Yet Another Value Podcast - Jeff Moore discusses Thryv $THRY

Episode Date: March 29, 2021

Micro-cap investor Jeff Moore (who also writes http://ragnarisapirate.blogspot.com/​) discusses his bull case for Thryv (THRY). Thryv is an interesting company: their core value comes from their legacy Yellow Pages business, and they're using the cash flows and relationships from that melting ice cube to start up a SMB SaaS service. Jeff argues there's huge upside as the company taps their customer base, acquires smaller competitors, and the market starts to recognize the value of their SaaS business.Chapters0:00​ Intro1:20​ Thryv Overview6:15​ Thryv Software discussion12:25​ Why is a SaaS business attached to a Yellow Page company?14:30​ Why is churn so high?20:05​ Who are Thryv's competitors22:00​ Don't all yellow page companies go bankrupt?28:30​ Walking through Thryv's SOTP40:25​ Discussing Thryv's management team45:45​ What to make of the CEO buying stock while largest shareholders sell down?SHOW LESS

All right, hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have my friend and a private investor, as we're calling him today, Jeff Moore. Jeff, how's it going? Doing good, man. Hey, let me start this podcast the way you do every podcast, and that's by pitching you. I've known Jeff for years. For those of you on the YouTube, I was seasoned him before. We met in person a couple years ago. And at the time, who was rocking a real Mountain Man Beard. And I'm a little disappointed. He's not giving that to the YouTubers. today. But, you know, he's one of the sharpest and quirkiest microcap investors I know. His Ethenex trade, it was Ethenex, right? The bankrupt company? Yeah, me and Thomas Brazil did that. Yeah. Say again? Me and Thomas did that, yeah. Yeah. I mean, that one is this stuff of absolute legends. People can go read the backstory on your blog, Ragnar as a pirate. We've got Jeff to thank for the activism and the old site star and whatever enterprise diversified is becoming. So, you know, whenever Jeff pitches a microcap, it's worth paying attention. So let's dive into the microcap that we're,

actually, it's probably more than a microcap. I guess this is like on the, no, it's still micro cap. It's like, what, 600 million more cap. Go ahead. For me, it's huge, right? They say size doesn't matter. But let's dive into the talk we're going to talk about today. The company is Thrive, T-H-R-Y, and why don't we just jump into it? You can give us an overview who they are, why you're attracted to them. Yeah, so I guess there's a couple of ways you can look at it. But ultimately, it's two very unique businesses that are kind of combined into one. And, you know, the first one is not exciting.

So if you want the letdown first, listen to this part, or maybe just skip ahead of a couple minutes to the exciting part. But the first part of it is basically a legacy yellow pages business, right? They sell, well, they don't even sell. They really give away phone books, like hotel. gas stations, stuff like that. And, you know, as you can imagine, it's a melting iceberg of the business as they refer to it.

You know, it did something like a billion bucks in revenue last year. Who would have thought? But, you know, for these phone books that they pass out, they take in something like $9.50 in revenue from people advertising like Kentucky, like Howard Plumbing or Rotorudor would advertise them, right? Or, you know, even landscaping companies, you know, a business partner. mind, her brother, you know, he advertises filter in there, right? And he probably gets, you know, a couple thousand dollars in bookings from a year for, you know, $100 in expenditure

or something. Wow, that's crazy R-O-I. Yeah, yeah. So it works out for them. And, you know, the actual cost to print one of these books and get it into a location is like $1.50 or something like that. So they're looking at it. It's like 90% margins on phone books of all things, right? they also do some some SEO stuff and marketing services and things like that so you know that's kind of compelling you know they can really help the search results and whatnot and do some really interesting things with that so anyway that's that's that's a melting iceberg of a business you know it's going down you know low 20s in the percentages you know I think last year it did like 24% decline in revenue but they had some COVID credits where

