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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022
OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________

Commission File Number: 001-35895

THRYV HOLDINGS, INC.
(Exact name of registrant as specified in its charter)     
Delaware13-2740040
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2200 West Airfield Drive, P.O. Box 619810, D/FW Airport, TX
75261
(Address of principal executive offices)(Zip Code)
(972)453-7000
     (Registrant’s telephone number, including area code)    

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareTHRY
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes o No x

As of May 3, 2022, there were 34,238,639 shares of the registrant's common stock outstanding.




THRYV HOLDINGS, INC.
TABLE OF CONTENTS

Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Quarterly Report) contains forward-looking statements, that reflect our current views with respect to future events and financial performance. Such statements are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995 and include, without limitation, statements concerning the conditions of our industry and our operations, performance, and financial condition, including, in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements include all statements that do not relate solely to historical or current facts and generally can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “could,,” “estimates,” “expects,” “likely,” “may,” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Accordingly, we caution you against relying on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following:

significant competition for our Marketing Services solutions and SaaS offerings, including from companies that use components of our SaaS offerings provided by third parties;
our ability to maintain profitability;
our ability to manage our growth effectively;
our ability to transition our Marketing Services clients to our Thryv platform, sell our platform into new markets or further penetrate existing markets;
the effect of the coronavirus commonly referred to as COVID-19 (“COVID-19”) on our business, including the measures to reduce its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties;
our ability to maintain our strategic relationships with third-party service providers;
internet search engines and portals potentially terminating or materially altering their agreements with us;
our ability to keep pace with rapid technological changes and evolving industry standards;
our small to medium-sized businesses (“SMBs”) clients potentially opting not to renew their agreements with us or renewing at lower spend;
potential system interruptions or failures, including cyber-security breaches, identity theft, data loss, unauthorized access to data or other disruptions that could compromise our information;
our potential failure to identify suitable acquisition candidates and consummate such acquisitions;
our ability to successfully integrate acquired businesses into our operations or recognize the benefits of acquisitions, including the failure of an acquired business to achieve its plans and objectives;
the potential loss of one or more key employees or our inability to attract and to retain highly skilled employees;
our ability to maintain the compatibility of our Thryv platform with third-party applications;
our ability to successfully expand our operations and current offerings into new markets, including internationally, or further penetrate existing markets;
our potential failure to provide new or enhanced functionality and features;
our potential failure to comply with applicable privacy, security and data laws, regulations and standards;
potential changes in regulations governing privacy concerns and laws or other domestic or foreign data protection regulations;
our potential failure to meet service level commitments under our client contracts;
our potential failure to offer high-quality or technical support services;
our Thryv platform and add-ons potentially failing to perform properly;
the potential impact of future labor negotiations;
our ability to protect our intellectual property rights, proprietary technology, information, processes, and know-how;
volatility and weakness in bank and capital markets; and
costs, obligations and liabilities incurred as a result of and in connection with being a public company.
1


For additional information regarding known material factors that could cause the Company’s actual results to differ from its projected results, see Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 as well as our subsequent Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements contained in this report, which speak only as of the date of this report. Except as required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements publicly after the date they are made, whether as a result of new information, future events, or otherwise.
In this Quarterly Report on Form 10-Q, the terms “our Company,” “we,” “us,” “our,” “Company” and “Thryv” refer to Thryv Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.

2


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements


Thryv Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
(unaudited)

Three Months Ended March 31,
(in thousands, except share and per share data)20222021
Revenue$308,375 $280,606 
Cost of services 110,519 98,160 
Gross profit197,856 182,446 
Operating expenses:
Sales and marketing93,955 76,540 
General and administrative52,194 41,279 
Total operating expenses146,149 117,819 
Operating income51,707 64,627 
Other income (expense):
Interest expense(13,108)(11,607)
Interest expense, related party(1,759)(4,065)
Other components of net periodic pension benefit (cost)70 453 
Other income (expense), net6,222 (1,093)
Income before income tax expense43,132 48,315 
Income tax expense(9,621)(11,809)
Net income$33,511 $36,506 
Other comprehensive income (loss):
Foreign currency translation adjustment5,448 (2,967)
Comprehensive income $38,959 $33,539 
Net income per common share:
Basic$0.98 $1.10 
Diluted$0.88 $1.07 
Weighted-average shares used in computing basic and diluted net income per common share:
Basic34,159,979 33,108,422 
Diluted37,957,685 34,013,480 
The accompanying notes are an integral part of the consolidated financial statements.





3


Thryv Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets

(in thousands, except share data)March 31, 2022December 31, 2021
Assets(unaudited)
Current assets
Cash and cash equivalents$21,446 $11,262 
Accounts receivable, net of allowance of $17,702 in 2022 and $17,387 in 2021
305,729 279,053 
Contract assets, net of allowance of $59 in 2022 and $88 in 2021
4,062 5,259 
Taxes receivable15,248 14,711 
Prepaid expenses43,112 22,418 
Indemnification asset24,746 24,346 
Other current assets14,572 13,596 
Total current assets428,915 370,645 
Fixed assets and capitalized software, net49,965 50,938 
Goodwill673,713 671,886 
Intangible assets, net77,457 82,577 
Deferred tax assets108,912 90,565 
Other assets30,753 33,891 
Total assets$1,369,715 $1,300,502 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable$16,433 $8,610 
Accrued liabilities146,350 131,813 
Current portion of unrecognized tax benefits30,171 29,771 
Contract liabilities61,471 51,726 
Current portion of long-term debt70,000 70,000 
Other current liabilities18,114 15,214 
Total current liabilities342,539 307,134 
Term Loan, net375,422 309,672 
Term Loan, related party60,902 142,875 
ABL Facility62,975 39,929 
Pension obligations, net132,456 140,167 
Deferred tax liabilities7,374 10,798 
Other liabilities31,606 35,212 
Total long-term liabilities670,735 678,653 
Commitments and contingencies (see Note 13)
Stockholders' equity
Common stock - $0.01 par value, 250,000,000 shares authorized; 60,913,663 shares issued and 34,228,121 shares outstanding at March 31, 2022; and 60,830,853 shares issued and 34,145,311 shares outstanding at December 31, 2021
609 608 
Additional paid-in capital1,087,054 1,084,288 
Treasury stock - 26,685,542 shares at March 31, 2022 and December 31, 2021
(468,879)(468,879)
Accumulated other comprehensive income (loss)(2,599)(8,047)
Accumulated deficit(259,744)(293,255)
Total stockholders' equity356,441 314,715 
Total liabilities and stockholders' equity$1,369,715 $1,300,502 
The accompanying notes are an integral part of the consolidated financial statements.
4



