Thryv Holdings, Inc. (THRY) FY 2021 MD&A

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented and should be read in conjunction with our audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the future of our business, and our liquidity and capital resources as well as other non-historical statements. These statements are based on current expectations and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by these forward-looking statements.

Overview

We are dedicated to supporting local, independent businesses and franchises by providing innovative marketing solutions and cloud-based tools to the entrepreneurs who run them. We are one of the largest domestic providers of SaaS end-to-end customer experience tools and digital marketing solutions to small-to-medium sized businesses. Our solutions enable our SMB clients to generate new business leads, manage their customer relationships and run their day-to-day business operations. We serve more than 400,000 SMB clients globally through three business segments: Marketing Services, SaaS, and Thryv International.

Our Marketing Services segment provides both print and digital solutions and generated $797.5 million, $979.6 million, and $1,292.8 million of consolidated revenues for the years ended December 31, 2021, 2020, and 2019, respectively. Our Marketing Services offerings include our owned and operated Print Yellow Pages, which carry the “The Real Yellow Pages” tagline, our proprietary Internet Yellow Pages, known by the Yellowpages.com, Superpages.com, and Dexknows.com URLs, search engine marketing solutions and other digital media solutions, which include online display and social advertising, online presence, and video and search engine optimization tools.

Our SaaS segment generated $170.5 million, $129.8 million, and $128.6 million of consolidated revenues for the years ended December 31, 2021, 2020, and 2019, respectively. Our primary SaaS offerings include Thryv®, our flagship SMB end-to-end customer experience platform, and Thryv Add-Ons. Thryv Add-Ons include an automated lead generation service that fully integrates with our Thryv platform, website development, SEO tools, Google My Business optimization, and Hub by ThryvSM. An additional add-on, ThryvPaySM, is our own branded payment solution that allows users to get paid via credit card and ACH and is tailored to service focused businesses that want to provide consumers safe, contactless, and fast online payment options. These optional platform subscription-based add-ons provide a seamless user experience for our end-users and drive higher engagement within the Thryv Platform while also producing incremental revenue growth.

Our Thryv International segment is comprised of Thryv Australia Pty Ltd (formerly Sensis Holding Limited), which we acquired on March 1, 2021. Thryv Australia is Australia’s leading provider of marketing solutions serving SMBs. The Thryv Australia Acquisition brings under the Thryv banner more than 100,000 existing Thryv Australia clients, many of which we believe are ideal candidates for the Thryv platform. Our Thryv International segment generated $145.4 million of consolidated revenues for the ten months ended December 31, 2021.

Our expertise in delivering solutions for our client base is rooted in our deep history of serving SMBs. In 2021, SMB demand for integrated technology solutions continues to grow as SMBs adapt their business and service model to facilitate remote working and virtual interactions.

Recent Developments - COVID-19

In March 2020, the World Health Organization categorized COVID-19 as a pandemic. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have significantly disrupted the global economy, resulting in an adverse effect on the business operations of certain SMBs. However, many of our SMB clients operate service-based businesses that can easily operate remotely, or that have been designated as “essential” by state and local authorities administering shelter-in-place orders, and have continued to operate without significant interruption during the COVID-19 pandemic. Therefore, the impact of COVID-19 and the related regulatory and private sector response on our financial and operating results in the years ended December 31, 2021 and 2020 was somewhat mitigated as many of our clients continue to operate during the pandemic.

Marketing Services segment revenue decreased by $182.1 million, or 18.6%, during the year ended December 31, 2021 as compared to the corresponding period in 2020, and decreased by $313.2 million, or 24.2%, during the year ended

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December 31, 2020 as compared to the corresponding period in 2019, primarily due to the continued decline in demand for print and digital services and increased competition in all areas of Marketing Services. This declining revenue trend in Marketing Services predated the COVID-19 pandemic. In addition, in our Marketing Services segment, in March 2020, we began offering various pandemic credit incentives to select clients, including free advertising or headings, and payment extensions of up to three months. While the ongoing impact of the COVID-19 pandemic on our revenue depends upon the rate of continued spread of the virus as well as regulatory and private sector response, we expect Marketing Services revenue will continue to be negatively impacted primarily by trends predating the COVID-19 pandemic.

In our SaaS segment, we have continued to experience an increase in demand as SMBs seek cloud-based solutions to facilitate virtual interactions with their customers instead of in-person interactions. We have seen continued strength in demand during this period from many of our key categories such as home services and other professional services. Partially offsetting this growth is a decline in our legacy SaaS client base as we shift from lower-spend, less engaged clients that tend to have a higher churn rate, to higher spend, higher engaged clients. Additionally, in March 2020, we began offering various pandemic credit incentives to select clients, including free digital and SaaS services for two to four months, and payment extensions of up to three months.

In our Thryv International segment, we continued to experience a limited negative impact in 2021 as a result of the COVID-19 pandemic. During the year ended December 31, 2021, there were a number of Australian cities that experienced an increase in COVID-19 cases, however the impact to our clients was minimal as most continued to remain open for business throughout the COVID-19 pandemic.

We have taken steps to mitigate the overall potential impact of the COVID-19 pandemic on our operating results by enhancing the capabilities of our inside and outside sales force while also actively managing costs. We minimized business disruptions by quickly and proactively transitioning our sales and client support teams into a remote working environment and provided increased training, technical capabilities and resources to enable virtual interactions with our clients. Additionally, in March 2020, we began offering various pandemic credit incentives to select clients. These pandemic credit incentives resulted in a $3.2 million and $17.5 million reduction in revenue for the years ended December 31, 2021 and 2020, respectively. Requests for incentives declined in 2021, and the majority of clients who accepted incentives in 2020 have resumed normal contractual terms and pricing. As of December 31, 2021, we have virtually discontinued providing pandemic credits and accepting client requests to pause search campaigns due to the COVID-19 pandemic. Effective April 1, 2021, all client requests for adjustments are now handled as part of normal business operations consistent with historical practices.

Depending upon future development and spread of the virus, including existing and new variants, we generally expect the business environment to improve as more people are vaccinated. During the years ended December 31, 2021 and 2020, we incurred total severance expense of $4.7 million and $11.7 million, respectively. During the year ended December 31, 2021, none of the severance expense recorded was related to employee terminations as a result of COVID-19. During the year ended December 31, 2020, $5.0 million of the severance expense recorded was related to employee terminations as a result of COVID-19. The economic downturn caused by COVID-19 resulted in an incremental $2.1 million recorded to allowance for credit losses for the year ended December 31, 2020. No incremental impact was recorded for the year ended December 31, 2021. In addition, we remain committed to our variable cost structure and to limiting our capital expenditures, not including acquisitions, which will allow us to continue operating with relatively low working capital needs.