They were helping out some businesses and whatnot. And if you wouldn't, and I think it was like $17 million or something they gave in that. So, you know, 22, 23% I think is what you'll probably be going forward, which coincidentally, like you'll kind of see with a particular rural ISP that's a microcap that we all know, you know, that business is declining at 20% a year. Like clockwork and has been forever pretty much, but it cash flows like crazy because you would think that email addresses that people pay, you know, five bucks a month for or whatever, you know. have 20% profit margins for the company, right? So, so, you know, that's the melting glacier, really, I would call it. And then, you know, they had a bankruptcy in like 2015 or so, 2016, reorganized. And that's kind of one of the interesting parts of the play that I'm in, which we'll get to in a little bit.

But they started a SaaS business that's also called Thrive. It's called Thrive. And they renamed the whole company after that to kind of show the transition of the business. And so this is, you know, a software that's really made for small business. And it's fantastic software. I've got experience with it. Like, we actually signed up as resellers for it to learn more about the product and kind of how that works. And we got, you know, a contractor on it that I know.

He loves it. Like, loves it. And we're going to be getting some more businesses on there. My HVAC guy was already on there. I know a garage floor coding guy who I was. Bustom Townhouse is off of his dad. It turns out he uses Thrive for that as part of a franchise he has, which you'll hear Joe Walsh talk about the franchises that use the software.

He loves it. So it's just a great small business software. And the beauty of it is its simplicity. I mean, I genuinely think that it is boomer proof. If you have trouble emailing, you'll be able to use Thrive. And they've done a really good job of making it very simple, which is not something that, you know, Salesforce or HubSpot or, you know, service Titan, something like that. Those are complex systems.

I mean, I would have trouble navigating those, and I think I'm a little bit text-abby. So, but the simplicity of it is its beauty, and that helps it roll out to small businesses, and they can implement it very quickly. They've got onboarding widgets. They've got onboarding staff that help you, and they're really good about checking in with you, because ultimately, if they, as soon as you start using more feature, of it, you're locked in. I mean, it's just like this iPhone, right? The first iPhone that you get, you're not locked into the ecosystem, right? But if you get an iPad or an Apple Watch or a

MacBook or anything like that or a HomePod, you are stuck in the Apple ecosystem forever. And it's a similar thing in some of the SaaS software. So, Jeff, if I'm a local plumber, drive software, I could use. Can you just exactly, you know, you say a plumber uses the software, but there's a lot of different things a plumber could use the software course. So what solutions is Thrive specifically going to give Plummer that your HVAC friend or whatever? Like what is their software solution looking to do

just so people can see, you know, are we talking email solutions? Are we talking, you know, pricing jobs? Like, what are they doing? Well, a little bit of everything. This guy's probably more so the limit than they're being limitations by the software, right? So in the example of my HVAC contractor, If you would Google HVAC, Lexington, Kentucky, right?

There will be, you know, dozens of results that pop up. But if you go down below the paid ads, which will be like comfort systems, and then Greenbox will probably pop up, Mr. HVAC is right below that. And that's sheerly because he's using the Thrive of SEO platform. He pays, I think, $200 a month for it. And he pops up very high on those search features, or at least he does for me. And it may be because, you know, I've got Riffitt's selling. number in my phone and there's cookies no you know what i'll just so i just googled hvac lexington

kentucky first thing that pops up home advisor advertisement hvac pros second thing best 10 hvac from it's the yelp page third thing is expertise dot com fourth is stivers hvac fifth thing as you said mr hvac lexington kentucky yeah so he pays nothing for advertised zero right that's surely the thrive software that he pays 200 bucks a month for. And what that does is, is it links up all the business hours of services, the reviews, everything like that. So it aggregates data from like 40 sites, you know, like Facebook, Yelp, Home Advisor, Angie's List, all these other other places. And it makes a consistent internet presence amongst all the platforms, which is huge. I mean, this is like literally the way that a lot of these small business contracting firms work

