Earnings Call: Q2 2021

Aug 10, 2021

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Thrive Q2 twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised, today's conference is being recorded. I will now hand the conference over to KJ Christopher. Please go ahead. Good morning, everyone, and welcome to this recorded management discussion of Thryv's Q2 2021 results. By now, you should have received a copy of the company's and investor supplement, which is also posted on our website at investor. Thrive.com. With me today are Joe Walsh, Chief Executive Officer and President Paul Routes, Chief Financial Officer and Grant Freeman, our Vice President of Client Success. Before we begin, I would like to remind you that some of the 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. Thrive has no obligation to update the information presented on this 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. Thrive.com. With that introduction, I would like to turn the call over to Joe Walsh. Thank you, KJ. Good morning, everyone, and welcome to our Q2 2021 earnings call. Our 2nd quarter results demonstrate strong and continued growth in our SaaS business, highlighted by accelerating penetration Within our new customer acquisition channels, record client retention metrics and year over year client growth, Total SaaS revenues accelerated and grew by 32% year over year, ahead of our guidance and demonstrates that we are executing well against the strategies we introduced last year. To us, it appears clear that SMBs will move to the cloud. We feel Thrive is well positioned to seize on this opportunity. We made the decision to invest in SaaS growth. SMBs are currently evaluating and transforming the critical aspects of how they manage their business. This has been happening at an enterprise level for many years. It is just now happening for small businesses. They're taking those steps, they're modernizing and it's still pretty early in the game. From my point of view, these small businesses are putting their faith in us as they prepare to take That first digital leap to begin to modernize their business. It's a lot of responsibility and we try to do a really good job with it. I've spent my whole career working with local businesses. I spent a lot of time now in the pandemic I'm not as much in the field, but I am in the field, but I can join sales calls by Zoom. I'm able to listen to recorded sales calls. I'm able to call existing customers And talk with them about how they use the software and where it comes up short, any concerns they have, any glitches that we have and You know as big and powerful as the Thrive tool is, it does a lot. There's always something that customers have in mind that it should do better or it should do that it doesn't do. So that feeds into our product roadmap and we're constantly tuned into what our customers have said. We also have a really cool, believe it or not, Facebook site where The power users all get together and talk about how they use Thrive and what they do. They teach each other. There's a real sense of community. All of that is part of what's guided the improvement and part of why you're seeing such high user engagement levels in the product And part of why you're seeing churn continue to fall. So we're making a lot of progress with those local businesses and that's making a big difference. To finish up my opening comments, clients are Trusting in us as they look to modernize and organize and grow their business. All of this is reflected in our strong quarterly results that we announced this morning. Given this solid progress, we're raising guidance. The acceleration in revenue and billings was driven by Strong business performance in the quarter in addition to an easier overall comparison as a result of the challenging business environment we experienced In Q2 of last year, our SaaS new channels are performing well. We recently hit high teens as a percent of our overall sales versus our traditional sales force. And that's about double where we were the same time last year. I'll remind you that we expect to hit about half of all sales in the medium term. So you'll see that continue to grow as a percentage Sales. In our churn hit record lows, we're continuing to dial in our onboarding and time to value So that we're continuing to bring churn down and that's something that we think makes a big difference and feels really good to have customers staying, paying and feeling good using the product. Our net dollar retention increased 18 points year over year to 92%. ARPU continues to rise $3.23 in Q2, a significant year over year increase, double digit gains in weekly and daily active users. We attribute the strength in these metrics to the prioritization of engagement. We've really focused on engagement and we've got teams of people working with customers, And the percentage of clients using our core features Continues in an upward trajectory. So overall, great progress in this last period. Next, I'd like to introduce Grant Freeman, our VP of Client Success. Thanks, Joe. Over the last two years, we have really focused on the experience we deliver to our SaaS clients. We know with small businesses, the key to long term relationships is focusing on delivering value quickly. We are intensely focused on having a short Trying to first value and a no client left behind attitude, engaging clients quickly, deepening their engagement over time and expanding their spend. These efforts have led to a net promoter score improvement of 100% over the last three quarters and A SaaS monthly churn of 2.1 percent for Q2 of 2021, down from 3% last year in Q2 of 2020. Our North Star is engaged clients. Engagement starts with how we sell. We focus on targeting the right prospects and using a team selling approach for SaaS. Initially, we felt we could train all of our traditional sales teams to be software sales experts. However, through