Thryv Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)

Three Months Ended March 31, 2022
Common StockTreasury Stock
(in thousands, except share amounts)
SharesAmountAdditional Paid-in CapitalSharesAmountAccumulated Other Comprehensive Income (Loss)Accumulated
(Deficit)
Total Stockholders'
Equity
Balance as of December 31, 2021
60,830,853 $608 $1,084,288 (26,685,542)$(468,879)$(8,047)$(293,255)$314,715 
Exercise of stock options82,810 1 838 — — — — 839 
Stock compensation expense— — 1,928 — — — — 1,928 
Cumulative translation adjustment— — — — — 5,448 — 5,448 
Net income — — — — — — 33,511 33,511 
Balance as of March 31, 2022
60,913,663 $609 $1,087,054 (26,685,542)$(468,879)$(2,599)$(259,744)$356,441 
Three Months Ended March 31, 2021
Common StockTreasury Stock
(in thousands, except share amounts)
SharesAmountAdditional Paid-in CapitalSharesAmountAccumulated Other Comprehensive Income (Loss)Accumulated
(Deficit)
Total Stockholders'
Equity
Balance as of December 31, 2020
59,590,422 $596 $1,059,624 (26,678,410)$(468,613)$ $(394,832)$196,775 
Exercise of stock options215,544 2 (3,096)— — — — (3,094)
Exercise of stock warrants111 — 5 — — — — 5 
Stock compensation expense— — 1,971 — — — — 1,971 
Cumulative translation adjustment— — — — — (2,967)— (2,967)
Net income— — — — — — 36,506 36,506 
Balance as of March 31, 2021
59,806,077 $598 $1,058,504 (26,678,410)$(468,613)$(2,967)$(358,326)$229,196 

The accompanying notes are an integral part of the consolidated financial statements.
5


Thryv Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended March 31,
(in thousands)20222021
Cash Flows from Operating Activities(unaudited)(unaudited)
Net income$33,511 $36,506 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization21,969 19,718 
Amortization of debt issuance costs1,441 433 
Deferred income taxes(5,671)(13,249)
Provision for credit losses and service credits5,467 6,546 
Stock-based compensation expense1,928 1,971 
Other components of net periodic pension (benefit)(70)(453)
Loss on foreign currency exchange rates1,077 835 
Bargain purchase gain(7,297) 
Other1,440 320 
Changes in working capital items, excluding acquisitions:
Accounts receivable(12,361)26,846 
Contract assets1,285 1,446 
Prepaid expenses and other assets(6,920)(10,998)
Accounts payable and accrued liabilities(9,775)(57,861)
Other liabilities3,303 2,144 
Net cash provided by operating activities29,327 14,204 
Cash Flows from Investing Activities
Additions to fixed assets and capitalized software(3,999)(3,668)
Acquisition of a business, net of cash acquired(22,003)(174,190)
Net cash (used in) investing activities(26,002)(177,858)
Cash Flows from Financing Activities
Proceeds from Term Loan 418,070 
Proceeds from Term Loan, related party 260,930 
Payments of Term Loan(15,444) 
Payments of Term Loan, related party(2,056) 
Payments of Senior Term Loan (335,821)
Payments of Senior Term Loan, related party (113,789)
Proceeds from ABL Facility302,374 249,936 
Payments of ABL Facility(279,327)(285,492)
Proceeds from exercises of stock options and stock warrants839 1,560 
Other (3,598)
Net cash provided by financing activities6,386 191,796 
Effect of exchange rate changes on cash and cash equivalents541 (707)
Increase in cash and cash equivalents and restricted cash10,252 27,435 
Cash and cash equivalents and restricted cash, beginning of period13,557 2,406 
Cash and cash equivalents and restricted cash, end of period$23,809 $29,841 
Supplemental Information
Cash paid for interest$11,966 $17,286 
Cash paid for income taxes, net$15,421 $15,753 

The accompanying notes are an integral part of the consolidated financial statements.
6


Thryv Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)


Note 1     Description of Business and Summary of Significant Accounting Policies

General

Thryv Holdings, Inc. (“Thryv” or the “Company”) provides small-to-medium sized businesses (“SMBs”) with print and digital marketing services and Software as a Service (“SaaS”) business management tools. The Company owns and operates Print Yellow Pages (“PYP” or “Print”) and digital marketing services (“Digital”), which includes Internet Yellow Pages (“IYP”), search engine marketing (“SEM”), and other digital media services, including online display advertising, and search engine optimization (“SEO”) tools. In addition, through the Thryv® platform, the Company is a provider of SaaS business management tools designed for SMBs.

On January, 21, 2022, the Company acquired Vivial Media Holdings, Inc. (“Vivial”), a marketing and advertising company with operations in the United States. Additionally, on March 1, 2021, the Company completed the acquisition of Sensis Holding Limited (“Thryv Australia”), a provider of marketing solutions serving SMBs in Australia.

The Company reports its results based on three reportable segments (see Note 15, Segment Information):

Marketing Services, which includes the Company's Print and Digital solutions businesses;
SaaS, which includes the Company's flagship SMB end-to-end customer experience platform; and
Thryv International, which is comprised of the Thryv Australia business, Australia's leading provider of marketing solutions serving SMBs, and SaaS business management tools for SMBs in Australia.

Basis of Presentation

The Company prepares its financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and disclosures normally included in the complete financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations. The consolidated financial statements include the financial statements of Thryv Holdings, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of only normal recurring items and accruals, necessary for the fair statement of the financial position, results of operations and cash flows of the Company for the periods presented. The consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 have been prepared on the same basis as the audited annual financial statementsThe consolidated balance sheet as of December 31, 2021 was derived from the audited annual financial statements. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s audited financial statements and related footnotes for the year ended December 31, 2021.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions about future events that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. The results of those estimates form the basis for making judgments about the carrying values of certain assets and liabilities.