specifically. And this is true for a lot of small businesses. But if you can get any internet presence and get it to be halfway decent with something like Thrive, like it's like being in a NASCAR contest with a one-legged man, as Charlie Munger says. I mean, you were so far ahead, just automatically. And so that's one of the big things from it. And, you know, other things that it can do. I'll see the most exciting for the last. Let me write it down. So I remember to say. it. But, you know, it has scheduling. They can set up a website

for you, right? Where, like, you just kind of enter in stuff. Like, what's the company that kind of halfway did that, the Yahoo acquired for a bunch of money a while ago? Tumblr. Okay. Yeah, I mean, so, you know, it's almost like that, right? You know, they prefab these websites

for you. You know, they get your hours consistent. They can do scheduling. So, you know, let's say that you have estimators, right? You can put in schedules online and then it'll link up with the website and then you could say, hey, I'm good at 4.30 p.m. on Tuesday the 18th or whatever. They'll know it to come out. It follows up a text messaging. It gets everything in an inbox. It gets all the messenger apps and stuff to work together. Since appointment reminders, I mean, as a real estate investor, a big problem we have is tenants not letting plumbers in or

plumber is not getting the right info or something. So it can link up people and be like, hey, we're on the way and make sure to be there to let us in. Um, you know, you can put it. I guess the Thrive software, what it's going to do, it's not going to do your accounting, right? So that's going to be more quickbooks or something handling all. It links up to it, but it's not an account. But it's more a customer relationship management, CRM, and it handles all of your internet presence, I guess is what it said. So they'll do your website, they'll get your SEO optimized, they'll link into all your schedules,

they'll let people book scheduling on your thing. They're rolling out one of the most exciting, which I don't know if we'll talk about, thrive pay. They're going to handle your incoming payments, which I think is a really interesting opportunity. But that's really what to think about. I think, you know, mind body on the, that was more for gyms and stuff, but it's almost mind body for small businesses, the plumbers and HVACs. Am I thinking about that correctly? Yeah. I mean, it even does stuff like, you know, handles your back office. I mean, there's a time clock feature on. I mean, there's something like 20 or 30 features that it does for small businesses. I mean, you know, I frankly, I don't know all of them. I mean,

It hasn't been really reason for me to look at, I mean, I'm stock in the warrants. But, you know, so I should know that a little bit better. But, I mean, it's fantastic. And there are multiple different, like, kind of modules for it, right, that they've been developing, right? Because there was almost like a one-size-fits-all thing, and they kind of realized, okay, you know, something like, well, mind-to-mind, right? It's catered for a certain industry, right? You know, or service type is kind of catered to H-BAC or plumbing, right? It's a fantastic program, but I mean, I know some of the local firms here that use it.

And one of them is a very big, like, multi-city, you know, Lexington and Louisville place that has, you know, 40 vans in Lexington. They're not using it right. Like, they literally have no clue what they're doing. And they have a big back office dedicated to that because it's so complex. And, you know, so Thrive, they've got, you know, kind of a contractor services portal they do. they've got one that's HIPAA approved for medical practices, which I think is really kind of fascinating. Legal services, you know, they're developing others. And, you know, kind of some of those niche markets, you know, there could be some really

compelling stuff in there over time, I think. Perfect. All right. So I'm going to start off by saying, A, the first question I'm about to ask you is probably going to be a little bit of softball. But I think as we go into the questions, I'm going to ask some hard questions. And listeners who are familiar might say, oh, these. These questions are a little bit tougher than Andrew normally asks a listener, and Andrew must hate the idea.

