Chit Chat Stocks - Thryv Holdings (THRY) with Jeff Moore

Episode Date: September 23, 2021

Thryv Holdings is a software as a service company based out of Dallas, Texas. The company originally began as a Yellow Pages conglomerate. In this episode, we discuss various ways that Jeff invests in the public markets. Jeff brings his expert knowledge of Thryv for a great discussion regarding the history and future of the company. Enjoy the show! Our Thursday Deep Dives are sponsored by Quartr, the new way of doing company research. Access conference calls, presentations, transcripts, and more for FREE on your mobile device. Download Quartr on the App Store here: https://apps.apple.com/us/app/quartr-investor-relations/id1552412128  Download Quartr on the Google Play Store here: https://play.google.com/store/apps/details?id=se.quartr.android  Subscribe to 7investing with the code "CCM": https://7investing.com/subscribe/aff/4/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested in more of Jeff's work? Follow him on Twitter: https://twitter.com/ragnarisapirate?s=20 Rather watch us on video? Subscribe to our YouTube channel: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ  Contact us: [e-mail]  Timestamps Thryve | (4:10) Investment Analysis | (32:23) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode. Today is September 23rd. This was recorded a bit earlier. September 10th. We're here right now. So, a really interesting company, something unique, small. It's called Thrive Holdings. And first time guest, Jeff, and we talked to him after the interview. And it's sort of just a whole universe of securities that we haven't paid that much attention to. Yeah. If you're interested in the small cap, micro cap land, this is kind of a good intro.

You may not be comfortable with investing in these types of things. And obviously we're not telling you to invest in this. It's just kind of just information for yourself, but this can be a good introduction. I know some people don't like to dabble there, but if you do, this would be a perfect episode for you. Yeah. And it really helps kind of make clear the opportunity that's in here and sort of the inefficiencies that are involved in some of these smaller companies. And so just really interesting interview all in all but before we get to the interview i want to talk about our sponsor uh our friends at quarter used quarter yesterday i'm trying to become a dau uh don't know if i'll make it but help for their pitch decks their future pitch decks yeah so hopefully

i can help with any what'd you listen to thrive no up work all right okay which uh yeah if you're listening to this we would have talked about i think prior to this uh on one of our not so deep dive episodes and it's always fun. I didn't even have to skip to the Q and a sometimes I like the prepared remarks. Uh, if they're short enough, if they're short enough, it's, it's, it's a really good app. So for anyone that's unfamiliar, it's basically an investor relations app that, uh, combines all the different companies, investor relations pages. You can get their conference calls, presentations, transcripts, uh, look up whatever company you want. They have tons. Uh, it's a hundred percent free. You can download it on iOS and Android. Uh, you can add a little

watch list, have your favorite companies. So go ahead and check them out on Twitter at quarter underscore app. It's Q-U-A-R-T-R underscore app. Now, do you have any highlights from the interview before we get into it? Yeah. So the best part would be probably explaining the details of why a small business would want to use the Thrive platform. If you're on the investor relations page or reading any of their documents, you can be a bit confused on what exactly Thrive is, and Jeff explained that great, so that can clear that up. And then you learn the difference between how there's two businesses. There's the dining business generating cash, and they're reinvesting it into this new one

that's supposed to be the SaaS business. Yeah, overall, great interview. Yep, without further ado, here it is. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or

any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. All right. Today, we are welcomed by Jeff Moore. I came across him on Twitter and his website, but give a little bit of background because it's your first time on the show. First of all, how'd you come across Thrive? And then what's kind of your background personally? Yeah. So for my personal background, I mainly do real estate. I do stocks too, but um about my first duplex when i was like 19 and then kind of rolled that into some other real estate projects um and just kind of grew it and then at some point figured out well i guess i'm a landlord um and then you know grew that to over 100 units uh sold that off to a small

public company um and uh yeah i just did that and you know now we do a bunch of stuff with opportunity zone investments and you know a lot of infill and redevelopment in lexington kentucky but i also do like a lot of microcap stuff um so kind of how that that got into thrive was um my buddy richard sosa um he gonna turn me on to a company called donley financial which uh has an old legacy uh paper printing business for public companies you know doing proxy services and stuff and uh they're transitioning to a sass business so you know i uh you know started buying some shares in that talked to one of my buddies about it and then he was like oh well here's a similar story with thrive um they had done a direct listing uh so they couldn't really talk about

what was going on but it was the legacy yellow pages business um that had come out of bankruptcy uh you know they had a relatively clean balance sheet uh still had some high yielding debt though um and then some large shareholders uh that were former distress holders and uh yeah so they did the direct listing and i started looking at that i read the queue uh their most recent Q and their S, I guess their S1, their listing documents and started buying shares the next day. And then at some point in the next couple of months, we realized that there were these warrants. And so I got the warrant holder list from the company and started reaching out to individual warrant holders and doing private transactions to buy the warrants.

