complex relationships.

This enables contractors to manage multiple jobs per customer, for lawyers who have multiple cases per client, and for animal services who have multiple pets per owner. Each specifically tailored and preconfigured to make getting started with Thryv even easier.

This effort is already showing dividend with our data showing that over 85% of users of our enhanced CRM functionality are becoming daily active users within the platform.

While some in the SMB SaaS space show verticalized marketing tactics, Thryv's unwavering commitment delivering an exceptional customer experience propelled us to ensure the product was properly verticalized first to not disappoint post sale. Next, we have verticalized our demo experiences.

And we will continue to move up the client experience journey into our website and online marketing activities in the coming period. Lastly, over the past 18 months, Thryv has been strengthening our integrations with All Things Google to centralize and simplify.

Recently we announced dedicated Google My Business section within Thryv, which makes it easy for small business owners to automatically claim their listing, optimize their information, accept online appointments via Reserve with Google, monitor and manage their Google My Business post, and quickly respond in-app to Google reviews.

And with that, I'll turn it back over to Joe..

Thank you, Ryan. Next I would to turn to our recent Sensis acquisition. We are off to a great start. It's just been a month and half and we are finding that the Sensis team loves Thryv. They love its software. They had demonstrations. They have been good. They have been in our company store buying Thryv gear. And they are all wearing Thryv outfits.

And they are pretty excited about the whole idea of its big pivot for them to become a category leader in Australia in the software business. And all the plumbing things hooked up. The people have been trained. The process is rolling over.

It's actually on-boarded a couple of customers as we are getting some guinea pig customers to test everything out, make sure our localization is right. We will begin selling in the second half of this year.

And as I explained the folks, we in prior acquisitions saw about 10% of the customer base come over pretty quickly -- low hanging fruit and become SaaS customers. And we are really looking forward to that in '22 and '23.

Our expectations are pretty limited to this year just because even as we get customers on-boarded, we will really only going to have a couple months around it before the calendar year runs out. But we are off to a great start.

We've been really impressed with that next layer of management that we've gotten to know beneath John Allan and even beneath the C-level people as we've been interacting functionally back and forth, and having a lot of fun. We've created a company dictionary where we are sharing back and forth American, Australian terms.

This has been lot of fun and interesting people, and really high morale around this combination and international [indiscernible]. So, feeling good about that, can't wait to update you more on that in the future. Next, I would like to bring Paul Rouse back to take us through the financial results.

Paul?.

Thank you, Joe. As Joe alluded to, it's been a strong start to the year, and we're excited to share the results with you. Okay, now let's turn to the U.S. business segment starting with SaaS. First quarter SaaS revenue was $37.3 million, an increase of 70% year-over-year. First quarter SaaS billings were $40.3 million, an increase of 22% year-over-year.

First quarter SaaS ARPU was $304, another significant increase when compared to $240 in the first quarter of 2020. First quarter SaaS churn is 2.5%, a significant improvement in retention when compared to 3.4% in the first quarter of 2020. A significant improvement in churn despite a tough business backdrop brought on by the pandemic.

Moving over to marketing services for the U.S., first quarter revenue was $227.9 million, a decrease of 21% year-over-year. First quarter marketing services billings were $216.2 million, a decrease of 22% year-over-year.

As is consistent with previous calls, we are providing billings and additional operational metric to give our investors better insight into our operational performance.

The billings data will show a very consistent and steady decline in our marketing services segment, which has shown to be lumpier on an accounting basis given the 15 month lifecycle of our print directories. This is provided in our first quarter investors' supplement available on our website.

Turning now to profitability for the consolidated business, first quarter adjusted gross margin was 69%, a 50 basis point increase when compared to the first quarter of 2020. First quarter adjusted EBITDA was $104.9 million resulting in an adjusted EBITDA margin of 37%.

Marketing services EBITDA margin increased to 43%, a nearly five point increase year-over-year. The acquisition of Sensis Holdings on March 1st is now included in our consolidated results. Going forward, Sensis will be reported under the new segment titled Thryv International. Now moving to guidance, let's first start with the U.S.