Examples of reported amounts that rely on significant estimates include revenue recognition, allowance for credit losses, assets acquired and liabilities assumed in business combinations, capitalized costs to obtain a contract, certain amounts relating to the accounting for income taxes, including valuation allowance, indemnification asset, stock-based compensation expense, operating lease right-of-use assets and operating lease liabilities, accrued service credits, and pension obligations. Significant estimates are also used in determining the recoverability and fair value of fixed assets and capitalized software, operating lease right-of-use assets, goodwill and intangible assets.
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Due to the novel strain of coronavirus, commonly referred to as COVID-19 (“COVID-19”) and the uncertainty of the extent of the impacts related thereto, certain estimates and assumptions may require increased judgment. As events continue to evolve and additional information becomes available, these estimates may change in future periods. It is difficult to predict what the ongoing impact of the pandemic will be on future periods.

Summary of Significant Accounting Policies

Except for the adoption of ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), as described below, there have been no changes to the Company’s significant accounting policies as of and for the three months ended March 31, 2022 as compared to the significant accounting policies included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).

Restricted Cash

The following table presents a reconciliation of Cash and cash equivalents and restricted cash reported within the Company's consolidated balance sheets to the amount shown in the Company's consolidated statements of cash flows for the three months ended March 31, 2022 and 2021:

(in thousands)March 31, 2022March 31, 2021December 31, 2021
Cash and cash equivalents$21,446 $29,841 $11,262 
Restricted cash, included in Other current assets2,363  2,295 
Total Cash and cash equivalents and restricted cash $23,809 $29,841 $13,557 

Foreign Currency

The functional currency of the Company’s foreign operating subsidiaries is the local currency. Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income. Income and expense accounts are translated at the weighted-average exchange rates during the period.

Transaction gains or losses in currencies other than the functional currency are included as a component of Other income (expense), net in the Company's consolidated statements of operations and comprehensive income (loss).

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, which requires companies to recognize and measure contract assets and contract liabilities acquired in a business combination, in accordance with the revenue recognition guidance, as if the acquirer had entered into the original contract at the same time, and on the same terms, as the acquiree. Generally, this will result in the acquirer recognizing contract assets and liabilities at the same amounts recorded by the acquiree as of the acquisition date. Under the current standard, an acquirer generally recognizes such items at fair value on the acquisition date. The Company adopted ASU 2021-08 on January 1, 2022 and applied it to the contract assets and liabilities acquired from Vivial.

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Note 2      Acquisitions

Vivial Acquisition

On January 21, 2022 (the “Vivial Acquisition Date”), the Company acquired Vivial, a marketing and advertising company, for $22.0 million in cash (net of $8.5 million of cash acquired), subject to certain adjustments (the “Vivial Acquisition”). The assets acquired as part of these transactions consisted primarily of $26.4 million in current assets and $9.8 million in fixed and intangible assets, consisting primarily of customer relationships and technology assets, $15.3 million in deferred tax assets, along with a $7.3 million bargain purchase gain. The acquisition is expected to result in a bargain purchase gain in part because the seller was motivated to divest its marketing services business that is in secular decline. The Company also assumed liabilities of $24.2 million, consisting primarily of accounts payable and accrued liabilities. The assessment of fair value of assets acquired and liabilities assumed is preliminary and is based on information that was available to management at the time these consolidated financial statements were prepared. The finalization of the Company’s acquisition accounting assessment could result in changes in the valuation of assets acquired and liabilities assumed, which could be material.

The Company accounted for the Vivial Acquisition using the acquisition method of accounting in accordance with Accounting Standards Codification 805, Business Combinations (ASC 805). This requires that the assets acquired and liabilities assumed are measured at fair value. With the assistance of a third-party valuation firm, the Company determined, using Level 3 inputs (see Note 4, Fair Value Measurements), the fair value of certain assets and liabilities, including fixed assets and intangible assets by applying the income approach and the cost approach. Specific to intangible assets, client relationships were valued using a combination of the income and excess earnings approach, whereas trade names were valued using a relief of royalty method and assumptions related to Vivial’s assets acquired and liabilities assumed. The preliminary purchase price allocation is expected to be finalized within 12 months after the Vivial Acquisition Date.

The fair values of fixed assets, intangible assets and other assets acquired and liabilities assumed have been prepared on a preliminary basis with information currently available and are subject to change. Management is still reviewing the characteristics and assumptions related to Vivial’s assets acquired and liabilities assumed.
The following table summarizes the assets acquired and liabilities assumed at the Vivial Acquisition Date:

(in thousands)
Current assets$26,388 
Fixed and intangible assets9,759 
Deferred tax assets15,314 
Other assets2,052 
Current liabilities(22,948)
Other liabilities(1,264)
Bargain purchase gain (7,297)
Fair value allocated to net assets acquired, net of bargain purchase gain$22,004 

The deferred tax asset primarily relates to excess carryover tax basis over book basis in intangibles as a result of the assessment of the fair value of the assets and liabilities assumed using the acquisition method of accounting.

The Vivial Acquisition contributed $23.3 million in revenue and $0.8 million in net income since the Vivial Acquisition Date.

Thryv Australia Acquisition

On March 1, 2021 (the “Thryv Australia Acquisition Date”), Thryv Australia Holdings Pty Ltd (formerly Thryv Australia Pty Ltd) (“Buyer”), an Australian proprietary limited company and a direct wholly-owned subsidiary of Thryv International Holding LLC, a direct and wholly owned subsidiary of the Company, acquired all of the issued and outstanding equity interests of (i) Sunshine NewCo Pty Ltd, an Australian proprietary limited company, and its subsidiaries, and (ii) Thryv Australia, a private limited company incorporated under the laws of England and Wales, and its subsidiaries (collectively, the “Thryv Australia Acquisition”). The Thryv Australia Acquisition expanded the Company's market share with a broader
9


geographical footprint. Additionally, the Thryv Australia Acquisition provided the Company with a significant increase in clients. Thryv Australia is a provider of marketing solutions serving SMBs in Australia. Control was obtained by means of acquiring all the voting interests.