While the effects of the COVID-19 pandemic have impacted our financial results for the year ended December 31, 2021, the overall impact was somewhat mitigated by the nature of our client base (SMBs offering services related to home, health and wellness, automotive, etc. and certain SMBs designated as “essential” by state and local authorities), the terms of our print agreements (typically 12 to 15 months), and the gradual increase in demand for our Thryv platform. The increase in demand for our Thryv platform and our decision to target higher spend and higher retention clients have also somewhat mitigated the impact of a reduction in the size of our salesforce on our ability to generate revenues.

The challenges we will face in the future related to COVID-19 will depend largely, we believe, on the impact that the continuing spread of the virus, including existing and new variants, and regulatory and private sector response has on our current and prospective clients, including their ability and willingness to purchase our solutions. To date, the COVID-19 pandemic has not had a material impact on our operational performance, financial performance, or liquidity. Looking ahead, we do not expect any material financial impact related to COVID-19, without a significant increase in cases resulting in another shut down of local businesses. However, it is difficult to predict what the ongoing impact of the pandemic will be on the economy, our clients and our business.

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Factors Affecting Our Performance

Our operations can be impacted by, among other factors, general economic conditions and increased competition with the introduction of new technologies and market entrants. We believe that our performance and future success depend on several factors that present significant opportunities for us, but also pose risks and challenges, including those listed below and those discussed in the section titled “Risk Factors.”

Ability to Attract and Retain Clients

Our revenue growth is driven by our ability to attract and retain SMB clients. To do so, we must deliver solutions that address the challenges currently faced by SMBs at a value-based price point that SMBs can afford.

Our strategy is to expand the use of our solutions by introducing our SaaS solutions to new SMB clients, as well as our current Marketing Services and Thryv International clients. This strategy includes capitalizing on the increased needs of SMBs for solutions that facilitate a remote working environment and virtual interactions. This strategy will require substantial sales and marketing capital.

Investment in Growth

We intend to continue to invest in the growth of our SaaS segment. We have selectively utilized a portion of the cash generated from our Marketing Services and Thryv International segments to support initiatives in our evolving SaaS segment, which has represented an increasing percentage of consolidated revenue since launch. We will continue to improve our SaaS solutions by analyzing user behavior, expanding features, improving usability, enhancing our onboarding services and customer support and making version updates available to SMBs. We believe these initiatives will ultimately drive revenue growth; however, such improvements will also increase our operating expenses.

Ability to Grow Through Expansion and Acquisition

Our growth prospects depend upon our ability to successfully develop new markets. We currently serve the United States and Australian SMB markets and plan to leverage strategic acquisitions or initiatives to expand our client base domestically and enter new markets internationally. Identifying proper targets and executing strategic acquisitions may take substantial time and capital. In August 2020, we launched our first international SaaS reseller pilot, a joint initiative with the leading yellow pages player in the Caribbean, and we also signed a SaaS multi-location franchise client, a home services company with operations in the U.S. and Canada. On March 1, 2021, we completed the acquisition of Thryv Australia, Australia’s leading provider of marketing solutions serving SMBs. We believe that acquisitions of marketing services companies will expand our client base and provide additional opportunities to offer our SaaS solutions.

Key Business Metrics

We review several operating metrics, including the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe these key metrics are useful to investors both because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and they may be used by investors to help analyze the health of our business.

Total Clients

We define total clients as the number of SMB accounts with one or more revenue-generating solutions in a particular period. For quarter- and year-ending periods, total clients from the last month in the period are reported. A single client may have separate revenue-generating accounts for multiple Marketing Services solutions or SaaS offerings, but we count these as one client when the accounts are managed by the same business entity or individual. Although infrequent, where a single organization has multiple subsidiaries, divisions, or segments, each business entity that is invoiced by us is treated as a separate client. We believe that the number of total clients is an indicator of our market penetration and potential future business opportunities. We view the mix between Marketing Services clients and SaaS clients as an indicator of potential future opportunities to offer our SaaS solutions to our Marketing Services clients.

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(1)     Clients include total clients from all three of our business segments: Marketing Services, SaaS and Thryv International.

(2)     Clients that purchase one or more of our Marketing Services solutions are included in this metric. These clients may or may not also purchase subscriptions to our SaaS offerings.

(3)     Clients that purchase subscriptions to our SaaS offerings are included in this metric. These clients may or may not also purchase one or more of our Marketing Services solutions.

(4)     Total clients is less than the sum of the Marketing Services and SaaS, since clients that purchase both Marketing Services and SaaS products are counted in each category, but only counted once in the Total.

Marketing Services clients increased by 72 thousand, or 23%, as of December 31, 2021 as compared to December 31, 2020. Marketing Services clients decreased by 69 thousand, or 18%, as of December 31, 2020 as compared to December 31, 2019. The increase in Marketing Services clients was related to the acquisition of Thryv Australia, partially offset by a secular decline in the print media industry. The decline in the digital portion of our Marketing Services business was due to significant competition in the consumer search and display space, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook.

SaaS clients increased by 2 thousand, or 5%, as of December 31, 2021 as compared to December 31, 2020. SaaS clients decreased by 3 thousand, or 6%, as of December 31, 2020 as compared to December 31, 2019. This was the result of an increase in new clients and decreasing churn, and is consistent with our continuing strategy to target higher spend, higher retention clients in lieu of lower-spend, higher churn clients.

Total clients increased by 75 thousand, or 22%, as of December 31, 2021 as compared to December 31, 2020. Total clients decreased by 69 thousand, or 17%, as of December 31, 2020 as compared to December 31, 2019. The primary driver of the increase in total clients was related to the acquisition of Thryv Australia, partially offset by the secular decline in the print media business combined with increasing competition in the digital media space.

Monthly ARPU

We define monthly average revenue per unit (“ARPU”) as our total client billings for a particular month divided by the number of revenue-generating units during the same month. For each reporting period, the weighted-average monthly ARPU from all the months in the period are reported. We define units as SMB accounts with one or more revenue-generating solutions in a particular month. Units are synonymous with clients. As monthly ARPU varies based on the amounts we charge for our services, we believe it can serve as a measure by which investors can evaluate trends in the types and levels of services across our client base. Our measurement of ARPU helps us understand the rate at which we are monetizing our client base.

(1)SaaS monthly ARPU includes our SaaS and Thryv International clients.

Monthly ARPU for Marketing Services decreased by $9, or 4%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, and $13, or 6%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease in ARPU for these periods was related to reduced spend by clients on our print media offerings due to the secular decline of the industry, caused by the continuing shift of advertising spend to less expensive digital media. This decrease in ARPU was further driven by a reduction of our resale of high-spend, low margin third-party local search and display services that were not hosted on our owned and operated platforms.

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Monthly ARPU for SaaS increased by $75, or 29%, during the year ended December 31, 2021 compared to the year ended December 31, 2020, and increased by $37, or 17%, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase in ARPU for these periods was driven by our strategic shift to selling to higher spend clients and, at the same time, discontinuing our sale of the lower-priced tiers of our Thryv platform. In addition, the sale of add-on features to our Thryv platform such as Thryv Leads and Thryv Pay contributed to ARPU growth.

