Thryv Holdings Inc (THRY) 2021 Q1 法說會逐字稿

This is conference ID number 7068595. At this time, I'd like to introduce the conference to K.J. Christopher, Thryv AVP of Investor Relations, Treasury and 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 website at investor.thryv.com.

With me today are Joe Walsh, Chief Executive Officer and President; Paul Rouse, Chief Financial Officer; and Ryan Cantor, VP of 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 website at investor.thryv.com.

With that introduction, I would like to turn the call over to Joe Walsh.

Thank you, K.J. 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 SMB. 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 a strong start for the year in our SaaS business, with growth in revenue and clients.

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 that 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 to a year or 2 ago, that are now realizing, okay, this cloud thing 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 the top of the funnel. we've build out more SDRs, we do more downloads and we close more each month, that's becoming a very large part of our sales volume. And then, we're adding partners through our reseller channel. Each month, as more and more partners who bought the new technology and make the reseller channel runs smoother, that's really going well and beginning to scale nicely.

And then, of course, we sort of stumbled on the multi-location franchise opportunity by having one chase up, down and buy, and that's now become a really big part of our plan. We do 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 are updating our guidance accordingly. I will walk you through that a little bit later in the call.

Some metrics. I'd like to share with you. Our ARPU is still continuing to grow and it's a result of that move up market and see that in the data. Our churn is stable in the mid 2% range and this is really good for SMB churn. We're reviewing today net dollar retention. We haven'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 sometimes the enterprise churn that's over 100 and so on.

We're still a very young software company and 89% is very strong considering the 16% growth momentum year-over-year as we solidify our strategy. we expect that that's going to continue to grow moving out in time. We're pretty excited about the opportunities that, that presents for. The point I would just make to you as you compare us to the enterprise side software is that we're in a much earlier inning, the small business is building to top -- maybe top of the second inning, enterprises are probably in the fifth or sixth inning, they are much deeper into that transition.

I'd like to just talk to you about what does means in terms of client. One of our customers. Andy Robel from Tree Masters, they’re in Berlin, New Jersey had 7 staff members and there in our app every single day in the mobile app, then a customer with us for a little over 2 years and their usage is steadily growing. Looking at last month, they were up around 11 hours in the app and appreciate the 7 employees are in and out of that app in few seconds when they need to consult something.

So collectively over the course of month, 11 hours that they signed up for ThryvPay, they were one of the early people signed up, it's 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 all teams are completely running their company within the app and it's that sort of usage that’s driving the ARPU, is driving the NDR growth, is 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 color, every day that goes across 3 in the morning and we watch that. We've seen really nice gains in daily, weekly active usage. Our goal is to be at least 20%, we just blown that away. Margins are up. Time in the app has more than doubled in the last year.

The number of clients using our core fee CRM, payments, communication, campaign management, our scheduling tool, we see more and more of them using more and more feature, thus far what gives us confidence as we look forward, part of why we feel good enough to actually upgrade our guidance. So we think if the pay-off of us improving our on-boarding process, improving the software itself, and is looking at the results that our customers are getting.

Next, I want to bring in our Head of Product, Ryan Cantor, who's going to share with you some price improvements and talk to you about what we're doing on the verticalization process. Before I do that, I want to touch on our announcement that we put out this morning in regards to ThryvPay.

ThryvPay has up until now, we have sort of soft launched it. It's only been available within the broad customer base. But now, if you saw the announcement, we've now rolled it out as a standalone app. It's available, no monthly charge, we do make a little bit when customers use it, but we think it will be a terrific feeder pool, helping us to identify thousands of new small businesses that are interested in modernizing, interested in more efficient payment methods and will be really able to help drive client acquisition going forward.

We're finding that our existing customers that are using ThryvPay, absolute level and we're seeing volumes grow week over week, month over month, and there is no question that it's driving more engagement and there's another add-on for driving the ARPU up. So 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're 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 back-end services. We added new features to manage and sell product, packages for the ability to sell bulk services that's created. And near the end of 2020, we launched ThryvPay.

ThryvPay was developed to fill the void in supporting and 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 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 optional passthrough 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 frictionless upgrades to the full Thryv platform when the time is right.

To further support the financial needs of our users, Thryv has also recently announced our completed integration with QuickBooks desktop and MYOB accounting software. These 2 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 processes.