And at some point, I wound up selling off all my Thrive stock and just being 100% exposed to the warrants, which kind of exists because of the bankruptcy. And when I was reaching out to a lot of these people, a lot of them didn't even know that they had them. Or if they did, they kind of thought they were worthless. So it's kind of an interesting process. And I think some people will know this, but I know for sure a lot of listeners do not. can you give a brief explainer about what the warrants are just so people can get some context, like what just in general a warrant is? Yeah. Yeah. So it's basically, it's almost like a call option that's just issued directly from the company. Um, and it can also help the

company raise capital. So the, the particular, the particulars of these are that, um, one warrant will buy you 0.555 shares of stock. And that's because they did a reverse split, um, at some point. So the rough math is two warrants gets you one share of stock and the warrants are exercisable at $24.39. And so the way that you would go about exercising them is you fill out a form with computer share, who's kind of the transfer agent for all this stuff. You send it in with your cashier's check for the $24.39 a share. That $24.39 goes directly to the company and shows up on their balance sheet as cash, and then they give you the shares in exchange. These particular warrants, they expire at close of business on August 15th of 2023.

So they're pretty long dated. So, I mean, if you think of them as a call option, they would be a leap, right? Because their duration is so long. And it's got the added benefit of injecting what was and still kind of is a pretty levered company with some cash and that was actually part of the investment thesis with this is that you know it seemed like if they could get their share price up to just a reasonable number based on the cash flows from the yellow pages business that there would be something like 140 million dollars injected to the company at some point in the next two years which in my mind took a lot of

um i guess re-bankruptcy risk um off the table um because you know 140 million bucks uh you you know, that's something like a fifth of their debt stack. And that can make a lot of interest payments and take care of a lot of short term liquidity problems. And it turns out one holder, and I think it was late April, actually exercised a million of these things. And I figured that out from reading the subsequent events from one of their 10 queues, where, like I said, you just go to the subsequent events, they said that one of their war holders had exercised, they didn't talk about like the amount of money that that brought into the company, they just said, Hey, this happened and uh you know the quick math on that was you know it was something like you know 14

million dollars i think that came into the company so it the company actually had more cash on its balance sheet than the 10q indicated which i thought was kind of a neat little um item i guess yeah let's talk about the business a little bit so the it's probably a name that isn't familiar to a lot of listeners so can you talk about the legacy sort of marketing services business and then maybe also what what kind of cash it's bringing in just for context yeah sure so um first off i think everybody should go to the investor relations page and just hear this from the horse's mouth which is joe walsh uh their ceo he's awesome um but to kind of sum up to maybe get get you to the point you'll want to go to that um the marketing services business it's literally

phone books uh is a large part of it just yellow pages you know they they uh i can't remember the exact numbers but they have it in one of their presentations but if i remember right it takes something like a dollar and 25 cents for them to print and deliver one of these yellow pages books right and you know you see them like i actually got one from one of their competitors delivered to my house maybe a month or two ago i've been meaning to burn it um and protest but uh yeah so it takes like a dollar 25 to get those delivered to people and they bring in something like nine dollars and 50 cents in revenue from you know plumbers florists you know who you know uh you know this one on the front page there you know there's a generac uh generator uh uh ad you know

and then an auto insurance company and you know it looks like there's a breast cancer foundation this advertising. So anyway, from all those people and entities, they wanted to get like $9.50. So they got like 90% margins on phone books, right, which is pretty absurd. And then they also have, you know, some search engine optimization that they do things with, which is declining at a much lower rate than the Yellow Pages business that they get some cash flows from. But you know, I mean, it's a melting iceberg. I mean, this is something that does over a billion dollars a year in revenue, but it's shrinking at 22-ish percent. And that can be a little bit hard to detect in the filings because they have a 15-month billing cycle. So you've got to make all sorts of

calculations on that, but they do a pretty good job in their presentations. But that business This absolutely mints money and cash flows like crazy. Yeah, that's right. They didn't mention that they have a lot of variable expenses there. I think the big question for a lot of people is, I think the analogy to bring it up would be sort of like the decline in video cable or I don't know what, you know, the video cable subscribers where it started petering off and stabilizing over the last few years. Do you think there is a floor for that for yellow pages?