And they're actually going to be wrong. I'm actually really interested in the idea. So the reason I'm pushing back is because I'm interested. But I guess the first question is, you know, when I hear you've got this software firm that's going after, you know, small businesses and all this sort of stuff, and they're married to a yellow, a dying, melting ice cube yellow page business. And your first thought is, why is a software company and a yellow page business? why are these two together? So why are these two together? I mean, John Paulson went on a, went on their Q3 earnings call and said, you need to split these off so we can get the value of the software business, right? Get that sweet software as a service revenue multiple. So why are these

two businesses together? Why does that make sense? So they developed Thrive, you know, numerous years ago. And, you know, there's overlap, right? Because at the end of the day, a lot of these small businesses are advertising the Yellow pages so you can kind of cross-sell them onto the Thrive platform. And they got about 10% of those customers on the Thrive platform, which is really pretty impressive. And, yeah, it's just cross-selling services. And, you know, you can do a lot of stuff with that. New products and all that.

And I think that that kind of plays into their growth strategy with the census acquisition, which will probably be talking about later. But, yeah, I mean, they're different businesses. And I think that that's part of why the valuation is the way it is because of the Yellow Pages business, kind of obfuscating the SaaS. I do think that that's going to be rapidly changing, though. And then there's this other part of the business that they talk about a little bit, which is Thrive Pay, right, which is actually getting ready to, in the next couple months, be a standalone payment platform, right? You know, so is it going to be the next square?

Like, no, I don't think so, but we'll be able to do, you know, hundreds of millions of dollars in unique payments? Yeah, I think. think that that's probably in the cards. And I think that that could be a good way to get more people on the Thrive platform. Yeah. Yeah. And look, I mean, payments are the holy grail, right? Once you've got someone in your payment system, it's really difficult to rip out. You can, A, every day you're getting more revenue, you're interacting with the minding debt, is the holy graver. But let me give my first pushback here, right? You mentioned earlier, right, when you're starting, you said, hey, it's sticky, right? You get the iPhone and I've tried to switch off

the iPhone before. It's tough. You get used to the operating system. system. And it's even tougher with, you know, you go on thrive, you integrate it with your Quickbook. So it's going into all your accounting stuff. So I agree it should be a sticky platform. But their churn is pretty high, right? So I think my first pushback would be, hey, you're saying this is a sticky product. I'm seeing lots of churn here. And one of the reasons, their churn is higher than a lot of the peers. You know, we mentioned mind, body is loose peer. I think if you comp them to a lot of the peers, their churn is a lot higher. And you could very easily say, hey, if you're turning higher, you deserve a much lower revenue multiple

because you have to spend a lot more. Your customer with lifetime values lower. You have to spend a lot more to go acquire new customers to replace the churn. So first pushback, you say it's sticky. Why is the churn here so high? Yeah. So there's a couple reasons. Historically, I think it's that they sold the product to some of the wrong businesses. And that's something that management has talked about a lot. And I haven't to agree with it. When we were signing up for the product and talking about becoming a reseller for it, literally the first question that our sales rep named Carrie asked us was, what's your business size? What are your goals? Because we want to be sure that we are lined up and on the same page. Because, you know, if we can't provide you

with the service that you want, you know, we wish you well, but it just won't be a good fit for anybody. So they have taken that. And literally, that's the first thing he said. It was basically like, why should I not sell you our products? So I think that they really have. committed to that and getting with the right customer base right the other thing too is like a company like HubSpot yes it is a better SaaS business there's no dispute in that and yes thrive deserves a smaller revenue multiple than that I think because you know big corporations or you know the Salesforce would sell to things like that that's you know they're probably going to stay in business more than like you know your local HVAC firm right I mean they start over all the

time that happens. I mean, you know, I, what's the stat? You know, I mean, 50% of small businesses fail in the first three years or something like that. You know, I don't know what it is, but I know it's a high failure rate. So I think you're going to see that with the company. But another thing on the upside for that is that generally entrepreneurs are serial entrepreneurs. So they fail, they start up again. They fail. They start up again, right? So like, you know, with the example of my iPhone, if, you know, I break this iPhone, am I going to go switch to Android or, you know, whatever other software platform or whatever there is? I'm going to get another iPhone. So if I start up another business because I fail, I'm probably going to go to