Monthly Active Users - SaaS

We define a monthly active user for SaaS offerings as a client with one or more users who log into our SaaS solutions at least once during the calendar month. Individuals who register for, and use, multiple accounts across computer and mobile devices may be counted more than once, and as a result, may overstate the number of unique users who actively use our Thryv platform within a month. Additionally, some of our original SaaS clients exclusively use the website features of their Thryv platform which does not require a login and those users are not included in our active users count. For each reporting period, active users from the last month in the period are reported. We believe that monthly active users best reflects our ability to engage, retain, and monetize our users, and thereby drive increases in revenue. We view monthly active users as a key measure of user engagement for our Thryv platform.

Monthly active users increased by 2 thousand, or 7%, during the year ended December 31, 2021 compared to the year ended December 31, 2020. Monthly active users increased by 5 thousand, or 22%, during the year ended December 31, 2020 compared to the year ended December 31, 2019. The number of monthly active users increased period-over-period as we undertook efforts such as enhancing the sales process, the client onboarding experience, and lifecycle management in order to increase engagement among our SaaS clients. The increase was also driven by the focus by our sales team on obtaining higher retention, higher spend clients as these clients are more engaged with our platform. Additionally, we experienced an increase in engagement from existing clients as SMBs increased virtual interactions with their customers in lieu of in-person interactions as a result of the COVID-19 pandemic.

Key Components of Our Results of Operations

Revenue

We generate revenue from our three business segments, Marketing Services, SaaS and Thryv International. Our primary sources of revenue in our Marketing Services and Thryv International segments are print and digital services. Our primary source of revenue in our SaaS segment is our Thryv platform.

Cost of Services

Cost of services consists of expenses related to delivering our solutions, such as publishing, printing, and distribution of our print directories and fulfillment of our digital and SaaS offerings, including traffic acquisition, managed hosting, and other third-party service providers. Additionally, Cost of services includes personnel-related expenses such as salaries, benefits, and stock-based compensation for our operations team, non-capitalizable software and hardware purchases, and allocated overhead costs which includes information technology expenses, depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.

Operating Expenses

Sales and Marketing

Sales and marketing expense consists primarily of base salaries, stock-based compensation, sales commissions paid to our inside and outside sales force and other expenses incurred by personnel within the sales, marketing, sales training, and client care departments. Additionally, Sales and marketing expense includes advertising costs such as media, promotional material, branding, online advertising, and allocated overhead costs which includes information technology expenses, depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.

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General and Administrative

General and administrative expense primarily consists of salaries, benefits and stock-based compensation incurred by corporate management and administrative functions such as finance and accounting, legal, internal audit, human resources, billing and receivables, and management personnel. In addition, general and administrative expense includes bad debt expense, non-recurring charges, and other corporate expenses such as professional fees, operating taxes, and insurance. General and administrative expense also includes allocated overhead costs which includes information technology expenses, depreciation of fixed assets, and amortization associated with capitalized software and intangible assets.

Other Income (Expense)

Other income (expense) consists of interest expense, other components of net periodic pension benefit (cost), and other expense, which includes loss on termination of leaseback obligations, loss on early extinguishment of debt, and foreign currency-related expense.

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Results of Operations

Consolidated Results of Operations

The following table sets forth certain consolidated financial data for each of the periods indicated:

(1)Consolidated results of operations includes Thryv Australia's results of operations subsequent to its March 1, 2021 acquisition date.

(2)The year ended December 31, 2020 has been updated to include a Gross profit subtotal line item and the reclassification of depreciation and amortization from a single line item in the consolidated statements of operations and comprehensive income to a component of Gross profit, Sales and marketing expense, and General and administrative expense. See Note 1 to our consolidated financial statements included in Part II, Item 8 in this Annual Report for more information.

(3)See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

(4)See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Profit and a reconciliation to Gross profit, the most directly comparable measure presented in accordance with GAAP.

(5)See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Margin.

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Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

Revenue

The following table summarizes revenue by business segment for the periods indicated:

(1)    Thryv International consists of Thryv Australia revenue subsequent to the March 1, 2021 acquisition date.

Total revenue increased by $3.9 million, or 0.4%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in total revenue was driven by Thryv International revenue of $145.4 million and an increase in SaaS revenue of $40.7 million, offset by a decrease in Marketing Services revenue of $182.1 million.

Marketing Services Revenue

Marketing Services revenue decreased by $182.1 million, or 18.6%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Print revenue decreased by $77.3 million, or 17.4%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was primarily driven by the secular decline in industry demand for print services that would have resulted in a 25% decline in revenue compared to the year ended December 31, 2020 and partially offset by publication timing differences caused by our print agreements having greater than 12 month terms. Print revenue is recognized upon delivery of the published directories. Individual directory titles have different lifecycles, with a typical lifecycle of 15 months. The titles published during the year ended December 31, 2021 are therefore different than the titles published during the year ended December 31, 2020 and represented more revenue than the titles published during the year ended December 31, 2020.

Digital services revenue decreased by $104.8 million, or 19.5%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. IYP revenue decreased by $41.2 million, or 14.7%, driven by a continued trending decline in the Company’s Marketing Services client base. SEM revenue decreased by $38.2 million, or 22.7%, due to significant competition in the consumer search and display space, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook. Other digital media solutions revenue decreased by $25.4 million, or 28.9%, as we shifted to selling these services only to existing customers.

SaaS Revenue

SaaS revenue increased by $40.7 million, or 31.3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was driven by increased demand for our Thryv platform and Thryv add-ons as SMBs have increased their contactless customer interactions and remote working capabilities due to the COVID-19 pandemic, and by our success in re-focusing our go-to-market and onboarding strategy to target higher spend and higher engaged clients. This increase was partially offset by a decline in our lower-spend and less-engaged legacy SaaS clients that tend to have a higher churn rate.

Thryv International Revenue

Thryv International revenue was $145.4 million for the year ended December 31, 2021. As the Thryv Australia Acquisition was completed on March 1, 2021, no revenue was recognized for Thryv International during the year ended December 31, 2020. Thryv International revenue included print revenue of $46.9 million, IYP revenue of $55.2 million, SEM revenue of $19.0 million, other digital media solutions revenue of $23.8 million, and SaaS revenue of $0.6 million for the year ended December 31, 2021.

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Cost of Services

Cost of services decreased by $31.7 million, or 7.2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This decrease was primarily driven by strategic cost saving initiatives. Specifically, we reduced printing, distribution and digital fulfillment support costs by $35.0 million, employee-related costs by $13.1 million, non-capitalized software and hardware purchases by $13.3 million and contract services by $4.6 million. Additionally, depreciation and amortization expense decreased by $52.4 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the accelerated amortization method used by the Company. These decreases were partially offset by Cost of services of $84.9 million related to Thryv International.

Cost of services as a percentage of revenue decreased to 36.6% for the year ended December 31, 2021 from 39.6% for the year ended December 31, 2020. This decrease was primarily driven by decreases in printing, distribution, and digital and fulfillment support costs, employee-related costs and depreciation and amortization expense, and declining domestic revenue which was offset by the results of Thryv International.