I know they reference basically people that are, you know, boomer or older and in non-urban areas that are kind of less susceptible to leaving these. Do you think there is a floor there and that can help them have this cash cow to reinvest? I mean, maybe, maybe not. I don't know. I mean, my investment thesis isn't really based on that. um they've done a really good job um uh kind of scaling that business and making it so that they don't have fixed costs it's it's they've got a highly variable cost structure right and so you know uh you know because it doesn't cost much less to print say your unit cost is not going to go up much if you're printing 800 000 of these books rather than a million of them right so you know that decline, it's not going to be too bad. And a lot of it, you know, is, you know, getting rid

of certain salespeople that are selling a lot of these products, you know, kind of as they retire out, you just don't replace them. So they've got a pretty variable cost structure. And I think that they'll be able to scale this down pretty nicely and maintain their margins, which a lot of companies are not able to do. I mean, and you see that with dial-up internet, right? I mean, dial-up internet has incredible margins, even though it's got a declining base, you know, I mean, generally 20% a year. But you can keep the cost structure down. So I'm pretty optimistic about that. And I mean, if you look at the EBITDA of the company in Q2 of 21, I mean, this is a company, their market cap is probably about a billion dollars right now. But last quarter, they did

almost $97 million in EBITDA, right? And their EBITDA numbers, they're not bullshit, right? I I mean, they actually, that's pretty close to their cash flow numbers. And they've been using that to pay off debt and, you know, do some other neat things. You know, so you annualize that with some decline. I mean, you know, they'll probably do $320, maybe $350 million or something like that in cash flow, which lets them reinvest in the SaaS business and whatnot. So, yeah, I mean, I'm pretty optimistic about that. And I think that one of the interesting kickers would be like, you know, what happens if part of that business segment actually grows a little bit or maybe doesn't decline at 22 percent? You know, if it declines it, you know, 18 percent in one year, that could do some pretty interesting things.

And I would not bank on that happening at all. Right. I view that as kind of like a free call option that you might get for some people being a little bit, I guess, being stickier customers than normal. Yeah, you're not paying for any potential surprises to the upside in that regard. But the more, I guess, exciting part of Thrive seems to be this Thrive platform or the, I think that's what they call it, right? Yeah. So can you talk about what that is and sort of who their target customers are there? Yeah, so it's a SaaS business and it's, you know, basically a very simplified version of what Salesforce or ServiceTitan or HubSpot would offer to like a really large company. It's a very, I call it boomer proof actually, because it's so simple that anyone can use it and you run your small business, your small business that's a service business off of it. So like, you know, your plumber that has five trucks would be an ideal client for this. I've got an epoxy floor.

We use an epoxy floor coating company for some of our rental units and whatnot. And he actually uses Thrive software. And that's actually one of the cool aspects of some of the growth for some of that is they have a really good franchise version of this. So the franchisors can monitor what the franchisees are. Maybe I'm getting those confused. The person selling the franchise can monitor their kind of subs revenues and stuff so they don't take cash under the table and stuff to get other revenue share agreements. And this floor coating company does that. You know, hair salons could use this.

A dentist could use it. It's HIPAA compliant for, you know, doctor's offices and things of that nature. So, you know, any small business that's basically more than, you know, one or two people, this would be fantastic software for them. And it does a really good job of helping them grow because it links up with, you know, 40 or 50 different websites, makes all the reviews consistent. You click one button and it makes your hours of operation consistent across all media platforms. um you know it brings all of your messages from facebook and yelp and angie's list and all the other platforms into one central location for you um it's it's really a pretty simple and beautiful software how much how many customers do they have on that right now do you know um 40 or 45 000

i think it's 44 and you said that you've tried it out or you are a paying customer i don't know if you did this just for the investment thesis or if you're actually using it, but what has your experience been like with the platform? Are there any other offerings, you know, competitors, stuff like that? Yeah. So we got one of our contractors on it. And then another one of our contractors had been using it. And then we recently started up a small plumbing company that is using the software and we're in the process of like rolling that out.