In connection with the Thryv Australia Acquisition, the Company paid consideration of approximately $216.2 million in cash, subject to customary closing adjustments, financed by the Term Loan (as defined in Note 8, Debt Obligations) that was entered into on the Thryv Australia Acquisition Date. All acquisition-related costs, amounting to $8.7 million, were expensed as incurred by the Company and no portion of these costs are included in consideration transferred. These costs were presented within General and administrative expense in the Company's consolidated statement of operations and comprehensive income. Additionally, as part of the effort to fund the Thryv Australia Acquisition, the Company incurred debt issuance costs of $4.2 million related to the Term Loan, of which $2.5 million was capitalized and is being amortized using the effective interest method. See Note 8, Debt Obligations.

The Company accounted for the Thryv Australia Acquisition using the acquisition method of accounting in accordance with ASC 805. This requires that the assets acquired and liabilities assumed are measured at fair value. With the assistance of a third-party valuation firm, the Company determined, using Level 3 inputs (see Note 4, Fair Value Measurements), the fair value of certain assets and liabilities, including fixed assets, intangible assets, and contract liabilities, by applying a combination of the income approach and the cost approach. Specific to intangible assets, client relationships were valued using a combination of the income and excess earnings approach, whereas trade names were valued using a relief of royalty method.

The following table summarizes the consideration transferred and the purchase price allocation of the fair values of the assets acquired and liabilities assumed at the Thryv Australia Acquisition Date:

(in thousands)
Total cash consideration$216,164 
Total purchase consideration, as allocated below:$216,164 
Cash and cash equivalents $40,794 
Accounts receivable and other current assets72,404 
Other assets34,962 
Fixed assets and capitalized software18,856 
Intangible assets:
Client relationships (estimated useful life of 3.5 years)
101,839 
Trademarks (estimated useful life of 3.5 years)
24,877 
Accounts payable(15,038)
Accrued liabilities(41,724)
Contract liabilities(27,075)
Other current liabilities(6,733)
Deferred tax liabilities(35,884)
Other liabilities(15,506)
Total identifiable net assets$151,772 
Goodwill64,392 
Total net assets acquired$216,164 

The excess of the purchase price over the fair value of the identifiable net assets acquired and the liabilities assumed was allocated to goodwill. The recognized goodwill of $64.4 million was primarily related to the benefits expected from the Thryv Australia Acquisition and was allocated to the Thryv International segment. The goodwill recognized is not deductible for income tax purposes.

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Pro Forma Results

The pro forma combined financial information presented below was derived from the historical financial records of Thryv and Thryv Australia and presents the operating results of the combined Company, as if the Thryv Australia Acquisition had occurred on January 1, 2020. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense and related tax effects.

The pro forma financial information is not necessarily indicative of the consolidated results of operations that would have been realized had the Thryv Australia Acquisition been completed as of January 1, 2020, nor is it meant to be indicative of future results of operations that the combined entity will achieve:

Three Months Ended March 31,
(in thousands) (unaudited)2021
Revenue$318,752 
Net income 52,415 

Note 3      Revenue Recognition

The Company has determined that each of its Print and Digital marketing services and SaaS business management tools services is distinct and represents a separate performance obligation. The client can benefit from each service on its own or together with other resources that are readily available to the client. Services are separately identifiable from other promises in the contract. Control over the Company’s Print services transfers to the client upon delivery of the published directories containing their advertisements to the intended market(s). Therefore, revenue associated with Print services is recognized at a point in time upon delivery to the intended market(s). SaaS and Digital marketing services are recognized using the series guidance. Under the series guidance, the Company's obligation to provide services is the same for each day under the contract, and therefore represents a single performance obligation. Revenue associated with SaaS and Digital marketing services is recognized over time using an output method to measure the progress toward satisfying a performance obligation.

Disaggregation of Revenue
The Company presents disaggregated revenue based on the type of service within its segment footnote. During the three months ended March 31, 2022, the Company adjusted the disaggregated service revenue methodology it uses to manage the business. The three months ended March 31, 2022 and 2021 reflect the current methodology. See Note 15, Segment Information.

Contract Assets and Liabilities
The timing of revenue recognition may differ from the timing of billing to the Company’s clients. These timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) as disclosed on the Company's consolidated balance sheets. Contract assets represent the Company's right to consideration when revenue recognized exceeds the receivable from the client because the consideration allocated to fulfilled performance obligations exceeds the Company’s right to payment, and the right to payment is subject to more than the passage of time. Contract liabilities consist of advance payments and revenue deferrals resulting from the allocation of the consideration to performance obligations. For the three months ended March 31, 2022, the Company recognized Revenue of $12.9 million that was recorded in Contract liabilities as of December 31, 2021. For the three months ended March 31, 2021, the Company recognized Revenue of $4.7 million that was recorded in Contract liabilities as of December 31, 2020.

Pandemic Credits

During the three months ended March 31, 2021, the Company recognized pandemic credits of $2.2 million provided to customers most impacted by COVID-19. The Company has reflected these price concessions as reduction to revenue in the consolidated statements of operations and comprehensive income. During the three months ended March 31, 2022, the Company did not recognize any pandemic credits.

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Note 4     Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities.
Level 2 Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 Unobservable inputs that reflect the Company's own assumptions incorporated into valuation techniques.
These valuations require significant judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input to the fair value measurement in its entirety requires substantial judgment and consideration of factors specific to the asset or liability. Level 3 inputs are inherently difficult to estimate. Changes to these inputs can have a significant impact on fair value measurements. Assets and liabilities measured at fair value using Level 3 inputs are based on one or more of the following valuation techniques: market approach, income approach or cost approach.
The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels at the end of each reporting period. Other than the value of the indemnification asset described below, during the three months ended March 31, 2022 and 2021, there were no transfers between levels in the fair value hierarchy.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets such as goodwill, intangible assets, fixed assets, capitalized software and operating lease right-of-use assets are adjusted to fair value when the net book values of the assets exceed their respective fair values, resulting in an impairment charge. Such fair value measurements are predominantly based on Level 3 inputs.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Indemnification Asset

On June 30, 2017, the Company completed the acquisition of YP Holdings, Inc. (the YP Acquisition”). As further discussed in Note 13, Contingent Liabilities, as part of the YP Acquisition agreement, the Company is indemnified for an uncertain tax position for up to the fair value of 1,804,715 shares held in escrow, subject to certain contract limitations (the “indemnification asset”). Due to an increase in the Company’s common stock share price as of March 31, 2022, the number of shares expected to be returned to seller is 880,032, which represents the number of shares required to satisfy the uncertain tax position less $8.0 million.