Gross Profit

Gross profit increased by $35.6 million, or 5.3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in Gross profit was primarily due to the results of Thryv International, which was acquired on March 1, 2021, decreases in depreciation and amortization expense, printing, distribution, and digital and fulfillment support costs, employee related costs and growth in our SaaS segment, partially offset by the decline in Marketing Services revenue. Our gross margin increased by 3.0 percentage points, to 63.4%, for the year ended December 31, 2021 compared to 60.4% for the year ended December 31, 2020.

Operating Expenses

Sales and Marketing

Sales and marketing expense increased by $42.6 million, or 13.5%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to $55.8 million of Thryv International Sales and marketing expense that was included in the year ended December 31, 2021, while no Thryv International expenses were included in the year ended December 31, 2020, and an increase in advertising and sales promotion expense of $27.8 million, primarily driven by costs incurred to promote the Thryv platform. These increases were partially offset by strategic cost-saving initiatives, including lower employee-related costs of $4.0 million, sales commissions of $3.7 million and contract services of $3.2 million. Additionally, depreciation and amortization expense decreased by $33.1 million due to the accelerated amortization method used by the Company.

Sales and marketing expense as a percentage of revenue increased to 32.1% for the year ended December 31, 2021 from 28.4% for the year ended December 31, 2020. This increase was primarily due to declining domestic Marketing Services revenue and the results of Thryv International, which was acquired on March 1, 2021, partially offset by decreases in employee related costs, contract services and depreciation and amortization expense, and increased domestic SaaS revenue and the results of Thryv International, which was acquired on March 1, 2021.

General and Administrative

General and administrative expense decreased by $23.7 million, or 13.3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This decrease was primarily driven by lower bad debt expense of $24.4 million, a $9.9 million decrease in severance expenses, a $5.7 million gain on the sale of assets and a $5.4 million decrease in the loss on the remeasurement of our indemnification asset. Additionally, depreciation and amortization expense decreased by $16.2 million due to the accelerated amortization method used by the Company. These decreases were partially offset by a $7.3 million increase in stock-based compensation expense and $30.9 million in General and administrative expense incurred in the year ended December 31, 2021 related to Thryv International.

General and administrative expense as a percentage of revenue decreased to 13.8% for the year ended December 31, 2021 from 16.0% for the year ended December 31, 2020. This decrease was primarily attributable to lower bad debt expense and a decrease in depreciation and amortization expense, partially offset by declining domestic Marketing Services revenue, increased domestic SaaS revenue and the results of Thryv International.

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Impairment Charges

Impairment charges decreased by $21.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Impairment charges of $3.6 million were incurred during the year ended December 31, 2021, while $24.9 million of impairment charges were recognized during the year ended December 31, 2020. Impairment charges in both periods were primarily related to operating lease right-of-use asset impairments, due to the Company's decision to operate in a “Remote First” working environment and consolidate operations at certain locations.

Other Income (Expense)

Interest Expense

Interest expense decreased by $2.2 million, or 3.2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to lower weighted average interest rates, which was partially offset by overall higher levels of indebtedness.

Other Components of Net Periodic Pension Benefit (Cost)

Other components of net periodic pension benefit (cost) decreased by $57.1 million from an expense of $42.2 million for the year ended December 31, 2020 to a benefit of $14.8 million for the year ended December 31, 2021. This change was primarily due to a remeasurement gain of $13.4 million recognized during the year ended December 31, 2021, compared to a remeasurement loss of $43.5 million recognized during the year ended December 31, 2020. Additionally, interest expense decreased $3.5 million, partially offset by lower expected return on plan assets of $4.5 million.

Other Expense

During the year ended December 31, 2021, the Company incurred other expense of $4.2 million, which included a loss of $3.4 million primarily resulting from the termination of leaseback obligations associated with land and a building in Tucker, Georgia, and foreign currency-related expense of $0.7 million.

Income Tax (Expense) Benefit

Income tax (expense) increased by $140.7 million, or 130.3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The effective tax rate was 24.4% and (261.9%) for the year ended December 31, 2021 and 2020, respectively. The effective tax rate differs from the 21.0% U.S. Federal statutory rate primarily due to our geographic mix of taxable income in various tax jurisdictions, partial release of the valuation allowance, partial release of uncertain tax positions, and tax permanent difference primarily attributable to the net impact of non-U.S. taxing jurisdictions and transaction costs that are not immediately deductible for tax purposes.

Adjusted EBITDA

Adjusted EBITDA decreased by $21.3 million, or 5.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease in Adjusted EBITDA was primarily driven by the decrease in domestic Marketing Services revenue, partially offset by declining costs as we continue to focus on cost reductions, and the results of Thryv International, which was acquired on March 1, 2021. See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

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Results of Operations

Consolidated Results of Operations

The following table sets forth certain consolidated financial data for each of the periods indicated:

(1)    The years ended December 31, 2020 and 2019 have been updated to include a Gross profit subtotal line item and the reclassification of depreciation and amortization from a single line item in the consolidated statements of operations and comprehensive income to a component of Gross profit, Sales and marketing expense, and General and administrative expense. See Note 1 to our consolidated financial statements included in Part II, Item 8 in this Annual Report for more information.

(2)    See “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation to Net income, the most directly comparable measure presented in accordance with GAAP.

(3)    See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Profit and a reconciliation to Gross profit, the most directly comparable measure presented in accordance with GAAP.

(4)    See “Non-GAAP Financial Measures” for a definition of Adjusted Gross Margin.

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Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019

Revenue

The following table summarizes revenue by business segment for the periods indicated:

Total revenue decreased by $311.9 million, or 21.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease in total revenue was driven by a decrease in Marketing Services revenue of $313.2 million partially offset by an increase in SaaS revenue of $1.2 million.

Marketing Services Revenue

Marketing Services revenue decreased by $313.2 million, or 24.2%, for the year ended December 31, 2020 compared to the year ended December 31, 2019.

Print revenue decreased by $162.6 million, or 26.8%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. Secular decline in industry demand for print services resulted in a 20% decline in revenue compared to the year ended December 31, 2019, with the remaining decline primarily driven by publication timing differences caused by our print agreements having greater than 12 month terms. Print revenue is recognized upon delivery of the published directories. Individual directory titles have different lifecycles, which typically range from 14 to 15 months. The titles published during the year ended December 31, 2020 are therefore different than the titles published during the year ended December 31, 2019. This should be considered when comparing period over period.

Digital services revenue decreased by $150.5 million, or 21.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. IYP and SEM revenues decreased by $123.2 million, or 21.6%, driven by a continued trending decline in the Company’s client base due to significant competition in the consumer search and display space, particularly from large, well-capitalized businesses such as Google, Yelp and Facebook. Other digital media solutions revenue decreased by $27.3 million, or 23.7%, as we shifted from selling these services on a standalone basis to only offering them as inclusions or add-ons to our Thryv platform for new clients.