It's a very simple software, um but it does a lot of stuff uh which is really nice um so you know i'm a fan of it there there are competitors um it's just you know like uh like jobber would be a competitor for it um but uh you know jobber doesn't seem to do all the stuff thrive does um you know i guess to some extent a company like service titan would be a competitor but i mean service titan is really catered for much larger companies than Thrive is. I mean, if you have 150 trucks or something like that, like say Godel, which is a big HVAC firm out in Nevada, well, really the Southwestern U.S., they're on Service Titan and it's a pretty good software for that. But one of the things I've

noticed, just seeing how a lot of these small contracting firms are utilizing is they're grossly underutilizing service titan and so they're paying a lot of money for features they're not using and frankly not using well i mean it you know i've gotten in billing disputes before with the company using service titan and you know they had done some illegal work on one of our houses and really messed some stuff up and they could not figure that out from their software we had to use ours to be like no you all messed this up this is your problem not ours um and uh you know they kind of they quickly saw that they were wrong once we we we put that all in front of them but so as to say like you know a complicated system makes it hard for them to implement

right so yeah they're using service titan but it doesn't do them any good right they they need to go for the simplistic uh nature that something like thrive can do um because and a lot of times you know with small businesses they don't have time to roll a lot of these softwares out and And Thrive just won an award for being the simplest rollout for any software. And they also do follow-on meetings with you to make sure you're using the software and whatnot. Because, I mean, it's kind of like, you know, an Apple product, right? If you get an iPhone, you may wind up switching back to Android at some point. But if you get an iPhone and an Apple Watch, you're a little bit less likely to switch to Android.

And then if you have an Apple Watch and an iPhone and an iPad, you're probably stuck in that ecosystem. And then if you throw an Apple TV on top of that, you're stuck with Apple forever just because it's such a pain to switch. And that's kind of the thesis that I've got with a lot of these software companies. And I think it's kind of underappreciated for the small business ones, because, you know, if you think about it from the standpoint of the revenue share you're getting from a company, Thrive actually has a revenue share in essence, right? Because they've got fraud pay they're rolling out. And then a lot of their products are kind of the first thing that gets paid. And small businesses, a lot of times they're not really paying taxes on a whole lot of stuff because, you know, they have some depreciation or expenses they can do and, you know, and

whatnot. So they're actually in a much more interesting position kind of in the capital structure or I guess revenue share structure than say even the federal government is, right? So I find that as a very interesting spot for them to be in. And all they have to do is get the customers using several of the products that the Thrive platform uses, and they're stuck forever. I mean, in my experience, if you change a software on your company or you significantly change a lot of your operating procedures so that everybody in the organization has to figure something new out, you're probably better off just firing everybody and starting over. And as an example of that, my girlfriend, she works at one of the local hospitals. And when that health care system switched to a software called Epic, which is like the preeminent hospital software, I wish it was public because I would buy some of it irrespective of the medical software.

That's your line. And that sounds like it's never coming out ever, even in the apocalypse. Yeah. yeah so so anyway but when they switched to epic there were literally uh uh administrators uh nurses and and whatnot that quit their jobs and this was pre-covid mind you before everyone was getting all stressed out and they quit their jobs because they didn't want to learn a new software but it didn't register in their heads that they were going to have to go to get a job at a different hospital or a different doctor's office or something of that nature and learn

the new software system that I've just hadn't been using right at this new place. So, um, uh, yeah, I mean, you, you, it makes for some, some really sticky revenue streams. Um, I, I think once you get, once you get people using a particular software, you mentioned the pay, uh, how does that help? They've been touting that a lot. The growth seems to be very strong there. How does that help one, the customers, and then how does it help tie in, know that lock-in like you were talking about yeah so um if i had time i would pull up a text

message that i got from one of my contractors that used thrive pay but he sent me and my company's controller a text message thanking us for getting him on thrive pay because he and he basically said something to the effect of it took me five minutes to enter my bill in i hit a button it sent them a text message and they immediately sent me payment for like i think it was like six thousand dollars and this particular contractor like he actually had like thirty thousand dollars in bills outstanding that he just hadn't built for right and normally he would have to drive to someone's house to get cash or to get a check or something like that and thrive pay just literally makes it so that the customer can get a text message or an email they click a button and they

transfer money right and for a lot of these small businesses that's a really big deal because they get funding the next day and it saves them a lot of time the other thing too is that the average transaction size for ThrivePay is very large, right? I mean, this isn't like, I don't know what the average transaction size is for Square, but I would assume that it would be very small because, you know, you've got a lot of food trucks and service marts and stuff like that using it. I mean, some people are, you know, like when I go to the ghetto mart at the end of my street, you know, I'm running my card for a couple of Red Bulls, right? So, you know, it's a $5 transaction, $5.35 transaction. Whereas ThrivePay, I can't remember what their average transaction