the software that I already know. The other aspect of that for the high churn rate, I feel like, is that a lot of small business owners are generally unsophisticated with software solutions. It gets back to that, you know, being in an ass-kicking contest with a one-legged man, right? I mean, a lot of these guys, they're, they were so many hats, you know, they're their own bookkeeper, they're their own secretary, they're their own salesperson, they're their own installer, you know, they've got to collect bills and all that stuff, you know, they've got to manage their, you know, their handful of employees. And, you know, a lot of these, in my experience, a lot of these contractors, and my view of the company is heavily based on contractors because I do a lot of real estate. So that's, that's my bias, I guess. But they're wearing a lot of hats. So, you know, sometimes something as simple as responding to an email is a big time commitment for them or they feel like they can't because they're so overwhelming so much stuff. So when it comes to like kind of perfecting things with the software that really does make their life simple over the long term, they're really worried about making payroll for Friday. So they may not be thinking, you know, I need to be doing this marketing campaign where MailChimp is linked up with thrive. They're probably not thinking about that.

You know, some of these guys live hand to mouth. And I think that that shows with when they may drop the software. Angie's list, which is a company, I've done a podcast on. I've looked at a lot. That's one of the things they always say. They're like, hey, look, a lot of our plumbers, they don't care that we say, hey, you know, you're spending $200 on our platform and you're getting $2,000 of business off. You know, your ROI 10x. Obviously, there's costs and stuff, associated with revenue. But this is an incredible marketing tool for you because the plumbers aren't looking at it like that, right? They're saying, hey, I just gave you $20 and I didn't get any lead from that because some of the business would be you're one of three

plumbers lead, and they're looking at that as money burnt, right? They're not looking at the wrong cost. And I don't think it's because they're dumb. I think it's because these plumbers, you know, they actually have to go do plumbing. They're spending their time plumbing. They're not looking at sophisticated ROI models for this thing. So that makes sense. Who's the big... I think there's going to be a generational shift with that. I genuinely think. I mean, you know, you can see with the adoption of iPhones and like just how people email better now than they they used to, you know, I mean, everyone used to hit reply all on an email or a company chain. And now that's like a thing of internet means where it's like,

God damn it, why did they do that, you know, and even with group texts, right? I mean, my parents will get in a group text, and, you know, they think that they're texting with one person and they're actually texting with the group. And I think that there's going to be some spillover into the acceptance of CRMs and, you know, SaaS businesses, you know, especially as there's just that natural progression, you know. It's kind of like the people that used to be using the yellow pages to find a plumber, now go on Google, right? And then I think the next generation will be more out to get on something like Angie's list. rather than just do a Google search. So, Thrive, when they're going and, you know, when your contract buddy or whoever is looking at the software, whose Thrive's competitor in the super, I'm going to call the super small business, local business type space for the CRM?

Because I doubt it's a hub spot, maybe mind-body, but who are the other options here? So, again, I'm going to be heavily biased towards construction. That's fine, yep. Yeah. So Jobber would be probably the close. competitor that I can think of. They're really contractor businesses, though. I mean, you couldn't run like a hair salon or something on Java, which you could,

but thrive. Service Titan, like I was saying, like, that's probably the one that everybody knows about that'll be watching this. That's a much more complex software. That's not what Thrive's set up to do. They're not even trying to compete with that. See, I mean, I think that Java would be probably the main one. I'm sure that there are several others.

There are probably some pretty niche players. And I, you know, my diesel mechanics, right? I was in, I was talking with him about the software used. You talked about how some was getting him on like GarageMedic or something like that. It was something that I'd never heard of that, you know, probably doesn't have many users. Or maybe it does. I don't know. But I think that there's probably some pretty niche products.

Like my firm, my contracting firm uses co-construct, and we really like that. And there's some overlaps with it with Thrive. but, you know, personally, I would really like to see them partner because there are some really interesting things they could do together, especially with all the data co-construct has from subcontractors that could benefit from Thrive and you could get, like, cross-linking of the platforms to do payments and stuff. But, yeah, yeah, I mean, Java would probably be the main one, and I'm sure that, like I said, I'm sure that there are others. No, that's perfect. I don't think anything is as general as Thrive. Let me put a different tax. So as an investor, I hear you comment and you say, hey, I've got a great idea.