learning and analysis, we pivoted and made the decision that all Thryv SaaS prospects will work with 1 of our software sales team experts that only sell software to receive a custom demo of our platform. The software sales experts keep it simple. They uncover the business problem the client is trying to solve. They understand the impact it's having on their business and then they demonstrate how our Thryv platform and service teams can work with them to solve that problem. Clients sold using this approach are much more highly engaged right out of the gate. David shows when a client is sold via a team selling approach, we have 15 More clients active in Thryv on a daily or weekly basis. During onboarding, after our initial effort where we Sharing all things that Thrive could do all the time and often quite frankly shared too much, we pivoted and now we stay focused on Our Thryv support specialists begin onboarding By configuring the software for the client's use case and starting the process of coaching them to use our Thrive software And our year to date transactional NPS score for our onboarding team, it's a +-eighty 6. Once we have solved the problem that led them to purchase, they are then assigned a client success partner. Modernizing a small business is a process. As such, this success partner will focus on looking for opportunities to help the client improve their business operations by demonstrating how the software can be used to solve various business issues. This leads to clients deepening their engagement in our platform over the course of time. These efforts have culminated in an 11% year over year improvement in monthly active users by our software clients, but even better, We've seen daily active usage increase more than 40% year over year. Our support For example, catered emails and push notifications full of content strategically designed to be delivered to the client when they need it, Further deepening engagement and usage. The investment we make post sale to ensure that clients engage with our Our platform is a differentiator and will lead to continued success serving small and medium sized business. All our engagement efforts are built on our perpetually improving award winning software platform. I believe Joe is going to highlight a few of those wins in just a moment. We remain focused on understanding what clients like and what they don't, so we can constantly improve the functionality of our software as well as the user experience we deliver. And with that, I'm going to turn it back over to Joe. Thank you, Grant. I have to pause here and just give Grant and his team Some props, they've done a really good job of focusing on delivering value to our clients. And you can see that Statistically in the NPS scores that have risen and in the just steadily declining churn. So we consider that now a real core strength of us as Thanks for that Grant. I wanted to take just a minute and talk about Sensus, our Australian acquisition. Obviously, that acquisition was made very recently. We've been Localizing and piping together Thrive for Australia, we've already got a few customers on the product using it. We've had some really good client engagement, client satisfaction, training is going on, we're beginning to see some sales. Now this is definitely a You know, a 2022, 2023 story. I don't want to get people's expectations going that we can ramp straight up, but it is beginning to build. We are in market with it now I'm doing a lot of work on product and on local marketing. More to come on that, but look for that to be a 2022, 2023 story as that helps and unfolds. Another new area for us Thrive Pay. We just announced the Thrive Pay standalone freemium app and that's developing very nicely. We're Pleased with progress that we're making there. We mentioned recently I think that volume for Thrive Pay well surpassed $30,000,000 in the And quarter is continuing to build very nicely and the average transaction size is still over $400 which is I think pretty impressive. In June, Thrive Pay actually became our number one payment platform. We're sort of like Switzerland. We put everything on the platform. We want you to be able to use whatever you like to use. And so there are currently 5 payment processes on the platform and Thrive moved into 1st place like number 1. So We really feel like we're doing a good job even where customers have a choice to use something else. And look, let's be honest, there are a lot of software tools out there that force you to use They are a payment tool and that is sometimes not that popular with the small businesses. But the fact that we're being selective as number 1, I think is impressive. So With that, let's get to Paul Ralphs and have Paul take us through the financial results for the quarter. Paul? Thank you, Joe. As Joe alluded to, it's been a strong start to the year and we are excited to share our results with you. Okay. Let's now turn to the U. S. Business segments, starting with SaaS. 2nd quarter 2021 SaaS revenue was $41,400,000 an increase of 32% year over year. 2nd quarter SaaS billings were $43,400,000 an increase of 39% year over year. The increase in SaaS billings As a result of pandemic adjustments, we issued in the Q2 of 2020, which suppressed SaaS billings. 2nd quarter SaaS ARPU was $3.23 a significant 39% year over year increase and compared to $2.32 in the Q2 of 2020. 2nd quarter SaaS churn That's 2.1%, a 90 basis point improvement year over year and a 40 basis point improvement sequentially. As Joe and Grant alluded to earlier, this is a record low for monthly churn. This dramatic improvement As a result of shifting our focus to an ideal client profile and a more engaged user. Moving over to marketing services. 