As of March 31, 2022 and December 31, 2021, the fair value of the Company's Level 1 indemnification asset was $24.7 million and $24.3 million, respectively. A gain of $0.4 million from the change in fair value of the Company’s Level 1 indemnification asset during the three months ended March 31, 2022 was recorded in General and administrative expense on the Company's consolidated statements of operations and comprehensive income.

Benefit Plan Assets

The fair value of benefit plan assets is measured and recorded on the Company's consolidated balance sheets using Level 2 inputs. See Note 9, Pensions.
Fair Value of Financial Instruments

The Company considers the carrying amounts of cash, trade receivables, and accounts payable to approximate fair value because of the relatively short period of time between the origination of these instruments and their expected realization or payment.

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Additionally, the Company considers the carrying amounts of its ABL Facility (as defined in Note 8, Debt Obligations) and financing obligations to approximate their respective fair values due to their short-term nature and approximation of interest rates to market rates. These fair value measurements are considered Level 2. See Note 8, Debt Obligations.

The Term Loan (as defined in Note 8, Debt Obligations) is carried at amortized cost; however, the Company estimates the fair value of the Term Loan for disclosure purposes. The fair value of the Term Loan is determined based on quoted prices that are observable in the market place and are classified as Level 2 measurements. See Note 8, Debt Obligations.
The following table sets forth the carrying amount and fair value of the Term Loan:
March 31, 2022December 31, 2021
(in thousands)Carrying AmountFair ValueCarrying AmountFair Value
Term Loan, net$506,324 $513,919 $522,547 $533,651 

Note 5     Goodwill and Intangible Assets

Goodwill

The following tables set forth the changes in the carrying amount of goodwill for the Company for three months ended March 31, 2022 and the year ended December 31, 2021:
(in thousands)Marketing
Services
SaaSThryv InternationalTotal
Balance as of December 31, 2020
$390,573 $218,884 $ $609,457 
Thryv Australia Acquisition  64,392 64,392 
Effects of foreign currency translation  (1,963)(1,963)
Balance as of December 31, 2021
$390,573 $218,884 $62,429 $671,886 
Effects of foreign currency translation  1,827 1,827 
Balance as of March 31, 2022
$390,573 $218,884 $64,256 $673,713 
Intangible Assets

The following tables set forth the details of the Company's intangible assets as of March 31, 2022 and December 31, 2021:

 As of March 31, 2022
(in thousands)GrossAccumulated
Amortization
Effects of Foreign Currency TranslationNetWeighted
Average
Remaining
Amortization
Period in Years
Client relationships$805,095 $(757,153)$1,259 $49,201 2.5
Trademarks and domain names225,377 (200,118)403 25,662 1.7
Patented technologies19,600 (19,600)  0.0
Covenants not to compete4,436 (1,842) 2,594 2.3
Total intangible assets$1,054,508 $(978,713)$1,662 $77,457 2.2

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 As of December 31, 2021
(in thousands)GrossAccumulated
Amortization
Effects of Foreign Currency TranslationNetWeighted
Average
Remaining
Amortization
Period in Years
Client relationships$803,642 $(748,460)$(5,326)$49,856 2.7
Trademarks and domain names225,177 (193,978)(1,389)29,810 1.9
Patented technologies19,600 (19,600)  0.0
Covenants not to compete4,373 (1,462) 2,911 2.6
Total intangible assets$1,052,792 $(963,500)$(6,715)$82,577 2.4

Amortization expense for intangible assets for the three months ended March 31, 2022 and 2021 was $13.1 million and $9.9 million, respectively.

Estimated aggregate future amortization expense by fiscal year for the Company's intangible assets is as follows:
(in thousands)Estimated Future
Amortization Expense
2022$40,097 
202323,923 
202412,714 
2025723 
Total$77,457 

Note 6     Allowance for Credit Losses

The following table sets forth the Company's allowance for credit losses:
(in thousands)20222021
Balance as of January 1$17,475 $33,368 
Acquisitions 2,733 
Additions (1)
3,239 2,018 
Deductions (2)
(2,953)(3,318)
Balance as of March 31 (3)
$17,761 $34,801 

(1)    For the three months ended March 31, 2022 and 2021, represents provision for bad debt expense of $3.2 million and $2.0 million, respectively, which is included in General and administrative expense.

(2)    For the three months ended March 31, 2022 and 2021, represents amounts written off as uncollectible, net of recoveries.

(3)    As of March 31, 2022, $17.7 million of the allowance is attributable to Accounts receivable and $0.1 million is attributable to Contract assets. As of March 31, 2021, $34.6 million of the allowance is attributable to Accounts receivable and $0.2 million is attributable to Contract assets.

The Company’s exposure to expected credit losses depends on the financial condition of its clients and other macroeconomic factors. The Company maintains an allowance for credit losses based upon its estimate of potential credit losses. This allowance is based upon historical and current client collection trends, any identified client-specific collection issues, and current as well as expected future economic conditions and market trends.
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Note 7     Accrued Liabilities

The following table sets forth additional financial information related to the Company's accrued liabilities:
(in thousands)March 31, 2022December 31, 2021
Accrued salaries and related expenses$63,231 $58,440 
Accrued severance 470 1,720 
Accrued taxes 24,416 17,660 
Accrued expenses 55,424 51,224 
Accrued service credits2,809 2,769 
Accrued liabilities$146,350 $131,813 


Note 8      Debt Obligations

The following table sets forth the Company's outstanding debt obligations as of March 31, 2022 and December 31, 2021:
(in thousands)MaturityInterest RateMarch 31, 2022December 31, 2021
Term LoanMarch 1, 2026LIBOR +8.5%$524,500 $542,000 
ABL Facility (Fifth Amendment)March 1, 20263-month LIBOR +3.0%62,975 39,929 
Unamortized original issue discount and debt issuance costs(18,176)(19,453)
Total debt obligations$569,299 $562,476 
Current portion of Term Loan(70,000)(70,000)
Total long-term debt obligations$499,299 $492,476 
Term Loan

On March 1, 2021, the Company entered into a Term Loan credit agreement (the “Term Loan”). The proceeds of the Term Loan were used to finance the Thryv Australia Acquisition, refinance in full the Company's existing term loan facility (the “Senior Term Loan”), and pay fees and expenses related to the Thryv Australia Acquisition and related financing.