SaaS Revenue

SaaS revenue increased by $1.2 million, or 1.0%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was driven by increased demand for our Thryv platform as SMBs have increased their contact-less customer interactions and remote working capabilities due to the COVID-19 pandemic, and by our success in re-focusing our go-to-market and onboarding strategy targeting on higher spend and higher engaged clients. This is partially offset by a decline in our lower-spend and less engaged legacy SaaS clients that tend to have a higher churn and an increase in the provision for service credits due to COVID-19.

Cost of Services

Cost of services decreased by $141.6 million, or 24.4%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily driven by declining revenue and strategic cost saving initiatives. Specifically, we reduced printing, distribution and digital and fulfillment support costs by $63.4 million, contract services by $17.7 million, employee-related costs by $14.2 million, and non-capitalized software and hardware purchases by $7.4 million. Additionally, depreciation and amortization expense decreased by $31.9 million for the year ended December 31, 2020 compared to the year ended December 31, 2019, due to the accelerated amortization method used by the Company.

Cost of services as a percentage of revenue decreased to 39.6% for the year ended December 31, 2020 from 40.9% for the year ended December 31, 2019. This decrease was largely the result of the Company’s continued efforts to reduce costs in order to maintain profitability, and the completion of restructuring and integration efforts associated with the acquisition of

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YP Holdings, Inc. (the “YP Acquisition”) on June 30, 2017 (the “Acquisition Date”) and reduced workforce due to the impacts of COVID-19.

Gross Profit

Gross profit decreased by $170.4 million, or 20.3%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease in gross profit was primarily due to the decline in Marketing Services revenue, partially offset by decreases in printing, distribution, and digital and fulfillment support costs, contract services, employee-related costs, non-capitalized software and hardware purchases, and depreciation and amortization expenses.

Our gross margin increased by 1.3 percentage points to 60.4% for the year ended December 31, 2020 compared to 59.1% for the year ended December 31, 2019. The increase in gross margin was primarily driven by decreases in printing, distribution, and digital and fulfillment support costs, contract services, employee-related costs, non-capitalized software and hardware purchases, and depreciation and amortization expenses.

Operating Expenses

Sales and Marketing

Sales and marketing expense decreased by $116.6 million, or 27.0%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily due to declining revenues and cost savings initiatives that were undertaken to mitigate the overall impact of the COVID-19 pandemic on our results of operation. Specifically, the decrease was due to lower employee-related costs of $54.1 million and lower sales commissions of $14.8 million, primarily due to our reduction in workforce. Additionally, travel expenses decreased by $8.5 million, facility costs decreased by $4.0 million, and automobile allowance decreased by $3.1 million. Depreciation and amortization expense also decreased by $26.9 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the accelerated amortization method used by the Company.

Sales and marketing expense as a percentage of revenue decreased to 28.4% for the year ended December 31, 2020 from 30.4% for the year ended December 31, 2019. This decrease was primarily due to decreases in employee related costs, contract services and depreciation and amortization expense, partially offset by the decline in Marketing Services revenue.

General and Administrative

General and administrative expense decreased by $19.0 million, or 9.7%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily driven by a decrease in stock-based compensation expense of $15.2 million. The Company recorded a stock-based compensation benefit of $3.1 million in General and administrative expense during the year ended December 31, 2020, compared to stock-based compensation expense of $12.1 million during the year ended December 31, 2019. Additionally, the Company recorded lower restructuring and integration expenses of $12.4 million, a decrease in contract services of $7.8 million, and lower facility costs of $3.3 million. These decreases were partially offset by an increase in direct listing and other transaction costs of $14.9 million and higher bad debt expense of $2.0 million.

General and administrative expense as a percentage of revenue increased to 16.0% for the year ended December 31, 2020 from 13.8% for the year ended December 31, 2019. This increase was primarily attributable to the decrease in Marketing Services revenue and increases in direct listing, other transaction costs and higher severance expense, partially offset by lower stock-based compensation and restructuring and integration expenses.

Impairment Charges

Impairment charges increased by $19.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. This increase was due to the Company becoming a Remote First company and the closing of certain office buildings, including most of the space at its corporate headquarters in Dallas, Texas. Impairment charges recorded during the year ended December 31, 2019 were the result of consolidating operations at certain locations.

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Other Income (Expense)

Interest Expense

Interest expense decreased by $24.4 million, or 26.3%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 due to lower indebtedness and lower LIBOR rates.

Other Components of Net Periodic Pension Cost

Other components of net periodic pension cost decreased by $10.9 million, or 20.5%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was primarily due to a decrease in interest expense of $8.2 million, a lower remeasurement loss of $1.8 million, and a higher expected return on assets of $1.0 million, partially offset by a higher settlement loss of $0.1 million.

Other Expense

During the year ended December 31, 2019, the Company incurred a loss of $6.4 million on early extinguishment of debt upon funding of the second installment of the Senior Term Loan. See Note 11, Debt Obligations, to our audited consolidated financial statements for more information.

Income Tax Expense

The Company recorded an income tax benefit of $108.0 million for the year ended December 31, 2020, compared to income tax expense of $18.1 million for the year ended December 31, 2019. The effective income tax rate was (261.0)% and 33.7% for the years ended December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, the effective tax rate differs from the 21.0% U.S. Federal statutory rate primarily due to a partial release of the valuation allowance, partial release of uncertain tax positions, and tax permanent differences. For the year ended December 31, 2019, the effective tax rate differs from the 21.0% U.S. Federal statutory rate primarily due to the changes in valuation allowance and tax permanent differences.

Adjusted EBITDA

Adjusted EBITDA decreased by $109.8 million, or 22.8%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease in Adjusted EBITDA was primarily driven by the decrease in total revenue, which was partially offset by declining costs as we continued to focus on cost reductions.

Non-GAAP Financial Measures

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. We also present Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin, as defined below, as non-GAAP financial measures in this Annual Report.

We have included Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin in this report because management believes they provide useful information to investors in gaining an overall understanding of our current financial performance and provides consistency and comparability with past financial performance. Specifically, we believe Adjusted EBITDA provides useful information to management and investors by excluding certain non-operating items that we believe are not indicative of our core operating results. In addition, Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin are used by management for budgeting and forecasting as well as measuring the Company’s performance. We believe Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin provide investors with the financial measures that closely align with our internal processes.

We define Adjusted EBITDA (“Adjusted EBITDA”) as Net income plus Interest expense, Income tax expense (benefit), Depreciation and amortization expense, Restructuring and integration expenses, Transaction costs, Stock-based compensation expense (benefit), Impairment charges and non-operating expenses, such as, Other components of net periodic pension (benefit) cost, Non-cash (gain) loss from remeasurement of indemnification asset, and certain unusual and non-recurring charges that might have been incurred. Adjusted EBITDA should not be considered as an alternative to Net income (loss) as a performance measure. We define Adjusted Gross Profit (“Adjusted Gross Profit”) and Adjusted Gross Margin (“Adjusted Gross Margin”) as Gross profit and Gross margin, respectively, adjusted to exclude the impact of depreciation and amortization expense and stock-based compensation expense (benefit).