2nd quarter revenue was $202,800,000 a decrease of 26% year over year. 2nd quarter marketing services billings were $204,900,000 a decrease of 20% year over year. As is consistent with previous calls, we are providing billings and additional operational metric to give our investors better insight into our operational performance. The billings data will show a very consistent and steady decline in our U. S. 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 the 2nd quarter investor supplement available on our Investor Relations website. 2nd quarter Thrive International revenue was $60,900,000 measured in Australian dollars, which reflects a 36,000,000 Turning now to profitability on the consolidated business. 2nd quarter adjusted gross margin was 67%, a decrease of 260 basis points When compared to the Q2 of 2020, the decrease in adjusted gross margin was primarily driven By the decline in revenue from our marketing services segment, 2nd quarter total adjusted EBITDA was $96,800,000 resulting in a total adjusted EBITDA margin of 33%. 2nd quarter U. S. Marketing services EBITDA margin came in at 41% and Thrive International adjusted EBITDA margin came in at 35% as a result of the adjustment related to purchase price accounting. Finally, We repaid $88,000,000 in our term loan B in the 2nd quarter. As previously communicated, Our capital allocation priority for the year was to focus on debt repayment and we feel we are making good progress. Okay. Now let's update guidance, starting with the U. S. Segments. Given our continued momentum in the U. S. SaaS Business. We are raising our 2021 revenue guidance range to $157,000,000 to $160,000,000 implying a year over year growth of 21% to 23%. For U. S. Marketing services, We are raising our 2021 revenue guidance range to $750,000,000 to $770,000,000 As mentioned on previous earnings calls, 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 our investments we are making in engineering, sales and marketing. For Thrive International, we are maintaining our guidance for the remainder of the year. Please see our Q2 investor supplement posted on our IR website for additional information. I'll now turn the call back over to Joe. Thank you, Paul. As you can see, we increased our guidance and we did so because of progress we're making with the product. Our product is getting better. The software that we're selling It's streets ahead of where we were a year ago or 18 months ago. And it's been acknowledged in the marketplace. Just recently G2 Crowd and Capterra Gave us some pretty exciting accolades. We were cited as easiest to use, higher user adoption for small business, Overall, best support, most likely to recommend by small business, easiest set up among small business and overall And easiest administrative functionality. This is for people that are using the software. It's the only people who can give those ratings and the views. So We're really proud of those and I think they show the progress that we're making in that type of engagement. We've also been shortlisted for the SaaS awards for the 2nd year, That's our product for customer service CRM. So the marketplace is acknowledging what's happening here. We obviously have a big and really powerful sales force. Selling Power Magazine cited us one of the 50 best companies to sell for again this year. That's something that our sales force takes pride in. We were included in the Russell 2,000, which has, as you know, many, many benefits To stabilize for the company and drive additional volume and it's just the beginning. We just entered, so the full effect is still Taking place, but we're excited about that. Some of the other initiatives that we've done this year, we have our Launchpad America, Which was a partnership we did with Mastercard, Intuit, ADP and a few other sponsors to help small business that are starting up. We feel like promulgating new startups and helping entrepreneurship is very much on message for Not only the Thryv Company, but also our Thryv Charitable Foundation. So making really good progress there. I want to wrap up, I guess, by just mentioning the 4th wave of COVID. It's certainly a concern for everybody in the world and for the market. I'll remind you that we performed very well during the worst of COVID over the last year. Our customer base tend to be service based businesses. We sort of just trucked right through it and we really don't have as much in dining and entertainment and Travel and high end retail that's less our market. So while we're certainly concerned and keeping an eye on things, we are Pretty bullish on how we think we'll do even if things get a little challenging. We've proved to be pretty resilient last year. So with that, let me just turn the call over to questions. So operator? Our first question comes from the line of Archim Bhatia with William Blair. Perfect. Thank you and congrats on the great results and the growth acceleration. Joe, and maybe this one is for Grant as well, if he's on the line. But I would love to dig in a little bit more on the improving net retention rate and the Turn rates coming down. If you can maybe just give us an overview of the drivers there? And then maybe just to follow-up on the client success team, do you feel that you've invested enough in that client success organization Or is there more that you can do to actually increase that proportion of users that are daily and weekly active versus those that are monthly active still in your customer base. Thanks, Arjun. That's a great question. You know that We assembled a new Board September 1 last year. They did a deep dive into our software themselves. They also hired Gartner and a thorough review was done. And at our December Board meeting, the conclusion was made that We weren't investing enough in growing this thing. And so we were green lighted some additional money. We essentially were given license to instead of making double digit EBITDA margins with our SaaS business to run it a little closer to breakeven and just kind of Reinvest some of those dollars. And so at that time, we