Thryv Holdings Inc (THRY) 2021 Q4 法說會逐字稿

Good morning. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Thryv Q4 and Full Year 2021 Earnings Conference Call. (Operator Instructions)

Thank you. Cameron Lessard, you may begin your conference.

Good morning, and thank you for joining us on today's conference call to discuss Thryv's fourth quarter and full year 2021 financial results. With me on today's call are Joe Walsh, Chairman and Chief Executive Officer; and Paul Rouse, Chief Financial Officer.

Before we begin, I'd like to remind you that shortly before today's call, we issued a press release, announcing our fourth quarter and full year 2021 financial results. We also published a Q4 earnings supplement on our website. I would like to remind listeners that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements about the operations and future results of the company. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with SEC. Thryv has no obligation to update the 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 our Investor Relations website at investor.thryv.com.

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

Thank you, Cameron, and thank you all for joining us on the call today. I'm pleased to report we finished the year on an exceptional note with revenue and EBITDA beating guidance. At the beginning of '21, I outlined a growth strategy for our SaaS business and additional areas of investment needed to scale the organization. Looking back, I'm really proud of the Thryv organization and the way we executed and implemented those investments into product, into engineering and improving the product and the impact can be seen in the results.

Let's take a minute and just jump into the headlines. We grew total SaaS revenues for the fourth quarter by 36% and for the full year 32%. For context, we grew revenue in the SaaS segment 1% in '20. So from 1%, we jumped to 36%. So really strong performance there. SaaS ending clients for the year 46,000. So we ended the year with 46,000 SaaS customers, up 5%. So there's been a lot of discussion about whether or not we can grow our subs because we made such huge progress on ARPU this last year. I think in the year ahead, you're really going to see balance between ARPU growth and subscriber growth. And in fact, we expect that kind of 5% subscriber growth to accelerate to double digits in the year ahead.

In a minute here, Paul will walk you through the detailed numbers, but I would like to highlight some of the progress that we've made on some of our strategic priorities. Since the beginning, I've been talking about this was the decade of SMB staff. But last decade was enterprise is moving to the cloud and that this decade would be the decade of mom and pop and small businesses running their business on mobile devices. By the end of this decade, that will be just standard fare. And at the beginning of the decade, for the most part, really none of them were doing it. So it would be a massive transition. And that move will actually be bigger than when enterprises went to the cloud because there are so many more small businesses.

And we have positioned Thryv over the last 7 years in full position to lead that gigantic transition. So this is an unstoppable mega trend that you're playing by investing in Thryv. Just from a macro basis, what we're seeing now is we're seeing small businesses that have been experimenting with perhaps a point solution or 2 or 3, become frustrated with logging in and out of all these things, the fact that they -- the data doesn't share, they don't talk to each other. They got sticky notes everywhere. They have a hard time, including their employees to use these tools, and they're looking to move upmarket to something that's a more complete end-to-end client experience and end-to-end solution.

And that's where Thryv sits in that aspirational spot. So as people sort of try a few of these little point solutions, little freemium tools, a little odd demand, and they realize that this is the way to go, I want to modernize. They sort of find their way moving up marketing to Thryv. Thryv is quite a bit more expensive than a lot of those little point solutions are out there, but it does so much more. It's a more powerful tool.

So increasingly, I'm talking to customers, just in the last couple of days, I've been doing calls into Australia, speaking to customers in Melbourne and Sydney about their experience with Thryv so far. Yesterday, I spoke to a client who had been a pretty big Mailchimp user, and she has upgraded now from Mailchimp to Thryv, and she's got so much more capability to do social posting to set up automated messages to go after her customers, she's responding to her customers through the chat feature and she says, really pleased with the power of Thryv.

And she knows it does even more things that she hasn't accessed yet, but she is excited about the completeness of the solution. She doesn't need to keep buying other software. And she had a pretty rigorous look to figure out what to use and concluded to go with Thryv. So hearing that story more and more in the weekly customer conversations that I have, hearing people really beginning to take 2 or 3 point solutions and get them and go to Thryv. And they end up saving money when they make the transition. And they get a lot more power and a lot more capability.

So Thryv is an aspirational brand. It's nowhere near as expensive as an enterprise tool like Salesforce. It's not even as expensive as a mid-enterprise tool like HubSpot, it's more of a small business tool. But it's a complete powerful tool. And it's making a big difference for a lot of small businesses. So by investing with us, you are playing in that macro trend, that small businesses are going to want to go with almost like a salesforce.com type of thing that a big company would do, they are going to want to do that more complete solution that they can share with their staff. And they could all communicate on that one tool. They can have a centralized inbox, where all their messages flow in and it simplifies and organizes their lives, where they can do estimates, invoices, billing, payments. They can use ThryvPay, save on transaction fees. They can manage social media. They can even deal with ratings and reviews. And they can nurture their customers and keep in touch with them and remind them to come back all in one very simple tool.

So we have been recognized this year for a lot of innovation. The Google My Business, helping SMBs get found online. We have got a very deep integration there. So even though it's software, it's not advertising, because it's so SEO-friendly, it works so well with Google My Business. It's actually helping our customers get more leads, get more customers, which is an unexpected benefit, not necessarily the way we position it. We have launched the verticalized platforms with enhanced CRM, so ThryvHome, ThryvLegal, ThryvHealth, we're beginning to really customize products that once you come in and you tell us you are a roofer, you tell us you are a plumber, you tell us you are a lawyer, we begin to configure everything very quickly around what you are. So it feels very bespoke for you. And that's really helped with client satisfaction, and you can see it in the engagement right through the numbers, it's amazing.