The Term Loan established a senior secured term loan facility (the “Term Loan Facility”) in an aggregate principal amount equal to $700.0 million, of which 38.4% was held by related parties who are equity holders of the Company, as of March 1, 2021. The Company defines a related party as any shareholder owning more than 5% of the Company's voting securities. As of March 31, 2022, 13.9% of the Term Loan was held by related parties who are equity holders of the Company.

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.

The net proceeds from the Term Loan of $674.9 million (net of original issue discount costs of $21.0 million and third-party fees of $4.1 million) were used to repay the remaining $449.6 million outstanding principal balance of the Senior Term Loan, accrued interest of $0.4 million, and third-party fees of $0.1 million. The Company accounted for this transaction with existing lenders as a modification. The transaction with other lenders party to only the Senior Term Loan was accounted for as an extinguishment.
15




Accordingly, total third-party fees paid were $4.2 million, of which $1.7 million was immediately charged to General and administrative expense on the Company's consolidated statement of operations and comprehensive income. The remaining third-party fees of $2.5 million were deferred as debt issuance costs and will be amortized to interest expense, over the term of the loan, using the effective interest method. Additionally, there were unamortized debt issuance costs of $0.4 million on the existing Senior Term Loan, of which $0.3 million was written off and recorded as a loss on early extinguishment of debt on the Company's consolidated statement of operations and comprehensive income. The remaining unamortized debt issuance costs of $0.1 million will be deferred as debt issuance costs and amortized to interest expense, over the term of the Term Loan, using the effective interest method. The Term Loan, which was incurred by Thryv, Inc., the Company’s operating subsidiary, is secured by all the assets of Thryv, Inc., certain of its subsidiaries and the Company, and is guaranteed by the Company and certain of its subsidiaries.

In accordance with the Term Loan and the Senior Term Loan, the Company recorded interest expense with related parties for the three months ended March 31, 2022 and 2021 of $1.8 million and $4.1 million, respectively.

The Company has recorded accrued interest of $4.9 million and $3.4 million, as of March 31, 2022 and December 31, 2021, respectively. Accrued interest is included in Other current liabilities on the Company's consolidated balance sheets.

Term Loan Covenants

The Term Loan contains certain covenants that, subject to exceptions, limit or restrict the borrower's incurrence of additional indebtedness, liens, investments, loans, advances, guarantees, acquisitions, sales of assets, sale-leaseback transactions, swap agreements, payments of dividends or distributions, payments in respect of certain indebtedness, certain affiliate transactions, restrictive amendments to agreements, changes in business, amendments of certain material documents, capital expenditures, mergers, consolidations and liquidations, and use of the proceeds. Additionally, the Company is required to maintain compliance with a Total Net Leverage Ratio, calculated as Net Debt to Consolidated EBITDA, which shall not be greater than 3.0 to 1.0 as of the last day of each fiscal quarter. As of March 31, 2022, the Company was in compliance with its Term Loan covenants. The Company also expects to be in compliance with these covenants for the next twelve months.

ABL Facility

On March 1, 2021, the Company entered into an agreement to amend (the “ABL Amendment”) the June 30, 2017 ABL Facility (the “ABL Facility”). The ABL Amendment was entered into in order to permit the Senior 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.

The Company accounted for this transaction as a modification of the ABL Facility. Accordingly, the existing unamortized debt issuance costs of $2.4 million, as well as additional third-party fees and lender fees of $0.9 million associated with the latest ABL Amendment, will be deferred and amortized over the new term of the ABL Facility.

As of March 31, 2022 and December 31, 2021, the Company had debt issuance costs with a remaining balance of $2.6 million and $2.7 million, respectively. These debt issuance costs are included in Other assets on the Company's consolidated balance sheets.

As of March 31, 2022, the Company had borrowing capacity of $68.9 million under the ABL Facility.

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ABL Facility Covenants

The ABL Facility contains certain covenants that, subject to exceptions, limit or restrict the borrower's incurrence of additional indebtedness, liens, investments, loans, advances, guarantees, acquisitions, disposals of assets, payments of certain indebtedness, certain affiliate transactions, changes in fiscal year or accounting methods, issuance or sale of equity instruments, mergers, liquidations and consolidations, use of proceeds, maintenance of certain deposit accounts, compliance with certain ERISA requirements and compliance with certain Australian tax requirements. The Company is required to maintain compliance with a fixed charge coverage ratio that must exceed a ratio of 1.00. The fixed charge coverage ratio is defined as, with respect to any fiscal period determined on a consolidated basis in accordance with GAAP, the ratio of (a) Consolidated EBITDA as defined in the ABL credit agreement for such period minus capital expenditures incurred during such period, to (b) fixed charges. Fixed charges is defined as, with respect to any fiscal period determined on a consolidated basis in accordance with GAAP, the sum, without duplication, of (a) consolidated interest expense accrued (other than amortization of debt issuance costs, and other non-cash interest expense) during such period, (b) scheduled principal payments in respect of indebtedness paid during such period, (c) all federal, state, and local income taxes accrued during such period, (d) all management, consulting, monitoring, and advisory fees paid to certain individuals or their affiliates during such period, and (e) all restricted payments paid during such period (whether in cash or other property, other than common equity interest). The Company is also required to maintain excess availability of at least $14.0 million, and U.S. excess availability of $10.0 million, in each case, at all times. As of March 31, 2022, the Company was in compliance with its ABL Facility covenants. The Company also expects to be in compliance with these covenants for the next twelve months.

Note 9     Pensions

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

The Company immediately recognizes actuarial gains and losses in its operating results in the year in which the gains and losses occur. The Company estimates the interest cost component of net periodic pension cost by utilizing a full yield curve approach and applying the specific spot rates along the yield curve used in the determination of the benefit obligations of the relevant projected cash flows. This method provides a more precise measurement of interest costs by improving the correlation between projected cash flows to the corresponding spot yield curve rates.