Given our strong first quarter results and momentum of our U.S. SaaS business, we are raising our 2021 revenue guidance to $151 million to $153 million implying year-over-year growth of 16% to 18%. Our previous guidance was $140 million to $145 million. For U.S.

marketing services, we are maintaining 2021 revenue guidance of $740 million to $760 million for 2021. As previously mentioned, U.S. marketing services EBITDA margins will be consistent with prior years on an annual basis.

For SaaS, we do expect continued EBITDA margin compression, primarily as a result of the investments we are making in product and sales and onboarding. Now, for our new segment, Thryv International, we expect revenues to be in a range of $180 million to $200 million measured in Australian dollars.

This guidance reflects 10 months of ownership since we acquired the business on March 1st of this year. Sensis is a well run asset with 40% plus EBITDA margins historically. We expect to maintain strong margins. I'll now turn the call back over to Joe..

Thanks, Paul. So, it's been a really good quarter for us and just sort of assessing where we are in our SaaS business. We finished up last year with 8% growth in that quarter and 17% in this quarter, we're now comfortable guiding into the high teens for the year. Growth is accelerating. And I want to move back in time a little bit to last fall.

We impaneled a new board.

We brought in SaaS, software expertise, people who have scaled businesses like this before, and they've been instrumental and really encouraging us to grow this business faster and really allowing us giving us the green light for some additional investments to begin to scale our new channel, to invest more in our engineering and product areas.

So, our product road map is coming along faster now. We're delivering some things ahead of what we had planned in our longer term road map now, and our bandwidth to do more and improve the product more quickly is there based on this investment and the support.

And so, I'd like to thank our new board for that and I'd like to point investors just realize that -- that was a big catalyst. September 1st, those guys came in and within a few months we had that green light and direction. So, there are more good things to come as we get some of the fruit coming out of these investments that we can make it.

So, we're excited about where we are there. And now, prepared to now take questions.

Operator?.

[Operator Instructions] And your first question comes from the line of Arjun Bhatia with William Blair..

Yes, thank you very much, and congrats to you guys on the great results, great to see the SaaS acceleration. Joe, one of the things that stuck out to me was that the SaaS client base, I think it increased sequentially for the first time in a couple of years.

I would love to hear if you've noticed any change in how customers are landing with the SaaS product, whether the problem they're trying to solve has changed at all as you've built out the product a little bit and you've been able to communicate the value proposition a little bit better? And then going off of that is there anything that you would point to in terms of organic marketing versus cross-sell from the legacy base in terms of how that customer acquisition has shifted over the last couple quarters?.

Absolutely, Arjun, let's start with the first question, the problem. You know, we were arguably early with our all-in-one approach. Small businesses were just beginning to warm up to the idea that they could use cloud tools to solve their problems. And they were buying some fairly narrow point solutions to experiment with it.

And here, we came along with this great big thing that did it all.

And so what's happening is, with the pandemic, the -- that I guess the realization that you need to be able to work remotely, you need to be able to accept contact-less payment, that you need to be able to update the entire internet on your service offerings, your safety protocols, your store hours when they change.

All that stuff came really into sharp focus. And not everybody reacted instantly, it takes a little bit. But they're definitely out to be able to do those things now. Think about the big move to remote work over the last year. A lot of small businesses lot of adapting to do to try to figure out how to do that. And that drove a lot of the demand.

I would say that, if I'm really honest and I go back two or three years ago, we had a lot of customers buying our software, and we were telling them it was software, we were telling them it was to run their business operation and improve their client experience. But I think, honestly, they were thinking about it as advertising and marketing.

And increasingly now, we have customers really grasping that they're buying software to run their company. And so I think the fit is better that way. And I think the market is really ready now for what we have to offer. Maybe we were too early, but I think that the wave is really coming now, and we're feeling it every day.

As far as the source of the sales, your question is very astute. We, if I go back several years ago, we really got all of our sales from the traditional marketing services sales force as it was making its rounds working with marketing services customers. And they were offering Thryv to those customers, and there was a steady uptake.