sizes, but I think it's like $700 or something because a lot of times a roofing company will send out an invoice in that. And it's pretty low fee too. If I remember right, it caps at something like $10 for an ACH, which is a big deal. And they've got the ability to add in like a service fee or a tip for some of the subs or whatever. And that's one of those things that kind of makes the business a little bit more sticky because ThrivePay obviously integrates with the Thrive software, right? So you can kind of see if an invoice has been paid or which ones are overdue. And it just links things up and saves people time and makes their lives a lot easier. So, I mean, they wouldn't even have to be the low cost provider of any of these services to

really see a lot of the benefits from them. How are they going to grow customers? I know, I think I read somewhere that they try to cross-sell the platform to the yellow page customers. Is that the primary way or is there any other way to acquire them? Yeah. So that's how they started. And they were able to convert about 10% of the yellow page customers to Thrive, which is really significant. They also just started a dedicated sales force in December. And so they're having some success with that. um and then um you know there there's a freemium version of thrive pay that may help get people on it but they also have a reseller network

like my company uh we've got a reseller agreement with them and so you know when we started the plumbing company uh you know we kind of resold the software to ourselves uh through a different entity uh which was kind of cool but you know we're you know we're going to be partnering with some other people and you know reselling to them so thrive gets some some operational leverage with that. And then also franchises, you know, like the epoxy coating company that I was telling you about earlier. I think they've got like 35 franchises that have been sold. So, you know, as that company grows, that'll help Thrive grow. And it doesn't take too many of those businesses to really get some interesting leverage going. But in my mind, one of the main drivers of growth

is going to be kind of an acceleration of selling to the yellow page customers in the sense of they just bought a company called census uh in in australia which is their yellow page which is australia's yellow pages company and uh you know they have about 100 000 customers so you know when they convert 10 of that to thrive customers you just saw basically a 20 uptick in the user uh base of thrive and they'll also get them you know some international expansion um and whatnot. But I think that over time, honestly, if you would have told me six months ago that Thrive had not made another Yellow Pages acquisition either in Europe someplace or Canada, I would have been shocked. So I guess this is my way of saying I'm wrong or I was wrong on

that. But I do think that they're still looking for that at the right price because I think they paid, you know, two times EBITDA or something for census. Right. Right. That makes sense. The fantastic acquisition just from a cashflow perspective. And then they're kind of getting this customer acquisition from that for free, which is really interesting. Right. Right. That makes sense. Do you think there's a lot of white space for subscribers too? Because I don't know the numbers, but there's probably something like 10 million or so, or maybe, maybe it's a little smaller than that, uh, small businesses in America. And it seems like, you know, when you interact with a lot of them. A lot of companies are still on paper invoice, stuff like that. Is there a ton

of white space there? Or I know it's hard to talk about like 10 and stuff like that, but do you think you get much higher than 200,000 subscribers? I mean, at some point. I mean, insurance is always going to be an issue with small businesses. The contractors I deal with, right? Because I mean, we do a lot of houses, right? I mean, we've got 70 projects or something going on right now. none i i take that back maybe three of our subs that we we do stuff with have some sort of software that they're using for uh for this stuff and that actually includes quickbooks for their their their accounting right i mean the amount of um efficiency that could be brought to just the contracting world is immense and um you know i just think it's huge you just got to get them

using it and get them locked in um and and on the face of things that sounds like a negative way to say it but it's actually positive because they'll be able to actually know if they're making money and they'll be able to value their time at a higher rate i mean you know i can't tell you how many contractors they come to my house to get a check on fridays right and that kills an hour and a half of their time that they should be billing out at 80 bucks an hour rather than you know just coming so they can get something to the bank so they can pay their workers it's ridiculous us. And all these softwares help them with that. And that's why they, that's why Thrive has tried to quote unquote, boomer proof the platform. Bingo. Right. Okay. And then you mentioned the

churn that might pop out to people. I think it was, you know, it's going down, but it was 2% per month. Do you think that's just a function of the business we're in where small businesses, there's a lot of bankruptcies, there's a lot of turnover. Is that something you're okay with? yeah yeah i mean i i think that ultimately it'll probably get lower um you know because well first off they oversold it to you know people who shouldn't have gotten it and that's and i mean they're trying to gotten up to probably 2.8 percent and now it's down to like two um but i think that they they and they do not say this in their presentations they kind of have guided that you know churn is as low as it's going to get i think they maybe want to get it