Net Periodic Pension Cost

The following table details the other components of net periodic pension cost for the Company's pension plans:
Three Months Ended March 31,
(in thousands)20222021
Interest cost$3,418 $2,616 
Expected return on assets(3,488)(2,890)
Settlement (gain) (15)
Remeasurement (gain) (164)
Net periodic pension (benefit)$(70)$(453)

Since all pension plans are frozen and no employees accrue future pension benefits under any of the pension plans, the rate of compensation increase assumption is no longer needed. The Company determines the weighted-average discount rate by applying a yield curve comprised of the yields on several hundred high-quality, fixed income corporate bonds available on the measurement date to expected future benefit cash flows.

During the three months ended March 31, 2022, the Company made cash contributions of $7.5 million to the qualified plans and contributions and associated payments of $0.1 million to the non-qualified plans. During the three months ended March 31, 2021, the Company made cash contributions of $5.0 million to the qualified plans, and contributions and associated payments of $0.7 million to the non-qualified plans.

For the fiscal year 2022, the Company expects to contribute approximately $25.0 million to the qualified plans and approximately $1.1 million to the non-qualified plans.


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Note 10     Stock-Based Compensation and Stockholders' Equity

Stock Options

During the three months ended March 31, 2022, the Company issued an aggregate of 82,810 shares of common stock to employees upon the exercise of options previously granted under the 2016 and 2020 Stock Incentive Plan(s) at exercise prices ranging from $3.68 to $13.82 per share.

During the three months ended March 31, 2021, the Company issued an aggregate of 215,544 shares of common stock to employees upon the exercise of options previously granted under the 2016 Stock Incentive Plan at exercise prices ranging from $3.68 to $13.82 per share.

Stock-based compensation expense recognized for stock option awards was $1.6 million and $1.7 million during the three months ended March 31, 2022 and 2021, respectively.

Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (“ESPP”) was approved by the Company's board of directors on September 10, 2020 and became effective on September 23, 2020. Under the ESPP, eligible employees may purchase a limited number of shares of our common stock at the lesser of 85% of the market value at the beginning of the offering period or 85% of the market value at the end of the offering period. The ESPP is intended to enable eligible employees to use payroll deductions to purchase shares of stock in offerings under the plan, and thereby acquire an interest in the Company. The maximum aggregate number of shares of stock available for purchase under the plan by eligible employees is 2,000,000 shares. No shares were issued through the ESPP during the three months ended March 31, 2022 or 2021. Stock-based compensation expense recognized for the ESPP was $0.4 million and $0.3 million during the three months ended March 31, 2022 and 2021, respectively.

Stock-Based Compensation Expense

The following table sets forth stock-based compensation expense recognized by the Company in the following line items in the Company's consolidated statements of operations and comprehensive income during the periods presented:

 Three Months Ended March 31,
(in thousands)20222021
Cost of services$76 $81 
Sales and marketing769 832 
General and administrative1,083 1,058 
Stock-based compensation expense$1,928 $1,971 

Stock Warrants

As of March 31, 2022 and December 31, 2021, the Company had 9,432,064 fully vested outstanding warrants. As of March 31, 2022 and December 31, 2021, the holders of such warrants are entitled to purchase, in the aggregate, up to 5,240,035 shares of common stock. Warrants can be exercised at a strike price of $24.39 per common share. The warrants were issued in 2016 upon the Company's emergence from its pre-packaged bankruptcy. These warrants expire on August 15, 2023.

No warrants were exercised during the three months ended March 31, 2022. During the three months ended March 31, 2021, 200 warrants were exercised.
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On May 3, 2022, the Compensation Committee of the Company’s Board of Directors approved a form of award agreement (the “RSU Award Agreement”) for grants of restricted stock units (“RSUs”) and a form of award agreement (the “PSU Award Agreement”) for grants of performance-based restricted stock units (“PSUs”), each under the Company’s 2020 Incentive Award Plan (the “2020 Plan”). Pursuant to the RSU Award Agreement, each RSU will entitle the recipient to one share of the Company’s common stock, subject to time-based vesting conditions that will be set forth in individual agreements. Pursuant to the PSU Award Agreement, each PSU will entitle the recipient to one share of the Company’s common stock, subject to performance-based vesting conditions that will be set forth in individual agreements.


Note 11     Earnings per Share

The following table sets forth the calculation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(in thousands, except share and per share amounts)20222021
Basic net income per share:
Net income$33,511 $36,506 
Weighted-average common shares outstanding during the period34,159,979 33,108,422 
Basic net income per share$0.98 $1.10 
Three Months Ended March 31,
(in thousands, except share and per share amounts)20222021
Diluted net income per share:
Net income$33,511 $36,506 
Basic shares outstanding during the period34,159,979 33,108,422 
Plus: Common stock equivalents associated with stock option awards3,797,706 905,058 
Diluted shares outstanding37,957,685 34,013,480 
Diluted net income per share$0.88 $1.07 
The computation of diluted shares outstanding for the three months ended March 31, 2022 excluded 33,092 ESPP shares, as their effect would have been anti-dilutive. No outstanding stock options or stock warrants were excluded from the computation of diluted shares outstanding for the three months ended March 31, 2022. The computation of diluted shares outstanding for the three months ended March 31, 2021 excluded 388,892 shares under outstanding stock options, 36,940 ESPP shares, and 10,458,655 shares under stock warrants, as their effect would have been anti-dilutive.


Note 12     Income Taxes

The Company’s effective tax rate (“ETR”) was 22.3% for the three months ended March 31, 2022, and 24.4% for the three months ended March 31, 2021. The Company's ETR differs from the 21.0% U.S. Federal statutory rate primarily due to our geographic mix of taxable income in various tax jurisdictions and permanent tax differences attributable to the net impact of non-U.S. taxing jurisdictions.

As of March 31, 2022 and December 31, 2021, the Company had $20.7 million and $20.8 million, respectively, of unrecognized tax benefits, excluding interest and penalties, that if recognized, would impact the effective tax rate. As of March 31, 2022 and December 31, 2021, the Company had $10.0 million and $9.6 million, respectively, recorded for interest in the consolidated balance sheets. The Company engages in continuous discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Company expects to complete resolution of certain tax years with various tax authorities within the next 12 months. The Company believes it is reasonably possible that its existing gross unrecognized tax benefits may be reduced by up to $20.2 million within the next 12 months, affecting the Company’s effective tax rate if realized.