What's happened now more recently and is definitely seen in these numbers is we are building the traditional channels that a lot of startup software companies would have; an inbound channel with a funnel with leads coming down through to [FDRs] [Ph], coming down through to demos that get set, coming down through to closes.

And we scale that inbound channel every month. We add more leads to the top, we had more FDRs, we add more -- we do more demos every month. So it's hit mass, right. We're just we're scaling it. And the numbers are holding up really well, and we're getting better at what we do there, each piece of it. And so, that scaling with continue.

And that's been probably the primary driver of the predictability that we have here on adding more subscribers. Additionally, we have a reseller channel that we've begun to build. And we've been steadily adding resellers and really professionalizing how we do that.

We've installed some technology now to really facilitate the reseller channel, and that's beginning to run on four out of eight cylinders, and we're tuning, you know, we're probably -- if you ask me again in six months, I'll tell you, we're on six out of eight cylinders, but we're getting there, we're starting to get that figured out.

And it's building and some of this volume is coming out of the reseller channel.

And then, we've got another channel that is coming together for us, and that's our franchise channel, working with large multi-location emerging franchises, and we're signing long-term, they're typically three-year contracts with these customers, with kind of built in escalators as they grow.

And that's something that we're really excited about, and that's sort of just an incredible fit. We designed what we call the Thryv Hub for that master franchise, or -- and one of the franchise experts said that this was the holy grail for franchise business. So, those new channels are a big part of where this volume is driven from at the moment..

Perfect, that's very helpful, very helpful color there. Thank you.

One of the things you mentioned I think in your prepared remarks, if I remember the name of the customer correctly, I believe it was Tree Masters, and I might be getting it wrong, but they had switched from Stripe over to ThryvPay, can you just help us understand what are the benefits of using ThryvPay versus Stripe or Square or one of the other partners that you integrate with, in that example, specifically or even just more broadly, if you look at how ThryvPay differentiates versus what else is in the market?.

So, we designed ThryvPay especially for our service-based businesses. That's been our stock and trade. They've been our customers for the life of our company. And so, we have a pretty close dialog and relationship with them.

We basically asked them, we're getting into payments, initially we put on Square and Stripe and the usual suspects onto our platform, and we had designs on try to put something together and we asked them, "What would be the perfect payment solution?" And they were pretty focused on the fees, and pretty focused on instantly knowing where they stood on the money.

So, anyway as I've been calling these customers, I'm finding a lot of them are switching from Stripe or Square, one of the other tools to ours. And we have Ryan Cantor with us today, and Ryan has been working really closely on the payments thing, I'd like to let him make a few comments about the advantages of using ThryvPay versus some of the others.

Ryan, can you pick that up?.

Sure, I can, Joe. Thank you. So, obviously, these types of businesses are low-transaction volume, but high-dollar amounts. And that requires a specific set of features and benefits in any specific product. So, for example, we launched ACH to have the ability to accept electronic bank payments.

And if you think about the average transaction size of a larger service business that may charge $1,000, if that person were to key that transaction into another credit card provider, they could be paying three or even more than 3% of a fee on that particular payment.

But with our ACH service inside ThryvPay, we charge 1% up to a maximum of $9 per transaction. So, the savings is pretty clear. And in some cases, people are saving $70 to $80 per transaction by using ThryvPay.

We also added features like scheduled payments, but not just the reoccurring payment that you might have come to expect, where the average use case would show someone charging on the first of the month, every month for $40.

We allow installment plans, scheduled payments, repeating payments, all types of configurations that really help service businesses kind of manage their cash flow in a predictable manner.

And so, when you kind of couple all of that together into a bundle of features and products, we really find high adoption, and we're keenly focused on supporting the kind of high-dollar transaction amounts for these types of businesses.

So, that's our biggest focus is to help them process these larger ticket items with more affordable processing fees and features..

Understood, thank you. And then, one last one for me, this might be for Paul, a little bit more on the guidance.