down a little bit more because, you know, they're doing a really good job. I know with us anyway of scheduling meetings and, you know, Zoom calls to make sure that we're using the software and just being like, hey, how's this working for you? You know, and really trying, you can tell they're really trying to get us to use the software, which is very good. Right. And what are your thoughts on management and ownership? You said they have, well, once they came out of bankruptcy, they had a new CEO. That's part of the thesis. If I remember reading a write-up a lot, what are your thoughts on that, how important is it for your ownership and thrive? Yeah. Well, I think it's really important. Joe Walsh, he's brilliant. He talks about kind of his history and a lot of the

presentations they've done and especially the chats they've done with like UBS and, you know, Baird and whatnot. So definitely check those out, but he's really good. And he, you know, he does have experience in rolling up yellow pages companies, but also growing kind of a SaaS business and selling it. He did that with Cambium. And you can kind of look at the share price of Cambium and see that they made a lot of money. Paul Rouse is the CFO. He's really good. He's focused on debt reduction. But I think that the executive team is fantastic. And, you know, in terms of the warrants that I've got, a lot of their options vest around the times that the warrants do. So I think that creates kind of an interesting incentive structure.

um in terms of you know ownership there's there's a lot of insider ownership in terms of just large holders uh jason mudrick owns a very significant portion of the company um and he has been selling uh but you know he's doing so in an orderly manner you know they did a private they did a secondary um and then you know you you can see that there will be some block trades that are done so he's not just selling to crash the price which is kind of nice and you know i mean a distressed guy so i don't think his selling is really um indicative of his view of the business necessarily it's just so it's just not so much what he does you know i mean he's you know doing distress deals um so uh you know and and you know the last block trade he did it was literally for

like eight and a half maybe nine percent of his position so there are buyers for the stock which is which is good and then uh golden tree is the other one that has been selling a little bit but the other large insiders don't seem to be selling and from every indication seem like they're kind of along for the ride one of which is john paulson um you know he wanted to get beneath 10 of the company which i don't blame him i wouldn't want to own 10 plus of any company um because of all the restrictions that can put on you so um you know i think that that the end Into the selling is kind of insight. And, you know, with a company like this that came out of bankruptcy and did a direct listing and is kind of, I guess, being re-rated almost from a declining business that was being run for cash flows to an interesting SaaS business, you need to have shareholder turnover in order to kind of get that premium multiple and just to get investors in that actually understand the company.

so i i think it's a good thing that more people are are are the shareholder base is getting diversified you know that'll ultimately get more people talking about the stock too so i i think that's pretty exciting um personally okay well we got a lot more questions but uh before we get to those we're gonna hit a quick break this family is on the brink of civil war on september 18th mob land the hit original series This episode is brought to you by KPMG. As a business leader, how can you innovate, build trust, and move forward in a digital era? KPMG can help by bringing together the right talent and technologies,

generating insights that spark opportunities. To explore their thinking, visit reed.kpmg.us slash opportunities. This episode is brought to you by La Quinta by Wyndham. Here you are, miles from home and ready to start your vacation. Good thing you're staying at La Quinta by Wyndham. They have free high-speed Wi-Fi to stream all your favorite movies. And in the morning, get fresh waffles with their free Bright Side breakfast. Or squeeze in a workout at their fitness center.

Either way, you're ready to conquer the day. Tonight, La Quinta. Tomorrow, you triumph. Book your stay at LQ.com. All right, welcome back in. This is a part that I definitely wanted to talk about. So it sounds like, to kind of summarize what we talked about in the first half, They have this melting ice cube of the Yellow Pages business, and underneath there's sort of this emerging software platform. So I'm curious what you make of the current valuation, and then how much do you think that the SaaS platform could be worth eventually?

Yeah, so it's been a while since I've actually run numbers on this, so I'm just going to kind of speak in very broad strokes. I think that presently this thing is probably worth $60 or $70, just as it sits, right? And if they can actually, you know, grow the SaaS business a significant amount, then I don't see why it wouldn't be triple digit. What's it at today? Sorry. It's around 30, right? 30. Yeah.