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 but 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 pre-configured to make getting started with Thryv even easier. This effort is already showing dividends 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-based show verticalized marketing tactics, Thryv 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 decentralize and simplify. Recently, we announced our dedicated Google My Business section within Thryv, which makes it easy for small business owners to automatically claim their listing, optimize their information except online appointments we have reserved with Google, monitor and manage their Google My Business post and quickly respond in app to Google reviews.

And with that I will turn it back over to Joe.

Thank you. Ryan. Next I'd like to turn to our recent Sensis acquisition. We're off to a great start, it's just been a month and a half and we're finding that the Sensis team loves Thryv, they love the software, they had demonstration, they've been in our company store buying Thryv gear and all wearing Thryv outfits and we're pretty excited about the whole idea of the big for them to become a category leader in Australia in the software business and all the planning is being hooked up, the people are being trained, the process is rolling out. We've actually even on-boarded a couple of customers as we're 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 to folks, we in prior acquisition sold out 10% of the customer base come over pretty quickly, low hanging fruit and become best customers and we're really looking forward to that. In '22 and '23.

Our expectations are pretty limited for this year because even if we get customer sold and on-boarded, we're really only going to have a couple of months of revenue before the calendar year runs out. We're off to a great start. We've been really impressed with that next layer of management that we've gotten now believe churn now on 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're sharing back and forth American Australian terms. It has been a lot of fun and interesting to people, and so the really high morale around this combination and international expansion. So feeling good about that gateway to update you more on that in the future.

Next I'd 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 17% 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 was 2.5%, a significant improvement in retention and 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 23% 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 balance data has shown a very consistent and steady decline in our Marketing Services segment, which is shown to be lumpier on an accounting basis, given the 15 months lifecycle of our print directories. This is provided in our first quarter investor 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 5-point increase year-over-year. The acquisition of Sensis Holdings, on March 1, 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 on boarding.

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 ownership since we acquired the business on March 1 of this year. Sensis is a long run asset with 40% plus EBITDA margins just directly. 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 and 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 the last fall. We entitled a new Board, we brought in SaaS software expertise, people who'd 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 a green light for some additional investment, to begin to scale our new channel, to invest more in our engineering and product areas. So our product roadmap is coming along faster now.

We're delivering some things ahead of what we've had planned in our longer-term roadmap now and our bandwidth did more in improving products more quickly, it's 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 first is that came in and within a few months, we had that green light and direction.

So it's more good things to come as we get some of the fruit coming out of these investments that we can make it, so really excited about where we are there and are prepared to now take questions. Operator?

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

Yes, congrats to you guys on the great results. Great to see this app 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 are 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 of quarters.

Absolutely, Arjun. Let's start with the first question, the problem, 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 it, great big thing that did it all.

And so what's happening is with the pandemic, the -- I guess the realization that you need to be able to work remotely, you need to be able to accept contactless payments 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's taken a little time. 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 had a 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, then I go back 2 or 3 years ago, we had a lot of customers buying our software and we were telling you with the software, we were telling it was to run there, 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 that really grasping that they're buying software to run their company and so I think the sit is better that way.

And I think the market is really ready now for what we have offered. Maybe we were too early, but I think that the way it is really coming now, we're feeling it every day. As far as the source of the sales, your question is very astute. We -- if I go back a 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 drives those customers, and there was a steady uptake. What's happened now more recently and it's 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 SDRs, coming down through the demos that gets that, coming down through to closes, and we scale that inbound channel every month.

We had more leads at the top, we had more SDRs, we had more -- we do more demos every month. So it's math. 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 will continue and that's been probably the front 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 the technology now to really facilitate the reseller channel. And that's beginning to run on 4 out of 8 cylinders and we're tuning in. We're probably, if you ask me again in 6 months. I'll tell you we're on 6 out of 8 cylinders, but we're getting that, 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 are typically 3-year contracts with these customers was 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 so that master franchise and one of the Thryv -- one of the software -- one of the franchise experts said that this was the Holy Grail for the 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 color there. I think the one of the things you mentioned -- I think in the prepared remarks, if I remember the name of the customer correctly, I believe is Tree Masters. I mean am I forgetting alone, 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 differentiate versus what else is in the market.

So we designed ThryvPay, especially for our service-based businesses, that's been our stock in trade. They've been our customers for the life of our company. And so we have a pretty close dialog and a relationship with them. We basically asked them and we're getting into payments initially we put on Square and Stripe and the usual suspects onto our platform and we had designed on trying 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 instant -- instantly knowing where they stood on the money.