We've launched a lot of free online tools to just help businesses with lots of simple things, creating invoices, different -- just different simple things. And that's been a feeder pool driving new customers to our website, driving new leads in sort of a free content marketing play, it's been very powerful. We've really focused also on faster implementation and getting people to value very quickly. That has been challenging, but amazing results that our team have done. And that's just shortening up the time from when you realize you want to do this when you are getting value from the software. And we are seeing that in higher engagement and lower churn right through.

We had some external recognition this year, G2 Crowd, Capterra and the APPEALIE Awards recognized the Thryv product as #1 in a number of categories were placed very highly, really external recognition about what a consumer grade, easy to adopt, easy to use tool this is, how fast time to value is how good value for money is. And I would invite any of the listeners here to go to these review sites and read the reviews on Thryv. They are outstanding. And we have made such incredible progress here in this process.

ThryvPay did north of $60 million in payment volume and has now become the most popular choice of all the payment tools that are available. And we are sort of Switzerland, we operate with everybody -- we interoperate with everybody, so you can bring whatever tool you are using when you come on to Thryv, but lots of people then switch to ThryvPay along the way to save on fees, to recapture convenience fees from customers. And because it has a lot of small business friendly elements to it that allow you to setup the current payments and appointments and classes and lots of things that we've custom-built for the clients that we actually serve.

So interestingly, 70% of our clients coming in now are new to the company. And I know we talk a lot about hunting in the zoo, working with our standing base. And that's still producing about a third of all of our customers. But there is a subtle nuance here. And that's because we have made so much progress with client satisfaction, engagement and usage, we are now getting loads of referrals from those clients. So they are actually bringing up there their business adviser and saying, I want you to talk to my friend, he needs help like this. And so that's really driving that, that sort of referral is driving a lot of the growth that we are seeing. A third or so of our customers are coming from our new channels, the actual inbound marketing and some of those other new areas that we have spoken some about. And as I mentioned earlier, we are seeing subscriber growth accelerate now as we sort of outrun the lower priced offerings we had a few years ago.

Retention, we are seeing right now, season churn is 1.5%. 1.5% season churn, so that if we are really proud of that, we think that's sort of world's best when you are dealing with very small businesses. Our season net dollar retention is now 94%, which is strongly better than the prior year. And we are continuing to see progress there. It's not a straight line, because of different anomalies in the customer set, but we have been asked many times do you think you can get to 100% net dollar retention. And we really do.

We don't think it's a 1 quarter or 2 quarter journey, we think it will take a little while, because we are dealing with very small businesses. But we have lots of additional product offerings coming on our product roadmap that will continue to propel that net dollar retention and customer ARPU increases. So we are highly confident that this is a hundred cents on the dollar type return. I'd like to just talk about engagement for a minute. Time in the app, year-on-year is up. User frequency is up. Clients using multiple features is up at CRM, Inbox, Scheduler, social post, sales module all up. App downloads and installs have doubled.

I'd like to turn now to an update on our Sensis acquisition, we now call this Thryv Australia. The focus with Sensis in this first half the year or so was to really focus on client engagement, getting customers betted down, getting them using the product, getting them happy with the product. And we have hundreds and hundreds of customers that are dishing out referrals now and happy about the onboarding experience and the difference that we are making in their business. I think it bodes well, it kind of gives us a broad clean foundation to really accelerate growth. And I think one of the things you will see if you watch '22 is you'll see the Sensis acquisition really come on stream as a source of subscriber adds and revenue growth. So really excited about that.

Finally, I'd like to talk about a small acquisition that we made recently. We acquired a company called Vivial Holdings. Vivial is a marketing services company that publishes directories. It was sort of the last bit of the telephone company, Yellow Pages' ecosystem that we needed to fill in, that we needed to cover. And it brings us Hawaii, Alaska, Rochester, Cincinnati, some markets that the fire companies that we acquired did not cover. While we do have some customers in those areas, we didn't have much customer density there. So this brings us 25,000 digital clients that we can now penetrate with our SaaS offering. It sort of expands the zoo, if you will, we pay $21 million.

We used available cash to fund the acquisition. We didn't borrow or go out and do anything big here, very simple deal. And in terms of the discipline that we always talk about when we make this type of acquisition, we've said that we would be approximately 2x EBITDA on a post-synergy basis. And this one is true to that as well. As I mentioned, it just closed in January. So integration process is getting cranked up and underway. We are getting everything set up so that they can begin to offer the Thryv solution to their customer base and that will actually begin to flatter our numbers as this year unfolds. So really excited about the progress that we are making in the business. This Vivial acquisition synergistically fits perfectly onto the Thryv platform here in the U.S.

So I am really, really pleased about that and anxious to turn this over to Paul Rouse. Let him give you a run through the financials. So Paul?

Thank you, Joe.

Let's turn to our fourth quarter and full year 2021 financial results. I will first cover our U.S. business segment starting with SaaS. Fourth quarter U.S. SaaS revenue was $47.1 million, an increase of 35% year-over-year. For the full year, SaaS revenue was $170.5 million, an increase of 31% year-over-year and ahead of our guidance. When adding the contribution of revenue from Thryv International, SaaS revenue increased 36% year-over-year in the quarter and 32% year-over-year for the full year. Fourth quarter U.S. SaaS EBITDA loss was $6.7 million and within our expected guidance range. For the full year, U.S. SaaS EBITDA loss was $14 million, representing a negative EBITDA margin of 8%.