laid out a plan for how we'd use that money and we've been implementing it as And I'd say that the priorities were engineering. We've added a lot of engineering talent. So our roadmap Product improvement has really begun to accelerate. I'd say we're just beginning to see that lately. It wasn't instant at the time to hire the people and get them going In product and marketing, but one of the other areas that was very important to us and very big was to begin the muscle build That client experience team and it's led by one of our most talented executives, Grant Freeman and he's on the call. So I'm going to let him talk a little bit about it. But It wasn't like on December 2nd, he all of a sudden had a big powerful team. It's taken him time to build it. And we train these people for so long, It's a long time before they actually got to hit the phones and hit the Zooms and start helping. So we are really beginning to feel the full brunt and the full power of that And I just want to commend Grant and his whole team because I really focus them Bringing churn down and they did and they've done it and they've consistently done it. It's continuing to come down. It's beginning to actually eclipse my expectations now. And now the next thing I've sort of asked them for is, okay, let's really work on the whole client experience gig From building usage, as you just talked asked about to also monetization. So Grant, can you amplify a little bit how we're approaching The CX activity? Yes, absolutely, Joe. So the first thing I'd like to say is that we're definitely already seeing some results From the investment and it will likely increase that as we progress into the year as we get more staff on board and continue the hiring and training process. I think there's a couple of things that are important to mention. The first one is looking at initial onboarding. We've tweaked that a lot Over the course of the last 12 months and now we have a very simple and singular focus and that's during the initial onboarding achieving a very fast Time to first value and what that means too for our clients is truly understanding the problem that they're trying to solve in their business, The impact that that problem is having on their business and staying right there during initial onboarding until they feel that that initial problem has been solved And then having the client success team come in after we've already solved the initial problem and saying, hey, listen, there's ways that this software can do more for you such as X, Y and Z like Others in your industry take advantage of Thryv 4. So I think it's really a combination of getting them entrenched in the software initially for what their sole purpose was And then deepening that engagement over time. And our team is very, very adept at doing that right now. And that's obviously having a positive impact on the churn that was shared today. So I don't know if that answers your question or if there's a follow-up. No, no, that's very helpful. And then I would Just in terms of how this one may be for Joe, but how we think about the net retention rate and the churn going forward, right? Is there additional room For that to improve, right, we're in the low 90s for the retention rate, certainly a nice sequential improvement on both that metric and the churn metric. If you see opportunities within the base, where you think that can continue to get better or are we at a point where you feel pretty good about where it's at? I feel very good about where it's at, but and the progress has actually come a little quicker than Thought it would or that I've told people that it might. Remember before we get too hopped up About revenue retention, we're working with small businesses. This is not enterprise software. So we're not dealing with big corporations where we can then Go from department to department, selling into it, have 130% revenue retention or something. That's never going to be the deal here It's because of the client base that we're working with. But I have said that I thought we could over time list Revenue retention all the way to 100%, maybe even a tiny bit beyond that. If we can keep churn nice And our product roadmap has the resources to keep coming. We've got some really blockbuster product initiatives that we're working on that we think will just continue to drive ARPU, the money that each client spends with And give us more opportunities to grow those. So, yes, I'm very pleased, Almost pinch me a little bit surprised where we are so quickly, if I'm really honest with you. But I have said and I'll say it here again, Then in the medium term, we think we can work our way all the way to 100. I don't want to promise anything more than that, but Because we are dealing with SMBs. But I think there's more in the tank. And if you look at the ARPU progress, it sort of tips you off to what's happening there. Wonderful. Well, that's great to hear. And last one for me, if I can. I noticed you expanded your free offerings this quarter. I think there was a new invoice generator Maybe among some other tools that you launched into your free tools that are available to small businesses. What impact are you seeing From having those 3 versions out in the market, I know Payments also has a free app that customers can use, but I would love to hear maybe What you're seeing on the top of funnel as SMBs look to digitize and what their What impact the free solutions that you have out in the market are having on that new customer acquisition? Yes. So we can find People out there online who are interested in automating and improving their business either by paying Google 9 fortune to get them 1 in time We can provide some organic free tools that allow people to improve their business that somebody is trying to find how to do better And so we're sitting around, we've got teams of people sitting around thinking about every which way we Help