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

Sure, Joe. Thank you. So obviously, these types of businesses are low transaction volume at high dollar amount and that requires a specific set of features and benefits for any specific product. So for example, we launched ACH for the ability to accept electronic bank payments. And if you think about the average transaction size of a larger service business, you may charge $1,000. If that person were to key that transaction into another credit card provider, they could be paying 3% or even more than 3% of a fee on that particular payment but with our ACH service and 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 instalment plans, scheduled payments, repeating payments, all types of configurations that really help service business 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 set and products, we really find high adoption and we are 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. And then, one last one for me that will 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 product? Yes. Or is that something that we should wait for 2022 and 2023 to really come up in the numbers.

Yes, you're exactly right there. Our agenda is very little Thryv sales related to Sensis at this time.

Perfect and congrats again on the quarter.

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

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

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 in the white pages is largely made up of the government institution, giant companies, and they pay for the white pages on their Telstra which is the telephone company there -- the Telstra telephone bill.

So some like a utility that just rolls on, think of like the AOL 1495 thing, 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 in their Yellow Pages because of that big white page business and it really flat of the margin, 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 2, but it won't get in Australia down in the '30s or something like that.

It maybe a point or 2, but they will still deliver much higher margins than we have in the U.S. and as we blend them together, the Sensis acquisition nicely flatter as 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 for selling it. This is really a '22 to '23 story for revenue there. We will definitely have sales this year. We will have some revenue this year. But if you think about a SaaS sale, if you make the SaaS sale late in the year, you maybe have 1 month of revenue or 2 months of revenue, it's not going to be huge in this year, pretty much focused on '22 to '23 for that integration and the revenue there.

That's super helpful. And then switching gears exciting news with relating to the launch of the ThryvPay app, and I know it's early days, but can you think about what type of -- what 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 is no question that having a free app out there, it's delivering exactly what small businesses in particularly service- based small businesses are looking for, is definitely going to drive brand awareness and bring people to Thryv, into the Thryv brand and Thryv company. Whether or not once they're doing payments, they will 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 are 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 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, it's 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 ThryvPay revenue speak up or any Sensis revenues speak up. Those would be icing on the cake.

Understood. Makes perfect sense and last from me, just in terms of the SaaS segment margins, Q1 EBITDA margin is kind of a reasonable proxy for how do we think about modeling the rest of the year, given obviously intentions to invest and drive growth there.

Yes, look, I think your read it out 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, to see the merit of growing this a little faster and they've green lighted some additional investment 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 business's margin is -- rather than the margins growing higher and higher and higher, I think they actually are going to 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 of points of faster growth and then say oh, we lost money. It's been profitable since 2019. On EBITDA and a cash flow basis, it's fully repaid our investment started and it's cash flowing and it's going to continue to 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 2, one way or the other, we intend to run it at a profit. I would not lose money, but not grow the margin, so is that in the low to mid-single digits or whatever. That's probably the zip code that will be in, and I'd say it'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, but that is generating into growing it faster, both domestically and internationally.

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

Nice taking question and nice quarter with Thryv for home services set the rollout in the second half of this year. Can you talk about the game plan there and there are some expectations around the vertical product launch.

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 dogs and cats, all the services out there. We don't tend to have as much in high-end retail and travel and entertainment. That's part of life, while the pandemic was a bummer, it didn't hit us directly because the kinds of businesses that were wacked 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 subscribers growth, it's very heavily concentrated around the service-based businesses, just naturally because that to our customers, or that's who we have relationships with that through our business advisors, 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. We've had the feedback that we can 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 set of verticals, the home services vertical, actually last fall, he has been hard at work, pulling all the bits together, we created the technology and put it in, and now are prepared to roll it out. And we really think that the client satisfaction inside, our very large service base is already in the client base, will improve and we think that referral, pass along kind of thing will accelerate them. And I would like to have Ryan Cantor with a comment little bit on the verticalization and our thoughts and plans. Ryan, can you pitch in here?

Sure can, Joe. Thank you. And so I think it's -- Thryv Home services is an exciting opportunity for us. As I stated in my statement, we did start with the products. So we feel the product is with -- if we're honest in 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 is specifically cater 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 been started working upstream with our sales partners and our demos are now verticalized with specific virtualized demo tools, so that every client when they come in, sees of version of Thryv that fits their business needs.