Total SaaS ARPU was $351 for the fourth quarter, an increase of 20% year-over-year. Total SaaS clients ended at 46,000 for the fourth quarter, an increase of 5% year-over-year. Fourth quarter seasoned SaaS churn was 1.5%, a 60 basis point improvement year-over-year and a 20 basis point improvement sequentially. Seasoned net dollar retention reached 94% for the quarter, a 400 basis point improvement year-over-year. As a reminder, seasoned churn and seasoned net dollar retention represents clients that have been with us for over 1 year.

Moving over to U.S. marketing services, fourth quarter revenue was $153.5 million. As we discussed on prior calls, there is lumpiness in the print publication schedule. We expected lower revenues associated with fewer print publications. For the full year, U.S. marketing services revenue was $797.5 million, a decrease of 19% year-over-year and ahead of our guidance. Fourth quarter U.S. marketing services EBITDA margin was 26.5%. For the full year, U.S. marketing services EBITDA margin was 40%, representing a 330 basis point improvement when compared to our prior year. That improvement in margin is due to a shift in higher margin offerings within our marketing services product mix.

Fourth quarter, U.S. marketing services billings were $181 million, a decrease of 22% year-over-year and consistent with previous quarters. Full year, U.S. marketing services billings were $797 million, a decrease of 21% year-over-year. As is consistent with previous calls, we are providing billings an 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 is shown to be lumpier on an accounting basis given the 15-month lifecycle of our print directories. This is provided in our fourth quarter investor supplement available on our Investor Relations website.

Moving on to Thryv International. Fourth quarter Thryv International revenue was AUD60 million and ahead of our guidance. On a reported basis, given the effect of FX rates, Thryv International revenue was USD43.8 million. Thryv International fourth quarter EBITDA margin was 28.5%. For the full year, Thryv International EBITDA margin was 31.8%. On a pro forma basis and backing out acquisition accounting adjustments, EBITDA margins would have been 38% for 2021.

Turning now to profitability for the consolidated business. Fourth quarter adjusted gross margin was 66.1% for the consolidated business, a 160 basis point improvement year-over-year. For the full year, adjusted gross margin was 68.2%, a 130 basis point improvement year-over-year. Fourth quarter adjusted EBITDA was $46.5 million, representing an adjusted EBITDA margin of 19%. For the full year, adjusted EBITDA was $350.5 million, representing an adjusted EBITDA margin of 31%.

Finally, on capital allocation. We repaid $17.5 million of our new term loan in the fourth quarter, which brings our cumulative new term loan repayment to $158 million since the refinance associated with our Sensis Holdings acquisition in March. Our leverage ratio for the fourth quarter in accordance with our credit facility is 1.4x our net debt to EBITDA. In addition to the progress we made on our long-term debt, we have made significant progress in reducing our pension liability over the course of 2021. Our pension liability has been reduced by $51 million and our funded status improved 600 basis points to 76%. We will continue to evaluate our net pension obligations each quarter.

Let's talk about guidance for 2022. As an update, we will continue to report each segment: SaaS, marketing services and Thryv International. However, going forward, we will provide outlook for total SaaS and total marketing services, which includes both domestic and international operations. This should be helpful in modeling the business.

Okay. Now, let's talk about our outlook for 2022. For the full year 2022, we expect total SaaS revenue in the range of $206 million to $208 million, representing growth of 20% to 22% year-over-year and an EBITDA loss in the range of $21 million to $25 million. For the full year 2022, we expect total marketing services revenue in the range of $870 million to $890 million and EBITDA in the range of $305 million to $312 million, representing an EBITDA margin of 35%. We expect Australia to contribute approximately $160 million to $165 million in revenue and expect an average FX rate for Australia of AUD0.73 to the U.S. dollar.

As Joe alluded to earlier, we closed the Vivial transaction in January. We expect Vivial to contribute approximately $70 million to $75 million on a full year basis and will represent a headwind of approximately 200 basis points to total marketing services EBITDA in 2022. Consistent with previous calls, we will provide quarterly ranges for marketing services revenue for the remainder of the year, which can be found in our fourth quarter investor supplement materials on our website. We provide these figures because sales canvas process allows for strong visibility into future revenues and because print publication timing is not generally consistent quarter to quarter.

Now I will turn the call back over to Joe.

Thank you, Paul.

So as you can see, we are really proud of '21. We made a lot of key investments that paid off beautifully during '21 and that growth carries through to '22 and will benefit mightily from the stance that our board is authorized to be more on a growth footing as we go into '22. I think we can deliver durable, SaaS growth. The investments in engineering, product, international expansion and go-to-market are driving growth on more and more vectors or hitting on more and more cylinders as we move forward here. And I think we are doing a really good job of balancing the tension between delivering profitability and staying on top of this unstoppable trend that I have been describing today. We are very familiar with the kind of the Rule of 40. And you will know that this business in the second quarter of 2020 was delivering in the team's EBITDA margins. So it's really a fairly recent choice that we've made the step on the gas and accelerate that investment.

So our path back to profitability is crystal clear. We can just sort of let up a little bit on how fast we are investing in that international expansion and some of the engineering things that we are doing and return to profitability and delivering 20% of the EBITDA line and 20% growth is not out of reach at all for us. We've chosen to really stay on top of this because we see this unstoppable trend that we really feel that we can ride. So the path to profitability is crystal clear for the company.