small businesses and help them improve. And in the process of doing that, we're Capturing people who've raised their hand, who are interested in modernizing and improving their business. And some, not all of them, come into our funnel and work their way through and become paying Thrive customers. Some are too small or too new. I think we've talked about our ICP excuse me, our ideal client profile and how Some businesses can be just too small really, where they're kind of not ready. But certainly these various organic tools are bringing a lot of additional folks into our funnel and helping us keep our cost of acquisition in line. Perfect. That's very helpful. Thank you guys for taking the questions and congrats again on the quarter. Thanks. Hi, Ken. Your next question comes from the line of Scott Berg with Needham and Company. Hi, Congrats on a great quarter and thanks for taking my questions. I guess I wanted to start with the SaaS ARPU increase in the quarter that had a nice accelerating Step up. How should we think about the puts and takes around that increase? Thrive Pay obviously had a good quarter, not sure how much that is driving the increase versus Just the continual shift up to larger customers. Okay. So, I mean, there's a lot of pieces We have people buying additional seats. We have people it's an upcharge to have a HIPAA compliant version of Thrive. We have some sort of managed services that fit in around it that we sell that help you with social posts and different things like that. Yes, Thrive Pay is a big component of it. Thrive Pay has exceeded all of our expectations inside the client base. We're going a little slower outside the client base with Thrive Pay Premium. We're just kind of taking baby steps there, trying to crawl, walk, run. We don't want to get ahead of ourselves. But in the client base, I mean, it's gone from the 5th selected option to the first And a half a year, it's been incredible. And people are switching to it, which we're really excited about. So yes, that's a big part of it. Yes. So those are some of the components. Excellent. And then your SaaS client metrics increased year over year for the I guess where do you think you are in the evolution of migrating from some of those legacy customers to those Larger customers, are we in a period where we can see consistent year over year client growth in that metric? Are we still kind of maybe bouncing around Plus or minus until that legacy cohort still gets a little smaller? Yes, that legacy cohort is definitely still kind of like Think of a mouse moving through the snake. I think it's still moving through the snake for sure. It's not completely out yet. But Grant and his team have done such a wonderful job of bringing churn down that it makes it pretty easy to move forward. We have guided that we think that we can double or more than double our number of subscriber base In the medium term and we're sticking to that. So we definitely feel comfortable. It's a big total addressable market And we're really just now building the machine to go get it. I'll remind you, we got kind of lucky. When we started, we just we had this giant Group of friends, I call I continually call them the zoo, are people that we could go talk to and a gigantic sales force ready to go talk So we didn't have the challenges that other software companies have of trying to kind of build a machine to go get it. We're building that machine now and with great success, Those new channels increase pretty much every quarter with a higher percentage of our revenue Coming from them and it's we're making cookies. We're just methodically expanding all those activities. Yes, I guess in summary answer to your question, I guess you're trying to kind of work your model there. We do believe that we can grow the client base. We don't see declines in our future. Tough to say we couldn't have a little bit of a surprise one quarter where it's flat or something like that, but we don't expect it to go backwards anymore. We expect it to You'll begin March forward. Excellent. And then last question for me. Thank you. In that backdrop, obviously, that and other SaaS metrics were extremely strong in the quarter, whether it was a slightly weaker comp or accelerating on business side, I think The business acceleration was pretty pronounced there. Your guidance for SaaS revenues in the second half imply effectively flat revenues And the second quarter level, both in Q3 and in Q4, I guess what are you seeing on the macro currently that gives you maybe a little And a pause or hesitation on guiding those second half revenues a little bit higher than what you saw or experienced in Q2? Well, look, we're a new public company. We're just a couple of quarters in. We raised our guidance. I guess you're asking why don't we raise it even more. We really want to deliver. We don't want to disappoint anybody ever. It's like we see some giant black cloud. We just thought it was appropriate to if we were in the high teens to move it up into the low 20s, This seems like the right way to go. We're not trying to telegraph a brick wall in front of us or something like that. Look, the marketplace this summer, there's a little bit of a YOLO feeling. You only live 1 A lot of our customers who hadn't taken a vacation for almost a year and a half are taking some time off. And even some of our reps who hadn't taken really any time off or taken some time off. So we've had some softer weeks this summer, but Nothing that I'm particularly concerned about. I mean, people only have so much money and time that they can take off and their livers can only take so much fun. So they're going to be getting back to work and not overly concerned about that. So I think it's just an abundance of caution on our part just Trying to make sure that we don't disappoint you guys, if I'm honest. Excellent. Congrats again on this fantastic Thank you. The next question