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Non-GAAP financial information has limitations as an analytical tool and is presented for supplemental informational purposes only. Such information should not be considered a substitute for financial information presented in accordance with U.S. GAAP and may be different from similarly-titled non-GAAP measures used by other companies.

The following is a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, Net income:

(1)Income tax benefit of $108.0 million recorded during the year ended December 31, 2020 was primarily attributable to a partial release of the Company’s valuation allowance on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized.

(2)    For the years ended December 31, 2021 and 2020, expenses related to periodic efforts to enhance efficiencies and reduce costs, and included severance benefits, loss on disposal of fixed assets and capitalized software, and costs associated with abandoned facilities and system consolidation. For the year ended December 31, 2020, a portion of the severance benefits, amounting to $5.0 million, resulted from COVID-19. For further detail on severance benefits, see Note 9, Accrued Liabilities, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report. For the year ended December 31, 2019, restructuring and integration charges included severance benefits, facility exit costs, system consolidation and integration costs, and professional consulting and advisory services costs related to the YP Acquisition. See Note 6, Restructuring and Integration Expenses, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report for more information.

(3)     Expenses related to the Company's direct listing on Nasdaq, the Thryv Australia Acquisition and other transaction costs.

(4)    The Company records stock-based compensation expense related to the amortization of the grant date fair value of the Company’s stock-based compensation awards. Additionally, stock-based compensation expense included the remeasurement of these awards at each period end prior to October 1, 2020. See Note 4, Fair Value Measurements, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report for more information.

(5)    Other components of net periodic pension (benefit) cost is from our non-contributory defined benefit pension plans that are currently frozen and incur no additional service costs. The most significant component of other components of net periodic pension cost relates to the mark-to-market pension remeasurement.

(6)     In connection with the YP Acquisition, the seller indemnified the Company for future potential losses associated with certain federal and state tax positions taken in tax returns filed by the seller prior to the acquisition date.

(7)    Other primarily includes expenses related to potential non-income based tax liabilities. Additionally, during the year ended December 31, 2021, Other includes expenses related to the valuation of certain assets as a result of the acquisition of Thryv Australia and foreign exchange-related expense.

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The following is a reconciliation of Adjusted Gross Profit and Adjusted Gross Margin, to their most directly comparable GAAP measures, Gross profit and Gross margin:

Liquidity and Capital Resources

Thryv Holdings, Inc. is a holding company that does not conduct any business operations of its own. We derive cash flows from cash transfers and other distributions from our operating subsidiary, Thryv Inc., which in turn generates cash flow from its own operations and operations of its subsidiaries, and has cash and cash equivalents on hand, funds provided under the New Term Loan and funds available under the ABL Facility. The agreements governing our debt may restrict the ability of our subsidiaries to make loans or otherwise transfer assets to us. Further, our subsidiaries are permitted under the terms of our senior credit facilities and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions or the making of loans by such subsidiaries to us. Our and our subsidiaries’ ability to meet our debt service requirements is dependent on our ability to generate sufficient cash flows from operations.

We believe that expected cash flows from operations, available cash and cash equivalents, and funds available under our ABL Facility will be sufficient to meet our liquidity requirements, such as working capital requirements for our operations, business development and investment activities, and debt payment obligations, for the following 12 months. Any projections of future earnings and cash flows are subject to substantial uncertainty. Our future success and capital adequacy will depend on, among other things, our ability to achieve anticipated levels of revenues and cash flows from operations and our ability to address our annual cash obligations and reduce our outstanding debt, all of which are subject to general economic, financial, competitive, and other factors beyond our control. As a result of COVID-19, many SMBs may continue to experience a reduction in revenues and cash flows and may not have the ability to pay amounts owed to us. While COVID-19 has not had a material impact on our liquidity to date, we continue to assess our business operations and the impact that COVID-19 may have on our financial results and liquidity. We continue to monitor our capital requirements to ensure our needs are in line with available capital resources.

In addition, our Board of Directors authorizes us to undertake share repurchases from time to time. The amount and timing of any share repurchases that we make will depend on a variety of factors, including available liquidity, cash flows, our capacity to make repurchases under our debt agreements and market conditions.

For a discussion on contingent obligations, see Note 16, Contingent Liabilities, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report.

Sources and Uses of Cash

The following table sets forth a summary of our cash flows from operating, investing and financing activities for the periods indicated:

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Cash Flows from Operating Activities

Net cash provided by operating activities decreased by $62.2 million, or 26.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This decrease was primarily due to higher income tax payments of $39.1 million and transaction cost payments related to the Thryv Australia Acquisition. This was offset by the impact of changes in working capital, primarily driven by the timing of accounts receivable collections and lower interest payments of $6.2 million.

Cash Flows from Investing Activities

Net cash used in investing activities increased by $170.4 million, or 650.0%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was primarily due to cash paid of $175.4 million in connection with the Thryv Australia Acquisition on March 1, 2021, partially offset by an increase in proceeds from the sales of assets of $5.3 million.

Cash Flows from Financing Activities

Net cash from financing activities increased by $245.2 million, or 119.0%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase was primarily driven by net proceeds received from the New Term Loan of $679.0 million, partially offset by cash used to repay the remaining outstanding principal balance of the Senior Term Loan of $449.6 million, payments made on the New Term Loan of $158.0 million, compared to payments made on the Senior Term Loan of $160.4 million during the year ended December 31, 2020. Net cash from financing activities also increased as a result of lower payments of $83.9 million on the ABL Facility and $30.6 million for the repurchase of shares of our outstanding common stock. These increases in net cash from financing activities were partially offset by lower proceeds from the ABL Facility of $97.5 million.

The following table sets forth a summary of our cash flows from operating, investing and financing activities for the periods indicated (in thousands):

Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019

Cash Flows from Operating Activities

Net cash provided by operating activities decreased by $37.8 million, or 14.0%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease was primarily due to the timing of accounts receivable collections, the timing of billing of unbilled receivables in accordance with the terms of our print agreements, and the timing

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of payments against accounts payable and taxes payable, in addition to the overall decline of our sales. The change in cash flows from operating activities was also affected by lower income tax payments of $13.3 million and lower interest payments of $8.6 million.

Cash Flows from Investing Activities

Net cash used in investing activities increased by $0.8 million, or 3.3%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was primarily due to an increase of $1.7 million in capitalized expenditures, partially offset by an increase of $0.7 million in proceeds from the sales of buildings and other fixed assets.

Cash Flows from Financing Activities

Net cash used in financing activities decreased by $71.4 million, or 25.7%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease was primarily driven by a $54.6 million decrease in payments on the Senior Term Loan resulting from a decrease in the Company’s Excess Cash Flow requirements, which dictates the Senior Term Loan payment amounts. The decrease in net cash used in financing activities was further driven by the net cash used of $19.3 million as a result of the Tender Offer that was completed on May 1, 2019, in which the Company repurchased $437.9 million of common stock, financed primarily with proceeds from the Senior Term Loan of $418.6 million. Additionally, the decrease in net cash used in financing activities was driven by lower payments, net of proceeds on the ABL facility of $15.8 million. Finally, other financing activities, primarily associated with cash received from the exercise of stock options, resulted in a decrease in net cash used in financing activities of $12.3 million. These decreases were partially offset by cash used of $30.6 million to repurchase shares of our outstanding common stock during the year ended December 31, 2020.