We got an Investor Day coming up in early April. Registration materials are on our website. This event will be focused on the long-term. We are going to be looking at the decade of SMB SaaS, talking about how Thryv will lead small businesses in the U.S. and around the world on to the Thryv platform and then add interconnectivity with lots of other tools and functions that are out there. So that you can really live in your Thryv and run a small business, reach in your pocket, manage your business from your pocket. And we think that, that is where the marketplace is going. And we are out in front of it. We are in pole position to lead that. We are also going to talk about our marketing services business and how it evolves over the balance of the decade and how the interplay between the 2 companies work. Make no mistake these 2 businesses belong together, they are benefiting mightily by being together. So we will talk about that and layout our strategy and our thinking.

So with that, let me turn it back to the operator.

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

Perfect. Joe, you mentioned and I saw the slide deck in the presentation about all the awards you received for your SaaS platform in 2021. There is G2, Capterra, many others. I am curious what role you are seeing that playing in just building brand awareness for Thryv SaaS solutions? And then for the new customers that you are attracting to the platform, do you have a sense for how much of that is competitive consolidation, meaning they are using a SaaS solution already and they want a more full platform that they are getting with Thryv versus a greenfield opportunity, where customers are adopting real software solutions for the first time?

Arjun. It's kind of a mix. I am starting with the second part of your question. We are still everyday bringing a lot of unclouded into the cloud for the first time. These tend to be a lot of our service-based customers, maybe people who are very skilled at their craft or their industry, but didn't have super high educational attainment and maybe weren't thinking about modernizing and our business adviser working with them on their advertising, their marketing services stuff has been suggesting that they solve some of their business problems using Thryv software perhaps for a couple of years and they are moving over. And so a lot of times, we are introducing people to the potential of what's possible in the cloud. I would say that's still the majority of customer acquisition. But increasingly, we are finding people who have started to use the point solutions, particularly the ones that come in through our websites.

Your first question was, does winning these awards help us at all? And what we are seeing as a company is very strong growth in our organic traffic coming into our websites and that's people hearing about us in the market, that's people maybe looking at the reviews, that's people that are beginning to source something like this. And it's nice, because it's -- you are not out advertising to get them, they are just sort of coming to you organically, which is really nice.

One other area, I just want to highlight that I don't know that a lot of our investors have thought about, but because we sometimes talk about serving our standing accounts as hunting in the zoo, calling on our friends, there is one piece that is just really impressive to me that just keeps growing. And that's the amount of new business that's coming from that base, meaning they are referring their friends to us. So the guy is out on his Saturday morning golf group and his buddies complaining about how difficult social media is and how he is struggling to try to figure out digital or electronic payments or whatever. And they are strolling down the fairway and the guy says, well, I am using Thryv, I should introduce you to my business adviser, who could help you with that. And we are getting about a third of all of our business coming in. It's coming in from that referral out of that base. And it's growing. It's growing really nicely.

So I think just to sum up the answer to your question, the awards are just a telltale piece of the reputation that's growing around Thryv. And I think you asked how many people are coming from other software solutions. That was a tiny, tiny trickle a year ago. We are seeing it a little bit more now, where people have maybe experimented with a point solution and are now moving up to a more complete kind of small business enterprise wide thing, sort of like a little salesforce.com for a small business where they are able to do a lot of things under one login. And they can share login credentials or provide a login credential to their staff, and they can all communicate and see the same details about their customers. So yes, I think the awards are helping.

Awesome. That's very helpful. And then just one follow-up for me on the SaaS guidance, it seems like the numbers imply there is going to be a pickup in net revenue added in the back half of the year at least in the last 3 quarters of the year. I am curious is that -- are you seeing international in Australia and Vivial start to layer in the back half of the year? Are there other drivers that we should be thinking about that will come after Q1 in the SaaS business that we should consider when we are thinking about how the year unfolds?

Yes. You are leading the witness. That's exactly -- you got it exactly right. Australia is really beginning to hit Thryv. We were very careful to make sure that we got high engagement and happy good users established there last year and we are beginning to really accelerate now the growth there. And we are hunting at a very big zoo, it's a large customer base there. We have -- the company that we bought, Sensis, was more than 100 years old, an iconic brand and the trusted company within that market. So it allowed us to become big and important there right away. So we wanted to really tread lightly and be absolutely sure that everything worked and worked well in that market. And so yes, we anticipate that accelerating through the year. We are seeing it as we speak. And I was looking at this morning sales report from the overnight there, Australia, another really good day yesterday. It's accelerating nicely. That's one piece.

Vivial, we only just acquired. So if any benefit we get from that will be in the second half as we get everything wired up, get everybody trained and get going on that. So that will be a lift in the second half. And you are, I think, aware that, we've been building a franchise multi-location product, hub for franchise, and we've been building out that functionality. And for 2 years, we couldn't go to franchise shows. And that's really the heart and soul of the franchise business is going to these big franchise shows and conferences. There was one weekend before last in San Diego. And we were there, and we were there with a booth, and we were there in spades, we were meeting lots of people. And if that business is really beginning to develop, now that it's come back online in person. And we got a pretty big reputation within franchise.