comes from the line of Rob Oliver with Baird. Great. Thanks guys for taking my question. Joe, I wanted to ask about the zoo that you mentioned, That big base of customers that you guys have insight into, which is really, I think, a differentiation from some of your competitors. Is 40% still the right way to think about that in terms of the conversion, in terms of customer adds? And then Can you talk a little bit about what you saw there in terms of conversions this quarter? Yes. So thanks for that. Yes, I do think it's a big Way that we're different because a lot of those businesses just weren't ready. They thought we were the Cloud, when you talk about the cloud, what's the meaning of cloud? When we came out there and talked to them over the last couple of years. And They're much more interested and much more ready and we're continuing to see even people who gave us the Heisman Maybe 3 or 4 years ago are now really engaging beginning to talk to us about it. So we do think that there will be Continued deepening and further penetration into that base, for sure, I'm asked every now and then, are you done? Have you hit the max? And the answer We have not. These businesses are dynamic. The marketplace around them is dynamic and we're continuing to further penetrate them. But I do want to make a point here and it's a really important point that that sales force out there, our business advisors we call them, They have a very close and deep relationship with our clients. And about 2 thirds of what they're selling are Coming from non zoo, non customers that they're getting through mostly through referrals in their community. So they're doing a really good job with serving their customer and the customer is really happy with Thrive and it's like they're doing a good job for them. And those customers are referring to friends and saying, can you help my Saturday morning golf buddy, Fred, who's You know, got this fence company, can you help him out? And that's where a lot of our sales are coming from, is it sort of spreading virally out there through those guys. So Even though it's an installed base of customers and an installed base of sales force, it's acquiring a lot of new customers for us that We're not reaching through our advertising or any of our marketing activities. They're just coming virally through happy customers. And I'm happy to report that that seems to be picking up. Great. That's really helpful color. Thanks, Joe. And then, Paul, just one for you as well. Maybe a follow-up to Scott's first question. So it sounds like Really, the ideal customer profile strategy is really paying off for you guys in terms of both the ARPU lift and The churn decline, which is great to see. It sounds like there may be are still some of those non ideal client profile customers that Still in the mix. And just curious, as you look at the churn numbers, and again, Joe rightfully doesn't want us to Too excited, but at the same time, it does look like maybe you guys are still overturning a little bit now because of some of those customers that are still likely to churn out. How should we think about that? Thanks, guys. I'm not sure how to answer that question directly since that's not Direct financial numbers, but churn is improving, but we're doing a better job just like Grant explained and Joe explained. So I think we're getting to sort of steady state with the churn we're experiencing. So if you're going to model out And keep it in that range. Great. Yes. Paul, if I can just hop in on the back of that. I Lots of people listening to this call are trying to tend to their models. And so I'll just reiterate, I think the days of us going backwards are behind us. There was We were in a tractor beam there for a minute because we just had to fight off some of that stuff that we had sold before. It's not completely gone and we're not completely past it, Well, we have enough powerful momentum with all the new things that we're doing and the progress that we're making that I think we're on the growth side of the equation and that should be And again, I wouldn't rule out maybe a surprise flattish quarter, but I don't see us going backwards anymore. I see us going forward on subscribers at this point. There's just too much growth momentum. Appreciate all the help. Thanks guys. You're welcome. Your next question comes from the line of Zach Cummins with B. Riley Securities. Yes. Hi, good morning. Congrats on the strong results and thanks for taking my questions. Joe, can you talk about a few of the other drivers of your new acquisition channels? I'm just curious if you could give us an update in regards To resellers and maybe what you're seeing on the franchise side as well? Sure. Be glad to. The biggest piece of it is the inbound machine. And we were asked earlier about some of the tools, free tools that we have out online To help us identify customers who are interested in modernizing their business, that's driving a lot of traffic To our side, it's identifying a lot of prospects that obviously we cook here, we follow around and send messages to and all that. And so it's bringing a lot of the interested part of the market To us, which we're really excited about and feel good about. And Those leads come down the funnel and they're coming to an ever larger group of SDRs and Sales development reps and demo people that we've been steadily scaling now throughout the year. And so it's a bigger machine. And therefore, obviously, it's yielding bigger results as time goes by. So that's kind of math. There's a funnel and you get so many in the top, And we're just we're working that process and that's part of what gives us Confident that we're going to be able to just continue to push our way forward. I would say that's at the center. Now I'm going to jump over to franchise. The franchise team has done really well. They've had a bunch of contract wins this year. And they