Obviously, good to see the SaaS guidance raised, are you factoring in any benefit from the Sensis cross-sell into the SaaS, into the SaaS product yet, or is that something that we should wait for 2022 and 2023 to really come up top in the numbers?.

Yes, you're exactly right there. There are agendas. There's very little, if any, Thryv sales related to Sensis at this time..

All right, perfect. Thank you very much, and congrats again on the quarter..

And our next question comes from the line of Daniel Moore with CJS Securities..

Thank you, Joe. Thank you, Paul. And thanks for taking the questions.

Want to follow-up on Sensis a little bit more? You gave good color, but anything more that we've kind of learned since you've closed the deal? And I think you referenced the 40% plus EBITDA margins given likelihood of increased investment to drive Thryv, are those is kind of 40% a reasonable thought process for the remainder of this year or do you see a little pressure given the incremental investment? Thanks..

Yes, I mean they have incredible margins, their white page business is unique in the world, it enjoys tremendous consumer usage and brand awareness and the advertiser base and the white pages is largely made-up of the government, institutions, giant companies, and they pay for the white pages on their Telstra, which is the telephone company, their Telstra telephone bill.

So, it's almost like a utility, and it just rolls on, think of like the AOL 1495 thing it just ran on and on and on, that type of thing, where their marketing services revenue decline is slower than ours is or slower even than their Yellow Pages is because of that big white page business. And it really flatters the margins.

I mean, they've been delivering margins, actually into the mid-40s.

So, to your question about setting up Thryv and getting the SaaS business started in Australia, how much that will eat into margins, I don't think you'll see a material move, it might be a point or two, but it will knock us in Australia down in the 30s, or something like that, it maybe it's a point or two.

But they'll still deliver much higher margins than we have in the U.S. And as we blend them together, the Sensis acquisition nicely flatters our marketing services margins and revenue decline, because of the better curve there.

And really, when you think about Sensis while the enthusiasm is Sky high over there, and they're really anxious to get into the market, and start selling it, this is really a '22, '23 story for revenue there, we will definitely have sales this year, and we will have some revenue this year.

But you think about a SaaS sale, if you make the SaaS sale late in the year, you maybe have one month of revenue or two months of revenue, it's not going to be huge in this year, people should pretty much focus on '22, '23 for that integration in the revenue there..

That's super helpful.

And then switching gears, exciting news with really relating to the launch of the ThryvPay app, and I know it's early days, but can you think about what type of attachment rates you would expect to generate over time? I'm sure the goal is to obviously drive penetration of the SaaS solution, as you expand the small business relationship base by using the ThryvPay app, is there a way to sort of think about conversion over a long period of time or still early days at this point?.

Yes, I mean look, there's no question that having a free app out there, that's delivering exactly what small businesses and particularly service based small businesses are looking for, is definitely going to drive brand awareness and bring people to Thryv and the Thryv brand and the Thryv company, whether or not once they're doing payments, they'll jump over and say, oh, I actually want a full CRM and I want to improve my client experience.

And I want to manage my presence all over the web and all that, whether they're going to want to do those other things, we do not know yet.

Since most small businesses are on journey to automate and modernize, our hunch is that there will be, our hunch is that this will be a great feeder pool of leads and conversions into the full software but we haven't gone as far as to model or project exactly how that will turn out.

All the revenue guidance we're giving you now and all of our current forecasting is just around the known things that we have, the expansion of our new channels, our existing sales force doing its thing. In this year's guidance, you don't really have any Thryv pay revenue to speak of or any Sensis revenue to speak of.

Those would be icing on the cake..

Understood, makes perfect sense.

And last for me just in terms of the SaaS segment margins, Q1 EBITDA margins kind of a reasonable proxy for how do we think about modeling the rest of the year given the obviously intention to invest in and drive growth there?.

Yes, look, I think your read of that is right. We were -- our margins were rising throughout last year just based on the operational leverage of having a fully scaled national SaaS software product.

And now, we've got this new board who sees the merit of growing this a little faster and they've green lighted some additional investments in engineering, in product, in marketing, really we're nourishing the entire business and investing to scale it up and that's not free. So, there is some expense to that.