Debt

Term Loan

On March 1, 2021, the Company entered into the New Term Loan. The proceeds of the New Term Loan were used to finance the Thryv Australia Acquisition, refinance in full the Company's Senior Term Loan and pay fees and expenses related to the Thryv Australia Acquisition and related financing.

The New Term Loan established the Term Loan Facility in an aggregate principal amount equal to $700.0 million, of which 38.4% was held by related parties who were equity holders of the Company, as of March 1, 2021. The Term Loan Facility matures on March 1, 2026 and borrowings under the Term Loan Facility bear interest at a fluctuating rate per annum equal to, at the Company’s option, LIBOR or a base rate, in each case, plus an applicable margin per annum equal to (i) 8.50% (for LIBOR loans) and (ii) 7.50% (for base rate loans). The Term Loan Facility requires mandatory amortization payments equal to $17.5 million per fiscal quarter commencing June 30, 2021.

As of December 31, 2021, 31.4% of the New Term Loan was held by related parties who are equity holders of the Company.

ABL Facility

On March 1, 2021, the Company entered into an agreement to amend the June 30, 2017 ABL Facility. The ABL Amendment was entered into in order to permit the term loan refinancing, the Thryv Australia Acquisition and make certain other changes to the ABL credit agreement, including, among others:

•revise the maximum revolver amount to $175.0 million;

•reduce the interest rate per annum to (i) 3-month LIBOR plus 3.00% for LIBOR loans and (ii) base rate plus 2.00% for base rate loans;

•reduce the commitment fee on undrawn amounts under the ABL Facility to 0.375%;

•extend the maturity date of the ABL Facility to the earlier of March 1, 2026 and 91 days prior to the stated maturity

date of the Term Loan Facility;

•add the Australian subsidiaries acquired pursuant to the Thryv Australia Acquisition as borrowers and guarantors, and establish an Australian borrowing base; and

•make certain other conforming changes consistent with the Term Loan Agreement.

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We maintain debt levels that we consider appropriate after evaluating a number of factors, including cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities), and overall cost of capital. Per the terms of the Term Loan Facility, payments of the New Term Loan balance are determined by the Company's Excess Cash Flow (as defined within the Term Loan Facility). We are in compliance with all covenants under the New Term Loan and ABL Facility as of December 31, 2021. We had total recorded debt outstanding of $562.5 million (net of $19.5 million of unamortized original issue discount (“OID”) and debt issuance cost) at December 31, 2021, which was comprised of amounts outstanding under our New Term Loan of $542.0 million and ABL Facility of $39.9 million.

As of December 31, 2021, the Company had borrowing capacity of $104.0 million under the ABL Facility.

On January, 21, 2022, we acquired Vivial Media Holdings, Inc. (“Vivial”), a marketing and advertising company, for $21.0 million in cash, subject to certain adjustments.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. In preparing our financial statements, we make estimates, assumptions, and judgments that can have a significant impact on our reported revenues, results of operations and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet during and as of the reporting periods. These estimates, assumptions, and judgments are necessary because future events and their effects on our results and the value of our assets cannot be determined with certainty and are made based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.

We believe that the assumptions and estimates associated with revenue recognition, business combinations, goodwill and intangible assets, capitalized software and development, pension obligation, income taxes, including net valuation allowance, and stock-based compensation expense have the greatest potential impact on our audited consolidated financial statements. Therefore, we consider these to be our critical accounting estimates. See Note 1, Description of Business and Summary of Significant Accounting Policies, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report for further information on these and our other significant accounting policies and estimates as well as our disclosures on recent accounting pronouncements. Our most critical accounting estimates are summarized below.

Revenue Recognition

We recognize revenue based on the revenue recognition standard, Revenue from Contracts with Customers (Topic 606), (“ASC 606”). The Company determines the amount of revenue to be recognized through application of the five-step model as described in Note 1, Description of Business and Summary of Significant Accounting Policies, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report.

We derive revenue from our three business segments: Marketing Services, SaaS and Thryv International. The Company has determined that each of its services is distinct and represents a separate performance obligation because the SMB can benefit from each service on its own or together with other resources that are readily available to the SMB, and services are separately identifiable from other promises in the contract. Revenue for all services is recognized when control transfers to the SMB. For print solutions, control transfers upon delivery of the published directories. Control over SaaS and digital services within Marketing Services and Thryv International transfers to the SMB evenly over the service period.

The transaction price of a contract consists of fixed and variable consideration components pursuant to the applicable contractual terms and may involve the use of estimates. These judgments involve consideration of historical and expected experience with the customer and other similar customers. The Company’s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates the transaction price to each performance obligation based on its relative standalone selling price. Standalone selling price is the price at which the Company would sell a promised service separately to a client. Judgment is required to determine the standalone selling price for each distinct performance obligation. Often, the Company does not have sufficient standalone sales information, as contracts with customers generally include multiple performance obligations. When standalone sales information is not available, the Company estimates the standalone selling price using information that may include market conditions, entity-specific factors such as pricing and discounting strategies, and other inputs.

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The Company has determined that sales commissions are incremental and recoverable costs of obtaining a contract. However, commissions related to renewal contracts are not commensurate with costs incurred to obtain an initial contract. Therefore, commissions incurred to obtain a new contract are capitalized and recognized over the benefit period, which is determined to be two years based on expected contract renewals, the Company’s technology development life-cycle, and other factors. Renewal commissions are expensed as incurred under practical expedient available under ASC 606.

Direct costs associated with fulfilling a print directory contract with a SMB include costs related to printing and distribution. Directly attributable costs incurred to fulfill print solutions are capitalized as incurred and then expensed at the time of delivery, in line with the recognition of revenue. Costs to fulfill SaaS and digital contracts with SMBs are expensed as incurred.

Business Combinations, Goodwill and Intangible Assets

Business Combinations

We have completed several acquisitions of other businesses in the past, including the Thryv Australia Acquisition on March 1, 2021 and the YP Acquisition on June 30, 2017, and we may acquire additional businesses in the future. In an acquisition, we first review if substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If such concentration exists, the transaction is considered an asset acquisition rather than a business combination.

The results of businesses acquired in a business combination are included in our audited consolidated financial statements from the date of acquisition. We allocate the purchase price, which is the sum of the consideration paid and may consist of cash, equity, or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and assumed liabilities requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, and discount rates.

We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in determining the fair value of tangible and identifiable intangible assets such as client relationships, trademarks, and any other significant assets or liabilities. During the measurement period, of up to one year after the acquisition date, we may adjust the values attributed to the assets acquired and assumed liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date.