I just on Monday was checking in with a 48 location franchise company that joined us last year. And he's got very clear plans to grow his franchise operation to 100 locations over the next couple of years. And after an exhaustive search, they looked at a dozen different platforms. They selected Thryv as their sort of operating system that they are going to use. And this guy couldn't be anymore happy with the onboarding process and the services he's been getting. And he and I discussed a couple of things that he's got suggestions that we are working on for him. And he was really happy with how that's going. And what's exciting about that is that these franchises typically sign up for 3-year contracts with us and they escalate on their own. I mean, talk about NVR, I mean, this guy, he realizes his plans is going to more than double the size of his relationship with us over that period of time. So that's been a big part.

So in terms of kind of growth vectors, you threw out a couple of them. That still -- and those are going really, really well. And we've also been innovating our local sales channel. We've extended the life of our print directories out a little further, which has created even more selling time for our local sales force. We've been introducing some other innovations in how we sell and how we work, so that productivity on a per BA basis, per business adviser basis, has been steadily rising. So as we implement the balance of that plan, we see that continuing to accelerate through the year. So really, I wish everything would happen instantly, but it kind of takes time when you are developing some of these things. And we see them continuing to grow through the year. So thanks for that question.

Your next question comes from the line of Scott Berg with Needham.

Congrats on the good quarter. I guess 2 questions for me. Let's start off with the year ahead here, Joe. You talked about your SaaS subscriber growth, up 5% in the fourth quarter and expect it to increase to a double-digit level here in calendar '22. How much of that kind of increase or shift do you think is related from some of the smaller marketing -- excuse me, smaller SaaS customers that churn starting to kind of peak and get in the background versus your increase in sales and marketing efforts over the last year, just driving that net new customer increase higher?

I think there's some of each. I mean, as many of you are aware, we -- now several years ago at this point, experimented with a lighter version of Thryv offering at a lower price point with a kind of sign up by yourself motion online. And it did bring us a bunch of customers, but it also brought us unengaged customers and churn we didn't want. And we just really came to the conclusion, that's not where we want to be in the market. It would be like selling an iPhone for $200. We didn't want to do that. This is an aspirational product. It's by far the highest quality product in the market. It's the iPhone Pro in the market. It's a really, really high-end, high-quality product.

So we decided to just nip that in the bud after that experiment, and we took it out and set out for now for quite a while. But the bulge of customers that it brought us took a while to kind of churn off, and we have been in the prior couple of years kind of running on a treadmill, where we would add a $349 subscriber and lose 3 of the $99 a month guys. And we were probably a little bit ahead on money, but it looked like we were going backwards in terms of subscribers. And so that's mostly done now. And so part of what you're seeing in the subscriber acceleration is just we're not running on that treadmill anymore. I'm not saying there aren't a handful still rolling off. But for the most part, that's out of the numbers. So that's a piece of it. And that's a piece of why in the second half of the year, you saw it getting stronger and stronger.

And then the other piece is, as you say, we have been building a more robust dedicated sales motion around this product. And I know I said it a minute ago, but I want to get props to our very large local sales force. They have really innovative and really figured out how to increase productivity on a per business adviser basis, very steadily. I mean year-over-year, almost quarter-over-quarter, they've been expanding their sales throughput, and that's continuing to happen. And the innovation in the marketing services business, we've extended the life of our print directories. They used to be 15-month publications. They're now 18-month publications. And that extra time gives a lot of open real estate, we call it, kind of opportunity zones for our reps to really focus more on the SaaS products. So between that and the other innovations that they've done, we're getting more productivity there.

So we're quite confident that you will see a desirable blend of subscriber growth and ARPU expansion this year. We were asked more times than I can count last year. While we see that you're expanding ARPU, and we see your revenues growing very nicely, but we're worried that it's coming from the same size base, and you can't sustain that. And we, of course, realize that and are working very hard here in the U.S. to grow our subscriber base. In addition to that, we're expanding internationally. We're obviously in Australia, we just entered Canada, and we have designs on additional markets and we're -- there's a lot of investment going into building international because those markets need Thryv as well.

And then from a follow-up question perspective, is on ThryvPay. I believe you've had the product in the market a little bit more than a year now. How should we think about the traction in the product? Obviously, you have more customers that are using it than when it first got launched. But if we think about, I don't know, ticket sizes or frequency of use on a per customer basis, any other details around some of the maybe underlying trends or traction in that solution that you're seeing that might be helpful to us.

Sure. Yes. It's continuing to just melt up in a relatively steady way. I think, talked about before, it's not -- these are not like buy a pack of gums and some cigarettes kind of transactions. These are more kind of $400 a month transactions on average. So these are people getting a deposit for a kitchen remodel and they're running $1,500 or $2,000 through it or a plumber coming out to top a new hot water heater in for you and you're paying over ThryvPay. It's that kind of stuff. These are good sized transactions. And we're seeing the number of transactions steadily and slowly rise, and we're seeing the number of merchants signed up and actively using it steadily rise.

The one area that has been a little more treacherous, and we've gone a little more slowly with a ThryvPay premium, meaning you can go get ThryvPay in the App Store, either Google Play or iPhone App Store and download it and sign up and begin to use it. We've had to go really slowly and really carefully there. Just to avoid any kind of fraud or any kind of problems. And that's been -- we kind of thought before we started into it that we would be able to really ramp that quickly. And we've decided and we've ended up realizing that it needs to ramp a little more slowly, but it is ramping. And in rough terms, the volume that we saw in '21 coming over the transom on ThryvPay in very broad strokes will double, at least going into '22, just based on the trends that we're seeing and the gradual but steady uptake of ThryvPay premium, which we think is a little bit of a Trojan horse to help us meet new customers that will eventually buy the broader Thryv solutions.