So I think the way to think about our SaaS businesses margins is -- rather than the margins growing higher and higher and higher, I think they actually are going to kind of come down a little bit as we step up that investment and really accelerate growth, but it will remain profitable. We're not planning to run it at a loss or anything like that.

We're not going to come along and have a couple points to faster growth and then say, "Oh, we lost money." It's been profitable since 2019 on a EBITDA and a cash flow basis. It's fully repaid our investment to start it and it's cash flowing and it's going to continue the cash flow, but in terms of margins, it's not our goal to grow them.

So, I think, mid single-digit kind of margins will be there where we'll be. And I wouldn't take a lot directionally from it if it pops up and down a point or two, one way or the other, we intend to run it at a profit, not lose money, but not to grow the margin.

So, if that's low to mid single-digits or whatever, that's probably the zip codes that we'll be in. And I would say I'll bounce around because it's hard to be super precise quarter to quarter with that.

But the green light that we have is to reinvest those significant profits that that is generating into growing it faster, both domestically and internationally..

All right, it makes perfect sense, and entirely consistent. Thanks for the color and look forward to a product demo next week..

Thanks, Dan..

Your next question comes from the line of Ryan MacWilliams with Stephens..

Thanks for taking my question, and nice quarter.

With Thryv for home services set the rollout in the second half of this year, can you just talk about the game plan there and maybe some expectations around this vertical product launch?.

Oh, I'd love to. Thank you. If you think about our company, it's been around a long time, we have a large customer base and it's very heavy in the service-based businesses, everything to do with working on your home, working on your car, working on your body, working on your dogs and cats, all the services are out there.

We don't tend to have as much in high-end retail and travel and entertainment. That's part of why -- while the pandemic was a bummer that didn't hit us directly because the kinds of businesses that were whacked by the pandemic weren't really our customers and the service based businesses have actually done quite well.

So, when we look at our current Thryv subscriber scrolls, it's very heavily concentrated around the service-based businesses, just naturally because that's who our customers are, that's who we have relationships with, that's who our business advisers in the field had relationships with, so that's who came on. And we had a pretty general product.

It wasn't really verticalized very much for them. And we've had some feedback. I call customers every week and talk to them about the product. We've had some feedback that we could do more to customize it for them or verticalize it for them. And so, we actually made a decision to do this last year.

And with the pandemic, we paused that investment just in the interest of hunkering down, but we're very much on the game now. We hired someone to run the first those verticals -- the home services vertical, actually last fall. He's been hard at work, pulling all the bits together. We've created the technology and put it in.

And now, we are prepared to roll it out. And we really think that the client satisfaction inside are very large service base, it's already in the client base, will improve. And we think that the referral pass along kind of thing will accelerate them. And I would like to have Ryan Cantor with a comment a little bit on the verticalization.

And our thoughts and plans that.

Ryan, can you pitch in here?.

I sure can, Joe. Thank you. I think it's Thryv Home Services is an exciting opportunity for us. As I stated in my statement, we did start with the product. So we feel the product is -- let's -- if we're honest on the first leg of verticalization.

We've used a lot of feedback from our existing client base, a lot of them are in the Home Services segments to improve functionality within the product specifically to them, and with that CRM enhancement that we announced a couple of months ago, we took kind of a very big, but important step towards that journey. And so our product is verticalized.

Today, we've then started working upstream with our sales partners and our demos -- are now verticalized with -- specific verticalized demo tools, so that every client when they come in, sees a version of Thryv that fits their business needs, and as we've perfected that, and every stage of that obviously comes with it learnings and things that we can do better, and feedback.

We then take that and bring that to the market. And you'll see changes to Thryv.com and our digital marketing, content marketing, and social media strategy in the coming period, where we then take that out into the marketplace to attract with the right message targeting the right customer specifically for Thryv Home Services.

So, hopefully that answers your question, but we really did start from a client experience, user experience and worked our way up through the funnel, so that as people buy this product, we don't disappoint..