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Note 13     Contingent Liabilities

Litigation

The Company is subject to various lawsuits and other claims in the normal course of business. In addition, from time to time, the Company receives communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company operates.

The Company establishes reserves for the estimated losses on specific contingent liabilities for regulatory and legal actions where the Company deems a loss to be probable and the amount of the loss can be reasonably estimated. In other instances, losses are considered probable, but the Company is not able to make a reasonable estimate of the liability because of the uncertainties related to the outcome or the amount or range of potential loss. For these matters, disclosure is made, but no amount is reserved. The Company does not expect that the ultimate resolution of pending regulatory and legal matters in future periods will have a material adverse effect on the Company's consolidated statements of operations and comprehensive income, balance sheets or cash flows.

Section 199 and Research and Development Tax Case

Section 199 of the Internal Revenue Code of 1986, as amended (the “Tax Code”) provides for deductions for manufacturing performed in the U.S. The Internal Revenue Service (“IRS”) has taken the position that directory providers are not entitled to take advantage of the deductions because printing vendors are already taking deductions and only one taxpayer can claim the deduction. The Tax Code also grants tax credits related to research and development expenditures. The IRS also takes the position that the expenditures have not been sufficiently documented to be eligible for the tax credit. The Company disagrees with these positions.

The IRS has challenged the Company's positions. With respect to the tax years 2012 through June 2015 for the YP LLC partnership, the IRS sent 90-day notices to DexYP on August 29, 2018. In response, the Company filed three petitions (in the names of various related partners) in U.S. Tax Court, and the IRS filed answers to those petitions. The three cases were consolidated by the court and were referred back to IRS Administrative Appeals for settlement negotiations, during which time the litigation was suspended. The appeals conference for YP is scheduled for May 9-10, 2022. In advance of the IRS Appeals conference, the parties reached an agreement regarding additional research and development tax credits for the tax years at issue whereby the IRS will allow more tax credits than were originally claimed on the tax returns. With respect to the tax year from July to December 2015 for the Print Media LLC partnership, the Company was recently unsuccessful in its attempt to negotiate a settlement with IRS Administrative Appeals, and the IRS issued a 90-day notice to the Company. The Company filed a petition in the U.S. Tax Court to challenge the IRS denial.

As of March 31, 2022 and December 31, 2021, the Company has reserved approximately $32.3 million and $31.9 million, respectively, in connection with the 199 disallowance and less than $0.1 million related to the research and development tax credit disallowance. Pursuant to the YP Acquisition agreement, the Company is entitled to (i) a dollar-for-dollar indemnification for the research and development tax liability, and (ii) a dollar-for-dollar indemnification for the 199-tax liability after the Company pays the first $8.0 million in liability. The indemnification asset, however, is subject to a provision in the YP Acquisition agreement that limits the seller’s liability. The balance of the indemnification asset is $24.7 million and $24.3 million at March 31, 2022 and December 31, 2021, respectively.

Other

New York Sales, Excise, and Use Tax Audit

On August 19, 2020, the New York State Department of Taxation and Finance issued a notice to the Company assigning a routine audit of the Company's sales, excise, and use tax account for the audit period covering March 1, 2017 through May 31, 2020. The Company has reserved $3.3 million for the total combined exposure for the period, which is accrued on the Company's consolidated balance sheet as of March 31, 2022.

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Ohio Use Tax Audit

In November 2021, the Company received a notice from the Ohio Department of Taxation Audit Division requesting to schedule an audit of the Ohio use tax records for the period of October 1, 2015 through September 30, 2021. The Company has reserved $1.3 million for this period, which is accrued on the Company’s consolidated balance sheets as of March 31, 2022.


Note 14     Changes in Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss), which is reported as a component of stockholders' equity, for the three months ended March 31, 2022 and 2021:

Accumulated Foreign Currency Translation Adjustment
(in thousands)20222021
Beginning balance at January 1$(8,047)$ 
Foreign currency translation adjustment, net of tax expense of $1.1 million and $1.0 million, respectively
5,448 (2,967)
Ending balance at March 31
$(2,599)$(2,967)


Note 15     Segment Information
The Company determined that the Company manages operations using three operating segments, which are also its reportable segments: (1) Marketing Services, (2) SaaS, and (3) Thryv International. As of January 1, 2022, the Company's Chief Executive Officer, who is also the chief operating decision maker (CODM), began including gross profit by segment in the Company's reporting to assess segment performance and allocate resources. As such, gross profit by segment has been added to the current and comparative prior period.
The Company does not allocate assets to its segments and the CODM does not evaluate performance or allocate resources based on segment asset data, and, therefore, such information is not presented.

The following tables summarize the operating results of the Company's reportable segments:
Three Months Ended March 31, 2022
(in thousands)Marketing ServicesSaaSThryv InternationalTotal
Revenue$212,533 $47,343 $48,499 $308,375 
Segment Gross profit136,510 29,409 31,937 197,856 
Segment Adjusted EBITDA66,395 (4,364)21,686 83,717 
Three Months Ended March 31, 2021
(in thousands)Marketing ServicesSaaSThryv InternationalTotal
Revenue$227,933 $37,251 $15,422 $280,606 
Segment Gross profit156,161 23,167 3,118 182,446 
Segment Adjusted EBITDA98,631 316 5,986 104,933 

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A reconciliation of the Company’s Income before income tax expense to total Segment Adjusted EBITDA is as follows:
Three Months Ended March 31,
(in thousands)20222021
Income before income tax expense$43,132 $48,315 
Interest expense14,867 15,672 
Depreciation and amortization21,969 19,718 
Other components of net periodic pension (benefit) (70)(453)
Loss on early extinguishment of debt 299 
Restructuring and integration expenses 5,827 9,234 
Transaction costs (1)
1,720 10,546 
Stock-based compensation expense1,928 1,971 
(Gain) from remeasurement of indemnification asset(400) 
Other(5,256)(369)
Total Segment Adjusted EBITDA$83,717 $104,933 
(1)Consists of Vivial Acquisition, Thryv Australia Acqu