We're going to invest and thrive, right? It's a former yellow page company, or I guess current yellow page company, but the sexy stuff is kind of in the software as a service, though. The majority of the value is probably still in the legacy stuff. But when you say that, my first thing is I have heard people pitch former yellow page companies for over a decade at this point, right? And all of them go bankrupt, and then they emerge, and then someone new pitches them. And guess what? Three years later, they go bankrupt again. Because these things, you know, they are melting ice cubes.

You said it. It might be a melting ice cube. A lot of that is because, you know, many of them were dealing with debt structures that were set in 2005 when the Yellow Pages were a much better business. But, you know, I've seen them chapter 11, chapter 22, for some of them, chapter 33, right? So when I say that the first thing that pox in my mind is a roadblock is like kind of pattern recognition. Former Yellow Page companies go bankrupt. And I think if we're if we're going to stop generalizing a little bit, I do think there is,

hey, there's probably a lot of brain drain, right? Like Thrive, we'll probably dive into this pushback in a little bit. But Thrive is trying to build up a software as a service startup type growth company. And if they're competing for an engineer and they go to, you know, the engineer who just graduated from Stanford and they say, we'd like to give you a job. and he's got a job offer between a former yellow page company and Google, pretty obvious what he's going to go with. So I'll turn both of those concerns over to you. Yeah. So to talk about the latter point, the run is two distinct companies. I mean, and they're starting to

break that out of their financials. They just literally filed their first 10K as like a post-bankruptcy company, right? And they're only filing before that was 10K. So they're breaking that out. Their run is two separate companies. They could hypothetically split them off tomorrow. Their debt makes that a little bit complicated because of the new bond offering they did, but they could split it, you know. And so I think that that's also part of the rebranding with calling it Thrive. You know, one of the things that that I would probably do if I was pitching this, I would generally want to talk about the SaaS first and then be like, oh, by the way, there's this Yellow Pages business you get for free or something like that. But yeah, so and to be fair, I mean, Dex Media, the predecessor to Threat, did go for. bankrupt. I mean, that's why the warrants that I hold exist is because a lot of the debt holders got, got warrants in exchange, because the equity was totally wiped out. So I'm going to knock on wood with both hands and say, this time is different. Hopefully, you know, they've de-levered a lot. They paid off a lot of debt. They recently did a debt refinance. They actually just funded an

acquisition with some of the debt with census in Australia. They bought it like one and a half times. EBITOM. And they've got a lot of points in the debt covenants that make them repay the debt, right? And then, you know, so they're pouring money back into the debt. Like I could go through the slide presentation here to see the exact amount, but I think they paid back, you know, something like $200 million in debt or something like that in the past year. I can't remember the exact number. But it was a lot. Yeah. And as they get that debt pay down, you know, you kind of get the virtuous cycle of, hey, you're paying less interest on the remaining debt. So, you know, you pay off more principal. Right now, their debt is scheduled to be paid off in five years.

I think the company is their goals, or at least what IR has told me, you know, they're hoping to do it in less than that. Another interesting point, I keep talking about these warrants, but, you know, these warrants, you know, let's walk through the mechanisms of them because it has to do with the debt, ultimately. So as you all know, a warrant is basically a call option that's issued by the company, right? And so there's, you know, going to be capital injected into the company if the warrant exercise price is met all things equal, right? So right now there's something like 10.5 million warrants. They convert into about 5.5 million shares of stock, right? And the exercise price is $24.39 a share.