I appreciate of a color. And I really think it's the blueprint for some of the other verticals you go after. And I like hearing about the focus on engagement and it seems like the improvement in ARPU and net dollar retention has tracked that improvement in daily and weekly active users.

So in the fullness of time of like, how do you think about a long-term target for your net dollar retention, as your customers continue to get more seasoned and start to add more integrations solutions like ThryvPay to their existing Thryv usage? Thanks..

Well, look like a lot of software companies. We've got quite a roadmap of products, modules, services that we intend to offer. And like a lot of software companies, we bundled a lot of things together when we started that, there are opportunities for us to un-bundle as we move out into the future.

So, we do have a pretty robust plan to grow ARPU and to grow NDR. And we made 16 points of progress year-over-year. I'm not going to say we're going to make 16 points of progress next year. But we have a roadmap, it's going to deliver big progress next year, and the year after, and the year after that. And so I think you'll see NDR steadily climbing.

And I know, we certainly see the literature and some of the other information that you've got some of these, land and expand, boil up things that are way past to 100%. We're making big sales to real businesses. So we're not -- our model isn't as land and expand as some of those. But we do think 100 Plus as insight in the intermediate distance.

It's not something that we think we'll do in the next year. But it's that we definitely think that this will be a 100 plus NDR business as we continue to build out our product roadmap..

Excellent, I appreciate the color. Congrats on the quarter..

Thank you..

And your last question comes from the line of Lance Vitanza with Cowen..

Hi, guys, thanks for taking the questions. I actually want to see if I can squeeze two in, if you have time, but the first is on the SaaS ARPU to $304 million versus $240 million a year ago, but it's a quite a jump.

Could you talk a little bit more about the factors behind the higher ARPU? Joe, you mentioned the move up market, but is that new customers coming on with higher price plans or is the pricing tiered based on size of company, number of employees usage, et cetera.

Just trying to get a little bit more contexts there?.

Okay. So, what you see happening, Lance, is we had an experiment a few years ago moving down market. We put up kind of buy yourself online product at a little bit lower price point and we sold them like Chiclets. I mean, they were selling like hotcakes. The problem is that those customers weren't as serious, they weren't as engaged.

They didn't use the product as much or in its intended way. And we experienced a lot higher churn. And we made a decision as a business that that just wasn't our ideal client profile. We did a lot of work with some outside vendors and our own team on really designing a crystal clear ideal client profile.

And that just didn't include these little tiny hobby businesses, solopreneurs, little tiny, tiny businesses. There's a market out there for that, I guess. But that's not our market. And so, we moved back up market, we timed it with a really dramatic upgrade in the software, where it was really enhanced and improved.

And we eliminated all those lower price point tears. And we actually -- we solidified our price at a higher point. We actually raised the price a little bit at the higher end, and we lock down and started pursuing that higher price point.

And so what you've seen happening over the last, really, seven, eight, nine quarters, is you're watching the mouse move through the snake. You're seeing that little churn bomb that we live in our customer base, roll off and go through, and you're seeing those lower price customers factored out of the picture.

And you're absolutely right when you say a customer that bought yesterday is buying at a full price, higher price point than they were buying at in the past. And so, that's why you see the blend of that ARPU going up, up, up, up.

When you layer on to that, the fact that we've made leaps and bounds in client engagement and usage, and the software has gotten so much better, that you have people buying more seat licenses. You have people buying add-ons and extra things. And so you've got spend climbing out of happiness and more usage.

So those are the two things that are driving ARPU up..

That's super helpful. Thanks. And then my last question, just again from the outside looking in, I mean, I see a business where you've got a revenue guide north of a billion dollars, and includes $150 million plus of SaaS, yet your equity market cap is less than $800 million. And then you got some debt.

But you know, even adding the debt and the enterprise value is about 1.3 times sales. So, clearly, you're not getting credit for the SaaS business.

Is there ultimately a way to separate the SaaS business, perhaps, in a few years when revenues there are $300 million or more? Or how do you think about that?.