And, as we've perfected that and every stage of that obviously comes with learnings and things that we can do better and feedback, we then take that and bring that to the market, you will see changes to thryv.com in 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 quiet experience, user experience and worked our way up the funnel, so that as people buy this product, we don't disappoint.

No, I appreciate that color and I don't think it's just the blueprint to some of the other verticals even 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 off, how do you think about a long-term target for your net dollar retention as your customers continue to get more seasoned and more integration solutions like ThryvPay for the existing Thryv users.

Well, look, like a lot of software companies, we've got quite a roadmap of product, module, 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 unbundle 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 a 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 -- these literature and some of the other information that you've got some of these land and expand boil up things that are way past 100%, we're making big sales to real businesses.

So we're not -- our model isn't as land and expand some of those, but we do think a 100 plus is insight in the intermediate defense. It's not something that we think will 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.

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

Actually I want to see, if I could squeeze 2 in if you have time, but the first is on the SaaS ARPU to $304 versus $240 a year ago, it's 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 priced plans or is the pricing tiered based on size of company, number of employees, usage, et cetera. I was just trying to get a little bit more context there.

Okay. So what you see happening Lance is we had an experiment a few years ago moving down market, we put up a kind of by yourself online product at a little bit lower price point and we sold them like chicklets. I mean they were selling like hot cakes, the problem is that those customers weren't experienced, they want engaged, they didn't use the product as much or it's intended way and we experienced a lot higher churn and we made a decision as a business 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 hobby business, solopreneur, little tiny, tiny business.

There is a market out there for that, I guess, but that's not our market. And so we move back up market, we timed it with a really dramatic upgrade in the software, where it was really enhanced and approved and we eliminated all those lower price point tiers and we solidified our price at a higher point, we actually raised the price a little bit at the higher end and we locked down and started pursuing that higher price point.

And so what you've seen happening over the last, really 7, 8, 9 quarters. if you're watching the mouse moves through the snake, you're seeing that little churn volume that within our customer base roll off and goes 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 out in the past.

And so that's why you see the blend of that ARPU going up, up, up. When you layer on to that, the fact that we have 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 2 things that are driving ARPU up.

That's super helpful. 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 the $1 billion and includes a $150 million plus of SaaS, yet your equity market cap is less than $800 million. I know you have some debt, but even adding the debt in the enterprise value is about 1.3x 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 revenue is there or $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. You know we're doing really well, you mentioned that are our equity market caps $800 million. Well, it was $300 million 6 months ago. I mean we are beginning to get credit. There are, I don't know, 3, 4, 5, 10 portfolio managers out there that are 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 were pretty patient about it coming.

I mean the benefits of having the company together are quite dramatic. There are a lot of software companies out there and they're all battling customer acquisition costs, it's tough to breakthrough especially to small businesses. It's tough to break through and have your message heard. For us to have hundreds of thousand 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 that 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 2 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 team's time horizon, many of our new investors that are coming in, we're all thinking in terms of 5, 7, 8, 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 are in pole position and the market is just unfolding. We think we're in the top of the second inning of a very, very big way. Think back, if you will, to 4, 5, 6, 7 years ago, and the late cloud, which is coming on like gangbusters in the enterprise. it's just beginning, just starting for small business, and we already have a fully scaled international platform, it's best to breed that won 14 awards in the most recent round of awards, go on Capterra or G2 crowd, look at our best value for money, best service, easiest on boarding. We're in a really good spot.

So if you take the market a little while to figure this out -- maybe we're in order that's misunderstood. We have to die and go away before our art is really valued, but we are 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'm cool with that, and I think I'll do real 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're not up against it on anything. It'll be pleasant to have a higher valuation, but maybe that will just come as people see growth accelerating.

And at this time there are no further audio questions, are there any closing remarks?

Yes. I'd just like to thank everybody for tuning in. They're -- 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, 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 where the kinds of tools that small business is needed. We're right in there, like you 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've seen quantum leaps and 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 that we talked about raising our guidance, but the big story here is, the software got tons better over the last year. I think we show that we're x percent higher this year over last year in revenue, but the software got 3x 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 and talk about how it's going. And the feedback I'm getting is -- you guys are getting this figured out, this is really starting to work and people running their companies on this software now, and that was only partially the case a year or 2 ago, we had a couple 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're 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 3 months’ time on how this is all going. Thank you, everyone.