So the ThryvPay is a big, big positive for us and something that we're really excited about. We don't make very much on the revenue. I don't want to get you excited that if there's $100-plus million of revenue, what does that pencil out to. We're really doing it as a convenience for our customers as a lock in. When your software is paying you, you don't tend to churn. You just don't. So -- but ThryvPay is a big strength for us.

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

Maybe digging into the SaaS growth guide a little bit for '22. I think you mentioned double-digit client growth. Maybe just talk a little bit more about your expectations both for ARPU growth and client growth and what's embedded on the SaaS side in Australia, if it's somewhere in the deck, and I missed it, I apologize, but just trying to tease that out a little bit more.

Yes. I don't want people to think Australia is the same size in the United States. It's more like the same size of Texas. I mean it's going to be an important growth driver for us this year, but it's not like a whole another U.S. coming on stream or something like that. So they're growing, they're growing nicely, and they're going to really flatter our growth because the comp for last year is so small. So it will be very important.

Back to your question about how we see ARPU and sub growth working together. There's a lot of momentum and a lot of reason that ARPU growth is going to continue to rise. I think I've mentioned before, if you look at like a HubSpot that's above us in the market, they get about $11,000 per subscriber per year. We're at 4. There's a long gap between there. We have a road map with additional products coming. We have an Investor Day coming up in April. We're going to share some of that, that we believe will continue to propel ARPU up. And our current offering, even before we add anything, we see customers coming in, in at the entry level, it's kind of a good, better, best to construct here. And they often pretty quickly upgrade themselves to higher levels of Thryv. There are so many Thryv.add-ons that we're able to offer them. And we see people self upgrading to those add-ons, which is pretty exciting.

And then of course, we have a monetization team who's actually teaching, coaching, showing people how to use more aspects of the software, and they tend to take a lot of orders for upgrade too. So the general upgrade motion and momentum is very much underway and building. And the big ARPU gains that you saw over the last most recent period, part of that came from burning off those lower value once I mentioned in the earlier part of the call, maybe a $99 customer going away, replaced by a $349, that's going to move your ARPU up. As I mentioned, that trend is mostly behind us. Now we're looking at more just genuine people upgrading.

As you see us integrate these acquisitions, the Sensis acquisition, the Vivial acquisition, they had various digital product offerings, some of which we've been mapping over to our product, and we'll be doing some migration, bringing some of those customers over. And depending on how all this plays out, still early days, but that could end up adding a few subscribers that are less than the full rate card as we're trying to kind of offer them a migration and kind of finding a way to map them over. And so ARPU may not just go straight up and a rocket ship straight line. If we add a little burst of some lower value ones or something. But these are not -- we're never ever going to offer the product like we did kind of a strip down lower price version would be more just finite groups of people as we're integrating these products together.

So I wouldn't be surprised if ARPU doesn't go in a perfect straight line, it might be a little bit bumpy as we swallow some of these customers. But I think overall for the year, you will see a nice kind of 2-horse race there of subscriber growth into the double digits and ARPU continuing to move forward so that it will drive us to that 20-plus percent growth that we're guiding to.

And I think you partially answered my next, which was just in terms of globally thinking about SaaS pricing, do you see opportunities to take pricing given that big gap between yourselves and the HubSpot's of the world? Or is it more likely to come through additional functionality as we move forward?

I think it's more additional functionality and add-on sales. I will concede to you as our investors here, there is a little bit of unbundling going on in Thryv. When we started we sort of put the kitchen sink and made that sale. And as time is going by, there's sort of a very subtle unbundling going on. And that unbundling has the effect of driving ARPU and driving rate. Even though the basic prices of the Thryv offering, $199, $349 and $499, have been the same for quite a while. We haven't been imputing a rate up into that.

One of the things we're really proud of is we think we have world's best churn when you look at dealing in the very small business sector, we don't have any big companies at all in our base. This is all very small businesses. And our season churn is 1.5%, which we've never seen anything like this. We've looked and talked to everybody we possibly can. And that's been our focus. It's just not just serving but literally thrilling one customer at a time, and they become now sources of referrals and are a big source of the melting up growth that we're seeing.

So we aren't anxious to take the base prices and to start jacking them up, which is not to say we never would. We just -- I mentioned before, we're an aspirational brand in the market. We're quite a bit more expensive than a lot of these little point solutions. And the point solution providers sort of exaggerate the capabilities of what they have a lot of time and try to make it sound like, "Well, we just like Thryv, we do like Thryv, even though maybe they do 120 out there or 220 to what Thryv does."

And so we were conscious that it's a competitive market. And in such a -- with so much liquidity in the market, you've got a lot of money out there financing all kinds of deals. We want to make sure that we remain really competitive. So we've decided, at least up until now, not to raise the base rates, but there's very strong rate coming through that unbundling and the sort of the upsell motion that you see.

Last, just a quick clarification. That was listening and typing, but Vivial $70 million, $75 million revenue, did I hear that correctly? And what was the projected EBITDA for 2022? And those are not included in your marketing services and EBITDA guidance, I assume. Just want to verify that.

Yes. Well, as we said, we paid $21 million for it. We've been honest about that. We're taking about that. And we've told you that we like to bring these acquisitions in on a 2x post-synergy basis. So for 2022, you don't get a full year of Vivial because we bought it at the end of January. So it's sort of like a $11 million, $12 million. So it's not perfect math. Otherwise, you could say kind of $10 million or $10.5 million divided into year '21 and you'd be all done. It's more like kind of $8 million or $9 million that it will be for the year because it's -- it's just sort of a partial year. But -- and yes, you had the revenue right. We think it will bring us, I forget the precise number, but right around there, $70 million, $75 million of revenue this year.