typically sign multiyear contracts, Typically 3 year contracts with escalators in them. And one fun little fact, the early sales that we had from last year, That base has grown by about 20% just as they've naturally added franchises and so on. So We're just really bullish on this one. We think it's going to be a big part of our success. They love Hub, the tool that we developed for them that sits on top of Thrive. So, really, really, really bullish about what that's going to look like. It's kind of a slow build because It's a long sales cycle. It takes months typically to get one of these closed. There's a lot of testing and so on. But once they come in, we get a really high engaged Yes, group and steady growth out of it. On the partner channel, the reseller side, I don't have as good a news to report there. I'd like to tell you that we're great at that and we figured it out and we're kicking ass, but we're not. We are seeing sales out of that But we're we just got more work to do to figure out how to kind of perfect our selling and marketing model there. And we've been refining and working on who our ideal kind of reseller is and It just has been slower progress there. So I'd love to tell you we're great at everything. I have to be honest with you, we're just not doing as well with that one. And if we can get it figured out and we've got some initiatives going, I think we may, I think it could be another big leg of growth for us. But So far, it's sputtering along a little bit. Understood. That's really helpful. Appreciate the additional In terms of ARPU, I mean, really nice to see the increase again here in Q2. I believe that your average monthly subscription is somewhere in the $3.50 range. I'm just trying to get a sense of how we should Think about the continued growth in ARPU versus maybe more client adds in terms of driving growth going forward? So I mean, I would just give you kind of perspective. You guys all typically follow HubSpot, you know about them, they get $10,000 from each customer. And they tend to work with some fairly sophisticated But they're nonetheless small businesses. Dollars 10,000 a year from those customers and we get just over 3,000. So there's quite an additional scope we think to meet more needs. I mean the customers that I talk to, that we meet with, that we spend time in our little Facebook group with and so on, They have many other needs and we think that we can meet many other of those needs. And they like us, they trust us, they enjoy working with us. They're on a journey of modernizing their business. They're willing to do more stuff with us. And so we've got quite a robust Roadmap of additional things that we are developing and that we are doing that we think are going to allow us to I would expect that you're going to see ARPU continue to grow. Some of the really dramatic growth you've seen so far is some of those early smaller Do it yourself sales falling out, which just on the math is bringing our ARPU up. But as you pointed out, we're not even yet at our midpoint unit, which is our most Popular seller. So it's definitely been held down by that. So I would expect if you're modeling, I would model that ARPU to keep going up. That's how we're modeling it. Understood. I appreciate that. And Paul, just one final question for me. In terms of the purchase Adjustment for Sensus, should we think of that as more of just a one time thing here in Q2 that should normalize in the back half of the year? I'm just trying to get a sense of how we should think about that from a revenue and also from a margin perspective for Thrive International. That's exactly how to think about it. It's a one time. It will not affect the 3rd to 4th quarter. Understood. And I guess just one final one around the Sensus side of the business, it sounds like some Promising early traction there. So how should we think about just the adjusted EBITDA margin profile for that business? I mean, I know you're making incremental investments there, but still fair to assume something around I think yes, I think that's fair. Yes. Understood. Well, thanks again for taking all my questions and congrats on the strong results. Thank you. Your last question comes from the line of Daniel Moore with CJS Securities. Thank you for taking the questions and obviously congrats on the momentum. Maybe just 1 or 2 in terms of Thank you for taking my questions. Thank you. Thank you. Thank you. Our next question comes from the line of ability to ramp investments, but do you still expect to run SaaS closer to breakeven or maybe a slight loss for the remainder of the year? Any thoughts there? Well, you're right, Your question is perfect. It was a big decision to Make those investments this year and I have to say they're paying off. We're really, really pleased with how we've deployed the money. I think my earbuds crapped out, sorry. Can you hear me? We can now. We're back. That's all right. Those pods only last so long. Anyway, your question is right on. It's really good. We were this time last Our SaaS business was trucking into the double digit EBITDA margin land. So it has the ability to make money and make We made a decision with our new Board to invest in growth and to run the thing a little closer to kind of a breakeven And let it sort of use its own juices to accelerate its growth and grow faster. And we do not plan to make it a big Loss making business and Runners had a huge loss. But I have to tell you, in all honesty, we are a little tempted to push the envelope and let it Yes, slipped slightly into the red because the growth initiatives are really paying off. They're working really well. And we actually have a Board meeting later today where we're going Kicking us around a little bit with our Board for their guidance and so on. But I had previously told you to think of it Right around 0. And we're very tempted to push it a little further and run it at a tiny