Well, we think about it with a very relaxed, long time horizon, to be honest with you. We're doing really well. You mentioned that our equity market caps $800 million. Well, it was $300 million six months ago. I mean, we're beginning to get credit.

There are -- I don't know, three, four, five, 10 portfolio managers out there that have found us and are doing a sum of the parts, and are starting to value us in a reasonable way. And we think that that number will grow. And we're willing to go out and do some investment conferences and tell the story. And we're pretty patient about it coming.

I mean, the benefits of having the company together are quite dramatic. There's a lot of software companies out there, and they're all battling customer acquisition costs. It's tough to break through, especially to small businesses. It's tough to break through and have your message heard.

For us to have 100s of 1000s of relationships through these marketing services, that we can go out and have a conversation and be a big market leading brand that people stop and listen to, it has credibility. It just sets you apart. It's not even a fair fight. It puts you in such a stronger position.

So, the benefits of having these things -- these two things together, are so incredible, that we wouldn't even contemplate separating them in the short-term. I acknowledge to you that in the long-term, it may be necessary to separate them to really crystallize value.

But my time horizon, the management teams time horizon, many of our new investors that are coming in, we're all thinking in terms of five, seven, eight, 10 years. We're thinking out in time. We think that Thryv can be the platform that you operate a small business on, not just in the United States, but really globally.

We're in pole position, the markets just unfolding. We think we're in the top of the second innings of a very, very big wave. Think back if you will, to four or five, six, seven years ago and the way cloud this is coming on like gangbusters and the enterprise is just beginning.

Just started for small business, and we already have a fully scaled international platform. It's best-of-breed that won 14 awards in the most recent round of awards. Go on Capterra G2 crowd look at our best value for money, best service, easiest on-boarding, we are in a really good spot.

So, if it takes the market a little while to figure us out, maybe we are an artist that's misunderstood. We have to die and go away before our art is really valued. But we're looking a little bit longer term. Lance, you will know, I just made a substantial personal investment in shares of the company just recently.

My time horizon for that is 5, 7, 8 years. I am cool with that. And I think I will do really well with that. So, yes, could we unlock some value if we hurt the company by separating it today? Yes. But we don't need to. We are not up against it on anything.

We are pleasant to have a higher valuation, but maybe that will just come as people see growth accelerating..

Super helpful, guys, and very exciting. Thanks for taking the questions..

Thanks, Lance..

And at this time, there are no further audio questions.

Are there any closing remarks?.

Yes, I would just like to thank everybody for tuning in.

Back to Lance's question, there are a lot of folks that looked at us and said, "Well, is this really a SaaS business?" "Have they failed?" "What's the story?" Because we did have a number of quarters where our both subscriber and revenue growth was flat to even slightly negative as we worked our way through. We're a young software company.

But during that time what you don't know is we were focused like a laser beam on improving the software. Improving its interoperability with other software in the marketplace making it easier for small businesses to adopt and use us, building out an app marketplace with the kinds of tools that small businesses needed were right in there.

I could just plug-in and make the software go. And all of that like a flywheel has been just driving more and more usage and more and more engagement. And we have seen quantum leaps in time in-app, days logged into the app, number of messages sent, inbox things received.

As we make the software easier to use, more and more of our small business customers are using it and recommending it to their friends. So, it really has been a journey of making the software better. Obviously, this is a numbers oriented call, so we talked about raising our guidance.

But the big story here is the software got tons better over the last year. I think we have shown that we're X% higher this year over the last year in revenue. But this software got three times better. And that's what has really driven it. So, I can hardly contain my enthusiasm. I talk to customers personally every week.

I call them to talk about how it's going. And the feedback I am getting is you guys are getting this figured out. This has really starting to work. And people are running their companies on this software now. And that was only partially the case a year or two ago. We had a couple of outliers.

But people were struggling with some of the glitchiness of the early days of the software and the fact that it didn't talk to some of the other applications that they wanted to use. But we are really moving now. And I think verticalization will only enhance that. So, thanks everybody for your time. Really appreciate it.

We're excited about updating you in three months' time on how this is all going. Thank you everyone..

Goodbye..