Your next question comes from the line of Zach Cummins with Zachary Cummins B. Riley Securities.

Congrats on the solid end of the year. Joe, can you talk a little bit more about some of the planned SaaS investments that you're making this year? I mean, obviously, continuing to still lean into the momentum that you're seeing on that side of the business?

Yes. One of the things that you'll notice that you really study the numbers, it's a little front loaded the way we made the investments. We're really putting a lot into engineering and product and trying to get some of these things done and quickly and early some of the integrations that we've come up with that make the product much easier to adopt and use. You meet a customer and he says, "Well, I'm on this point solution and you're able to say, "Oh, no problem. We integrate with that. It really, really makes the conversation flow from there because I don't know if you know this, but small businesses hate data entry. They don't want to do the data entry.

So when they hear that the 2 tools just connect to an API and integrate, it makes adoption of Snap. So that's been really good. So it is a little front-loaded. We also -- I'm not going to make any secret of it. We are working hard at international expansion at the moment. And so there's some engineering things that we need to do. There's GDPR compliance that we need to do. There's a lot of things that we're working on that we kind of front-loaded a little bit into the year. So I think most of you are aware that this is a fully scaled already profitable SaaS company. We have just made a recent choice to step up investment that's pushed it into a small EBITDA loss, which is no big book because we're making $300-plus million on the other side of the house. It's just a choice.

So we have -- even if you look at this year, but you timely get to the back half of the year, losses in the final quarter will be very small, because we kind of front-loaded it. So basically, those are the areas, product and engineering, international, a little bit on go-to-market. There were some things we needed to set up and to do that we kind of pulled into the front part of the year, so we could get the benefit the whole year. That's your answer.

And nice to see kind of the strong SaaS guidance, especially in the current market environment, comping a pretty tough year from 2021. But just given the current environment with some of the inflation numbers, have you seen this impacting any of your customers in terms of sentiment or willingness to spend in the current environment?

Look, sales are very good at the moment. I just -- the first thing I do every morning is I get up and look at the volumes from the prior day, which I get early in the morning, and I've already gone through them today, and we had another really great day yesterday. So we're building momentum beautifully. But I talked to customers every week. It's a part of my week every week. Just have a free-flowing chat with our customers. And I never stop, most of my other executives do the same thing, just trying to stay really close to our customers. And we spend time talking to our business advisers about what they're hearing and what they're seeing. We're not getting this from reports, which what these are live conversations we're having with people.

And I hear gas prices being brought up by a lot of people who have trucks on the road because they're sort of breaking out at the rates are going up and one only needs to turn on the news and see that they're going to stay up for a while. And so that's got people just grousing and uncomfortable. Supply chain issues have caused a lot of the contractors to just try to get a sub-0 refrigerator right now. It's like an 11 months late or something like that or any kind of other fancy or custom things. It's just really tough to get things to the supply chain, and that's something that we constantly hear. The great resignation we hear a lot about. People have a tough time right now, keeping their staff and are having a tough time attracting, attracting employees. And so we hear a lot about that.

What we don't hear curiously is people complaining that they don't have enough work. They're getting jobs. They're getting calls. They're getting sales. It's more fulfilling it. That's the hard part. They feel a bit of a squeeze. So I would say, in my little survey, which is ever ongoing, talking to these local businesses, small business sentiment is medium at the moment. It's not terrible, but it's certainly not great. It's not as good as it was at points over the last year. And we took all that into account when we guided the way we guided. We want to -- we take very, very seriously the promises that we make to our investors. This is not my first public company experience. Paul and I spend a lot of time making sure that we can fully deliver on the commitments that we make. So not my first public company experience. Paul and I spend a lot of time making sure that we can fully deliver on the commitments that we make. So yes, we took all that into account when we set guidance where we did.

And Paul, for my last question, in terms of capital allocation, how are you thinking about free cash flow generation and potentially using that excess cash for either debt paydown versus additional M&A?

Yes, we get this question just about every call. Right now, we're focused on paying down the debt as rapidly as possible. If we would happen to come across another Vivial where it's very attractive, but will we consider that, absolutely. But at the moment, we're going to be focused on debt repayment.

Understood. If you don't mind, I'd like to just expand on that just a little bit. But I think it might be helpful for the broader audience. I want to be clear that acquisitions are not our plan. We feel like we can accomplish the entire mission here without acquisitions. We have an organic plan to grow around the world and build our SaaS business. I would describe acquisitions for us as more opportunistic. If we can get them in Paul strike zone, which Paul is cheap, by the way, if we can get them in his strike zone, then we do it. And we had actually been talking with Vivial about this combination for 6 years, 6 years, and they just finally decided that it made sense to do it at a price that we could do it. So we have such conversations going on all the time. We're pretty active out there.

But I just want to be clear, don't take this away that they were a roll-off or that they're -- they're going to just make one acquisition after the next. It's been a year since we made an acquisition, Sensis and it might be a year or more before we make another one. We're not spending all of our time looking at deals. We are planning to grow our business organically. We have the engineering talent to develop our software the way we want, and we feel confident that we can expand and we figured out how to do that without acquisitions. So if you hear us talking about an acquisition, it will be because it hit our very disciplined strike zone.