loss. I want to underscore that this is a choice. And if we do that, it will sell faster growth 6, 8 months, 9 months, 10 months later as you And this is not some big cash consuming business or loss making business. But It is quite tempting. There's a land grab going on out there and small businesses are way more ready for SaaS software now than they had previously been. And we're feeling very tempted to push. So anyway, that's the thought process going I hope that's helpful as transparent as I can be for the moment. No, that makes all the sense in the world. Just trying to get the expectation set. And then on there's been 10,000 questions on ARPU, but how do you think at this stage about pricing? Do you see an opportunity in the medium term to raise pricing on your good, better, best offering or will ARPU be really just driven by mix and usage? We have no plans right now to raise the price. I guess, We feel like we really like our pricing and really like where we are. When we finally Find a real ideal client and we finally really tell them our story. If they've done their homework and they've looked at the options, they come back and they say to us, wow, This is such a great value. We hear this all the time. I mean, if you were to add up the point solutions that it would take to equal the Thrive if you went out there and Bought them a la carte and they're out there, all these different point solutions. You'd have to spend about $1500 to $1800 a month We try to equal Thrive. So we think there's really, really good value there. At the same time, a lot of these small developing businesses That are coming up, for them, it feels like a heavy lift, dollars 3.54, dollars 500 a month. I mean, I feel like so we like our price. We like where we are. We don't right now have a price increase in mind or one on our roadmap. We're planning To Thrive that ARPU through add on sales, additional offerings, additional fees, all the different things that come with more usage. And that's our current plan. Not saying that a price wouldn't be possible, we've had that discussion. 1 of our Board members It kind of persistently brings that up and we kick it around. But right now, I mean, think about our Thrive Customers have been with us for a few years. Their Thrive has gotten 10 times better for the same price. It just keeps getting better and better and better. In fact, We have these little communicates here. Your slide just got better and then we tell them why or how. So we're trying to just wow them with value right now To have really low churn and really high engagement, we hope that we think that's the right strategy. But Again, we got one Board member raising his hand at every meeting and said, should we have an annual price up here or at least some kind of pricing regime? So He has talked about it in the Board room, but right now that's kind of how we're thinking about it. That's perfect. Lastly, just before we jump for Paul, I think it's self evident, but that 2020 the deferred purchase price accounting adjustment that was not added back To get to the EBITDA number consolidated, correct? So that's Right. And then On a free cash flow basis, just curious what your expectations are around cash generation for the back half of the year? On your first question, I was on mute and I answered it. Look, it's not added back. So that's an add back if you want to get to what it went without Purchase price accounting, so it is not in our reported number. And to think about I guess I'll hand it this way, if you're looking at debt repayment, We'll likely pay down debt in the range of an for the second half, an additional $60,000,000 to $70,000,000 Got it. Okay. Thank you again for all the color and congrats on the momentum. Thank you. And at this time, I'll I'll turn the call back over to Joe Walsh for closing comments. Thank you very much. Appreciate it. Listen, guys, thanks for all the questions. They were really good and I think helped tease out and illuminate We're really pleased. It's like we're making good progress right now. We've got some good momentum. A lot of what we've been working on the last few years is really coming together with I think about our priorities for the kind of the back half of this year, it is Continuing to doggedly stay focused on user engagement, trying to help more of our clients light up more features And become even happier, even more engaged. That seems to bring us more referrals. It seems to be just a great way to go and Makes us happy to see them using it the way they are. I think driving that cloud adoption Out there within the base is big, bringing the unclouded onto the cloud. It's sort of the missionary work. The Sensus integration is ongoing and going really well. Didn't have a lot of questions on that, but it's going really well and We really expect that sort of 10 ish percent of the census clients over the course of 2022 and 2023 will become Thrive customers, they have about 100,000 customers. So that's, I don't know, 8,000, 10,000 additional subscribers that will be coming from there and make up the category leader in We're really excited about that. We already have some customers on Thrive in the market. The satisfaction and engagements are great. NPS scores have been great. Training has gone well. So that's beginning to light up Maybe even a little bit ahead of plans. We're really pleased and excited about that. More to come later. And then capital allocation, For the moment, we're pounding away paying down that debt and we're making really great progress. Paul just mentioned Just how much we're going to pay back here in the second half. So, paying down debt has been a big deal for us. So, Anyway, thanks everybody for your interest and your support. We really appreciate it and we'll be excited to update you again soon. Thank you. Thank you, ladies and gentlemen. That concludes the call for today. You may now disconnect.