Our purchase price allocation methodology contains uncertainties because it requires assumptions and management’s judgment to estimate the fair value of assets acquired and assumed liabilities at the acquisition date. Key judgments used to estimate the fair value of intangible assets include projected revenue growth and operating margins, discount rates, client attrition rates, as well as the estimated economic life of intangible assets. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets, and widely accepted valuation techniques, including discounted cash flows. Our estimates are inherently uncertain and subject to refinement. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.

Goodwill

Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is tested annually for impairment as of October 1st and at any time upon the occurrence of certain triggering events or changes in circumstances. The Company performs its goodwill impairment test at the reporting unit level. In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Performing a qualitative impairment assessment requires an examination of relevant events and circumstances that could have a negative impact on the carrying value of our Company, such as macroeconomic conditions, industry and market conditions, earnings and cash flows, overall financial performance, and other relevant entity-specific events. The estimates of the fair value of the Company’s reporting units are primarily determined using an income approach based on discounted cash flows. The discounted cash flow methodology requires significant judgment, including estimation of future cash flows, which is dependent on internal forecasts, current and anticipated economic conditions and trends, the estimation of the long-term growth rate of the Company’s business, and the determination of the Company’s weighted

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average cost of capital. Changes in the estimates and assumptions incorporated in our impairment assessment could materially affect the determination of fair value and the associated impairment charge.

As of December 31, 2021, goodwill was $671.9 million. For additional information related to goodwill, see Note 5, Goodwill and Intangible Assets to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report.

No goodwill impairment charge were recorded in the Company’s consolidated statements of operations and comprehensive income for the years ended December 31, 2021, 2020, and 2019.

Intangible Assets

All of the Company’s intangible assets are classified as definite-lived intangible assets. The Company’s intangible assets are amortized over their useful lives using the income forecast method and reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. The recoverability analysis includes estimates of future cash flows directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the definite-lived intangible asset. The Company’s estimates of future cash flows attributable to long-lived assets require significant judgment based on its historical and anticipated results and are subject to assumptions.

An impairment loss is measured as the amount by which the carrying amount of the definite-lived intangible asset exceeds its fair value.

For additional information related to goodwill and intangible assets, see Note 5, Goodwill and Intangible Assets, to our audited consolidated financial statements included in Part II, Item 8 in this Annual Report. for more information.

Capitalized Software and Development

Costs associated with internal use software are capitalized during the application development stage, if they have a useful life in excess of one year. Subsequent additions, modifications, or upgrades to internal use software are capitalized only to the extent they allow the software to perform a task it previously did not perform. Capitalized software is reviewed for impairment whenever events or changes in circumstances may indicate that the carrying amount of an asset may not be recoverable. A key estimate included within the capitalized software balance includes the determination of the useful life.

Pension Obligation

The Company maintains pension obligations associated with non-contributory defined benefit pension plans that are currently frozen and incur no additional service costs.

Although the plans are frozen, the Company continues to incur interest cost as well as gains or losses associated with changes in fair value of plan assets, all of which are referred to as net periodic pension cost. In determining the pension obligations at each reporting period, management makes certain actuarial assumptions, including discount rates and mortality rates. For these assumptions, management consults with actuaries, monitors plan provisions and demographics, and reviews public market data and general economic information. Changes in these assumptions can have a significant impact on the projected pension obligations, funding requirement, and net periodic pension cost. The Company immediately recognizes actuarial gains and losses in its operating results in the year in which the gains and losses occur.

Income Taxes

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weight of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character, for example, ordinary income or capital gain within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.

The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. The amount of income taxes we pay is subject to ongoing audits by federal and state tax authorities, which often result in

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proposed assessments. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for open tax years for UTPs that may be subject to challenge by various tax authorities. The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest and penalties as deemed appropriate. Tax benefits recognized in the financial statements from UTPs are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

Stock-Based Compensation

The Company established a stock-based compensation plan which allows for incentive awards to be granted to designated eligible employees, non-management directors, consultants, and independent contractors providing services to the Company. The Stock Incentive Plan permitted grants of cash-settled stock options. Prior to October 1, 2020, these awards were classified as liabilities due to our intent to net cash settle upon exercise. Accordingly, the fair value of these awards is initially measured at the grant date and is remeasured each subsequent reporting date, until the award is settled or forfeited, with remeasurement (gains)/losses recognized in Cost of services, Sales and Marketing and General and administrative expenses, in accordance with the awards’ vesting schedule. As a result of completing the direct listing on October 1, 2020, the Company no longer intends to cash settle these stock options upon exercise. Based on the Company’s intention to equity settle upon exercise, these stock options are classified as equity awards as of December 31, 2021 and 2020. Accordingly, the fair value is measured at the date of the grant and recognized over the requisite service period (generally three to four years).

Determining the fair value of stock-based compensation awards requires the use of judgment. We use the Black-Scholes option-pricing model to determine the fair value of our stock options. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including the fair value of common stock and its volatility, the expected life of the option, and the risk-free interest rate for a period that approximates the expected life of the option. The Company historically has been a private company and lacks company-specific historical and implied volatility information for its common stock. Therefore, it estimates its expected volatility based on the debt leveraged historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. Following the closing of our direct listing, the fair value per share of our common stock for purposes of determining stock-based compensation is the last available closing price of our common stock as reported on or before the applicable grant date.

The assumptions used to determine the fair value of the stock-based awards are management’s best estimates and involve inherent uncertainties and the application of judgment. If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation expense for future awards may differ compared with the awards granted previously.

Common Stock Fair Value

The common stock fair value is one of the significant valuation inputs of the indemnification asset and stock-based compensation awards.

As of and Subsequent to September 30, 2020

Due to the Company's direct listing on October 1, 2020. As of September 30, 2020, the fair value of the Company’s common stock is based on the THRY Nasdaq per share price.

Prior to September 30, 2020

The absence of an active market for the Company's common stock required the Company to determine the fair value of its common stock. The Company obtained contemporaneous third-party valuations to assist it in determining fair value. These contemporaneous third-party valuations used methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

The Company determined the fair value utilizing the income approach, which estimated value based on market participant expectations of future cash flows the Company will generate. These future cash flows are discounted to their present value using a discount rate based on the Company's weighted average cost of capital, which reflects the risk of achieving the projected cash flows. Significant inputs of the income approach also include the long-term financial projections of the Company along with its long-term growth rate, which is used to calculate the residual value of the Company before discounting to present value. The fair value of the common stock was discounted based on the lack of marketability.

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Other factors taken into consideration in assessing the fair value of the Company’s common stock prior to September 30, 2020 included but were not limited to: industry information such as market growth and volume and macro-economic events; and additional objective and subjective factors relating to its business.

Recent Accounting Pronouncements

See Note 1, Description of Business and Summary of Significant Accounting Policies, to our audited consolidated financial statements as of and for the years ended December 31, 2021, 2020, and 2019, included in Part II, Item 8 in this Annual Report, for a discussion of recent accounting pronouncements.