Your last question today comes from the line of Shrenik Kothari with Baird.

This is Shrenik, on for Rob. Great quarter and exciting shift towards subscriber growth versus just ARPU as the growth lever. I think you said 70% of your clients coming in now are new to company and inbound marketing partner, et cetera, new channels contributing about 1/3, if I got that right, up nicely from about 15% or so sometime back, if I recall that right. So if you can speak to the mix of that growth as a percentage and a little more granularity in terms of partners, resellers, franchisees, et cetera, channels, inbound marketing and referrals, that would be great.

Yes. I don't know that I have lots of really specific details for you. I don't know, Paul, if you or Cameron, any other guys there. have that. I mean I can speak directionally to what we're doing, but I don't know that I can parse that into specific little pieces for you. I mentioned earlier, our franchise motion is building beautifully. And they have already signed up in '22 more than they did in '21. I mean they're rocking. And as I said, we kind of finally let them out of their home offices to get out and see people and has made a really, really big difference.

And yes, our partner and affiliate network is building, and we're seeing that we have a lot of optimism about that. And I've talked about this before. Our inbound motion is just really boring, sorry inbound team if you're listening. It's just one foot in front of the other. Every quarter, we add a few more leads to the top of the funnel. Every quarter, we add a few more SDRs and people who talk to them. And every quarter, we close a few more. It's really, really boring, which is one step at a time. And you might say, well, Joe, why don't you go faster? And that's because it would get inefficient really quickly if you went faster.

We kind of can't outrun our supply lines. We can't outrun the rate at which we're growing organic traffic because you have to have a really strong mix of organic traffic into the lead flow or your cost of acquisition to lifetime value start getting out of whack. And that's the reason we just don't -- don't just go straight up with this thing because we would be like a lot of other software companies that we've seen that every new dollar revenue costs on the dollar, which seems like madness to us. So we are allowing that to bubble up at a rate that we feel comfortable with. And I would say the blend between those 3 things is really a nice blend and each has slightly different economics. But overall, they fit beautifully into our plans.

And one quick one for Paul. Maybe I think you talked about the strategic investments and go-to-market in the deck and the call. So in the context of the medium-term EBITDA margin target just set out towards like low mid-teens, what time line should we be thinking of as of now, just your color there.

I'm sorry, you want more clarity on what -- the --?

On the time lines around the medium-term EBITDA margin target that you set out in the Analyst Day, like just some rough ballpark time lines.

I think, Paul, he's drilling in on the SaaS piece of it and when we're going to allow it to pop back to profitability. And I will let you talk them out, trample on you. But I just want to be clear to the group here, it's just a choice that we make. We sit in the room with our Board, and we decide, what we want to invest. If we were to decide that we wanted EBITDA profitability within a quarter or 2, we could be back delivering in the teens EBITDA margin. This is the underlying Thryv software business is currently fully scaled and fully profitable. We're just taking advantage of the fact that we make so much money on the marketing services side, and we have a lot of flexibility in our capital allocation and debt structure to choose to take $25 million or $26 million and put it on international expansion and faster growth process. We are not diluting our shareholders by raising new equity. We're not doing round A, round B, round C. We're not doing any of that stuff. This is just us deciding just to benefit from these 2 attached businesses.

And if for any reason, we decided that, you know what, it's very important that we run this at a breakeven or a profit. We could just slowdown a little bit how fast we're pushing the international envelope or how fast we're pushing the product road map and allow that profitability to come through. So I want to be clear at the choice. Right now, we haven't constructed a plan that says we're going to switch to more of a profit footing. We're kind of taking it 1 year at a time with our Board. And our Board was really very, very happy with what we were able to do last year. They gave us a very modest little investment, and we turned that into an ROI or return on investment that was extraordinary.

To the point where during the year, they were going, well, could you invest more, and we put a little bit more in. And that was the backdrop for '22 was -- we're keeping losses at about the same level as last year as a percentage, a little bit more as absolute dollars because the company is bigger. But I just want to be clear, this is not a money-losing business that we could find a way to get a tourniquet on. These are considered investments one at a time that we're making on a profitable business.

So Paul, I didn't mean to trample on your answer, but if you have more to add, you can. I just -- I wanted to make sure I was clear about that.

Joe, definitely makes sense. Appreciate the color. And great quarter again.

This concludes our Q&A as well as our conference for today. Thank you all for attending...

Yes. I'm just going to make a wrap-up comment or 2, and then we'll break away here. So we believe that this is the decade of SMB SaaS. We think that last decade, enterprises move to the cloud and small businesses kept doing things the way they had in the past. This decade, we think SMBs will move to the cloud. By the balance -- by the end of the decade, we think it will be standard operating procedure to reach into your pocket, punch a button, see your Thryv pop-up and look at the details of the customer you're about to meet with. Any documents that have been shared what their last payment was, what they bought last time, who the decision-makers are. It will all be right there to touch of a button in your pocket. And we think that, that's where the market is going.

And we are working to keep up with that adoption curve. We think it's an unstoppable trend that is going to happen with or without Thryv. We happen to be leading it. We're in pole position to capitalize on it. But the choice that our Board has made to step up investment a little bit is to stay on the front edge of that wave. And we think that's a good decision. We're excited about it. We think that there's durable growth available for this company for more than a decade looking out just in the market adoption of tools that we offer. And we see a clear path back to profitability anytime we make that choice. So thank you very much, everybody for listening to the call.

This concludes today's conference call. Thank you for attending. You may now disconnect.