Yeah. It had gotten up to like maybe 38 or 39 and it's kind of trailed down a little bit. But, you know, if you look at their balance sheet, you know, they've got $1.4 billion in assets and about $800 million in liabilities, right? um you know and you value the yellow pages you know maybe you value it at four times ebitda or something um and that uh that that basically gets you to to kind of the enterprise value of where it's at today maybe a little bit less um so right now i think you're you're generally getting the sas business for very very little right and um trying to remember the revenue numbers on the SaaS business. The SaaS did 41 million in revenue last quarter. So that'd be a hundred

and call it 165 million. So, you know, if you put a 10, a 10 X multiple on that which I don't think is, you know, pie in the sky at all, especially when you look at their, their incremental margins and whatnot, you know, that, that adds, you know, $1.6 billion to the valuation, right? So that gets you to basically a $70 stock price, give or take. And I can be off by $5 a share. So if somebody, you know, emails you all and is like, God damn it, Jeff, you know, you're not exactly right. The margins are 19%, not 20%, you know, apologies, apologies in advance.

Yeah. So, I mean, I think that gets you, you know, 60, 70 bucks pretty easily. And then, you know, if they can grow that a little bit more, you know, your revenue multiple could go up. I don't think this is ever going to be a Salesforce that's valued at, you know, 20 times revenues or whatever Salesforce is at, but it could get pretty compelling pretty quick. Right. All right. What are your thoughts on the debt? I know they have some of the pension liabilities. I know they have these term loans. It's about $600 or so million. How comfortable

are you with them being able to pay off this debt? I know what the legacy business is doing, about $300 million in cash a year. Should investors be worried about this? Are the warrants important? What are your thoughts in general? Yeah. So, I mean, I totally see how some investors could be worried about that. I personally am not, and I'm kind of backing that up with my money in the sense that I'm in a very levered position being the warrants, right? You know, Paul Rouse, the CFO, he seems to have indicated on some of the calls that they plan to pay off the debt early. It's basically a five-year term. It sounds like they are planning to pay it off in four and a half years. I do not think that the warrant exercise is important for paying that

off. I think it's just kind of icing on the cake. And in my mind, from where some of those exercised early, that kind of got actually got rid of any of the risks from maybe having a short term cash crunch. Right. And it made it and it also made them be able to reinvest a little bit more in the SaaS business, which I think is a good thing. But yeah, I'm not worried about that at all. I think that you'll probably see a refinance at some point where they get that debt load or the interest rates down some. But I mean, you know, the multiples that they're paying for census and whatnot, it's just absurd. I almost wish they would take out more debt. And then in terms of pension liabilities, you know, those are going down, you know, their pensions funded, you know,

they're offloading some of that risk to some insurance companies, which is kind of cool that happened. Some of that happened last year. And, you know, a lot of times people think that these SaaS companies are kind of a bet on interest rates, right? Because the lower your interest rates are, the more you're willing to pay for growth. And I think that there's actually an interesting hedge built in because of that pension liability, right? Because if interest rates go up, it may hurt the growth valuation for the SaaS business, but the higher interest rates also mean that their pensions are going to be overfunded. So I think that's kind of an interesting built-in hedge that, you know, it may not be substantial, but I think there's a little

bit of protection in that, which isn't the worst thing. Do you think there's a scenario where Thrive could get acquired? I mean, everything's for sale at some point. So, you know, John Paulson was on a conference call probably, I don't know, that was probably 10, 12 months ago, 10 or 11 months ago and, you know, asked for him to be split off. Um, and, uh, you know, it was basically to like, Hey, yeah, I mean, we're, we're opportunistic, but you know, this is a longer term play. And, um, uh, you know, it, it, I just kind of get the vibe. They're not really thinking that in the short term, you know, that might be something five to seven years from now, um, that maybe they separate the companies or, you know, there's an acquisition or something. Um, but

that's, that's not a near term thing. I don't think. Okay. That makes sense. What's the biggest risk to thrive as an investment? I know this is a small cap. Well, maybe it's, I don't know the exact definition. It's basically a small cap. What could go wrong? Why do you think there's this opportunity where, you know, it's almost, you think there's a hundred percent upside from here? What are, what are maybe, you know, what's the bear, what would a bear be thinking about as the big risk here? I would think it'd probably be a macro bet where you're betting interest rates are going to go up a lot and kind of crush a lot of these sass valuations but you know aside from that and making crazy macro calls um i'd probably be worried about the debt but you know

as we you know talked about a minute or two ago i'm not personally concerned about that um i think it's at this point it's probably a feature not a flaw um really it would be execution right and not being able to grow the the sas uh business uh with this pretty high margin um it would be not growing that um i mean maybe you get a little bit concerned about the lockdowns and stuff that are happening in australia but you know i don't know if that's really going to affect how census rolls this out you know they've said that the census story is really a 20 22 story for the growth there you know and i would think that you know the australians would kind of get their heads backed on a little bit by then um so i i don't know i mean there's nothing i'm really too overly

worried about uh really the thing i would probably worry about the most would be something i don't know um is really an issue and you know i uh i just don't see it right now do you are gonna the question that comes to mind for me is because i like the setup here i like the opportunity but but the concern is that this is not a software business that it's like it's bread and butter has been in the phone books and the yellow pages. So maybe it could get competed away from someone who's core competency is software. Yeah. Is that strike you as a worry at all? Well, I mean, maybe it seems like HubSpot and Salesforce and kind of the

bigger players, you know, i don't know why they would want to to mess around with some of these smaller businesses right i mean because it's a pain to deal with a plumber who has three trucks i mean they're not that's not exactly a sophisticated client that's going to be you know change it lighten the world on fire for uh for your sas business right i mean you know hubspot and salesforce they're looking to get you know salesforce i mean like the local government in lexington uses a salesforce system right i don't know what that contract's for but i'm guessing it's a lot more than you the $400 a month that is Thrive's average customer. I would think that there's a lot more

runway that Salesforce and HubSpot will probably be focusing on. Maybe some of the smaller players would be competing. But at the end of the day, those aren't public companies. They don't have the access to capital that Thrive does. I would think that they would have a hard time getting engineers and stuff rather than Thrive. I mean, Ryan Cantor at Thrive, he was with Apple and knew Steve Jobs. He's a great guy to have. And I think that if you're a smaller player without access to the capital markets where you can say, hey, here's some stock and some options that you can get. And if you really do a good job, we'll make you fucking rich. That's going to be a harder sell at a smaller company because there just aren't really many small public companies that

in this this kind of niche yeah and i guess the other thing is you hire one really good engineer they those options mean a lot more because they know they can dictate kind of the outcome a little bit um all right last wrap-up question here i saw something on twitter uh that you would consider getting a tattoo if uh thrive's price hits 250 are you serious about that yeah so so what i said was if the stock price hits 250 on or before warrant expiration which is august 15th of 2023 i get a tattoo and the answer that is abso-fucking-lutely i will i never get a tattoo and i would love nothing more for than for this to be uh the first tattoo i get i actually i got on fiverr and um or fiverr i don't know how you fiverr fiverr it's fiverr we learned that we learned that the hard

way okay cool so i got on fiverr and actually had this guy in columbia who uh uh went to school for like anime to like draft it up uh and it's it's no wash like killing a bear uh with a yellow pages phone book so um yeah so i i no one hopes more than me that i'll get it um my mom's not too happy about it but you know whatever we'll have to uh in 2023 we'll have to have you back on if that occurs um we're hoping it does uh we can we can add a visual component too yeah all right well uh that's all the questions we have for anyone that for any listeners where can they find you do you know your twitter handle yeah it's uh ragnar is a pirate ragnar is a pirate okay and then what's uh what's the website again uh it too is uh ragnar is a pirate uh dot blogspot.com

Right. We'll link to you how to write up this winner, right? And we'll link to that just to give any listener more context. Okay. Perfect. Thanks, Jeff, for coming on. I'm going to try to hit the outro here without butchering it. So we are not financial advisors here at Chit Chat Money. So anything we say on the show is not formal advice or recommendation. Thank you all for listening. We are, however, general partners at Arch Capital. So clients may have securities discussed, positions in the securities discussed on this podcast. All right. Next time you'll get it next time thanks again for listening we'll see you next time this family is on the brink of civil war on september 18th mob land the hit original series is back on paramount plus we are the

harrigans don't know the net and google us from the underworld of guy ritchie do you want to step up the ladder i want karma dead starring tom hardy pierce brosnan and helen mirren do i have to do everything myself mobland new season hits september 18th on paramount plus going on vacation we're here for it with kids who turn the backseat into a courtroom drama over whose tablet is louder whose charger is faster and why watching the same cartoon for the hundredth time is a human right Yep, we totally have vehicles to handle that. Because whether it's a road trip or a business trip,

where your flight's delayed, your phone's at 2% and your dinner is whatever is open, yeah, here for that too. Enterprise. We're here for it.