So right around current price. Yeah, yeah. And again, it's about a 2 to 1 ratio for the warrants to share. and they have until August the 15th at 5 p.m. of 2023 to exercise, right? So we're two and a half years out on this basically. And I think it's a pretty compelling bet, right? I think it's a very levered bet, even though there's no market for these things. And we can get into how I kind of got them later. You want to go down that conversation radical. But if you look at the exercise price of 2439 a share, multiply that by the roughly five and a half

million shares that would be issued for that. There's going to be about $141 million injected in the company. This is a company that has about $700 million in debt right now, or as of the bond offered, right? And they've probably had some pay down in the past, you know, a couple weeks, you know? So you start looking at that. It's like, well, if they get $141 million, sometimes in the next two years with the cash flowing business, with the EBITDA profitability of the SaaS business, that starts to look pretty compelling. And I think, you a pretty good margin of safety for if they kind of run into an oh shit we miscalculated the revenue decline because i mean that that is a risk but i think it's an acceptable one for my

perspective for me it's just a financial engineering bridge too far because you get super circular right like every time i've ever seen a company i remember amc actually did manage split off but every time i've ever seen a company that had converts that were in the money that said oh we look at that as a equity piece of our capital structure that's permanent financing all my invariably, the stock is down 50% six months later. The debt is way out of the money and they have to figure out a way to pay it back. To me, like, just the warrant financial engineering piece is actually the least interesting part of this piece. Though, obviously, if you're really bullish on the software as a service, the business gives you a lot of operating leverage to,

I'm never going to make that motion again on this for the YouTube subscribers. That's my bad. Let's see. Let me give you another pushback. So go ahead. Yeah, I mean, that's the thing. I mean, you're bullish on the stock, then, like, the debt is a feature, right? Yeah, I just meant as the financial engineering, as cash coming in from the warrants, it's the, a less component. Let's do the fourth pushback, some of the parts, right? I think you're very bullish on the company. Why don't you lay out some of the parts, obvious software as a service business, you slap

multiple on it, the marketing, the client business, you slap multiple on it, get the sum of the parts. How do you look at some of the parts here? Yeah, so, I mean, a lot of it depends on what happens, right? I mean, they just did the census acquisition that's going to bring them, you know, a considerable amount of revenue. And I ultimately think it's going to bring them a lot of clients. So, you know, that's potentially an unknown, but I'm giving them the benefit of the doubt because, again, like, I'm, you know, I generally buy the story, right? So, you know, I kind of think that the, the Yellow Pages business is worth, you know, at maybe a little bit below the EV of the stock, right? And I'm saying that not because of the private party, like a buyout amount for it.

I'm kind of saying that just, you know, hey, I think that you'll have the debt pay off. And I think that there will be cash left to harvest to kind of compensate you for your time, the time of your money. And then so I think that's worth about what we're at right now. So I'm just doing the math as we speak. So 2020, the legacy yellow page business did about 350 million in EBITDA. So you're saying, hey, I think that legacy business is worth 2.25 times EBDA, which would get you to about $800 million in enterprise value. That's about the enterprise value of the company today, if I'm doing my math right? Am I doing?

Nope, I'm not doing my math right. I'm missing the, uh, I like 1.2. Yeah. So you're thinking that the enterprise to get that, you're thinking it's kind of worth four times EBITDA if I'm doing my math right here. I mean, I'm throwing in census too, right? Because I mean, that's, that's throwing in some extra EBITO to that. as well. So, and they paid 1.5 times EBIT off for that. And it's a pretty efficiently run business. Yeah. So actually, that's my first pushback because I really like the census acquisition

and we're going to talk full case for the census acquisition a second. But, you know, I think my first pushback was, hey, we just talked and you're some of the parts you said the market, the yellow page business worth four times EBIT off. They just did an acquisition. And I was reading some quotes from the CEO when he said, this is our yellow page business just in Australia. They just did an acquisition at about 1.5 times EBDA. So why are you telling me the yellow page business is worth four times, where I can say, hey, they just went and bought a whole business for 1.5 times EBITO, right? So, you know, there is a valuation match. How would you think about that? Well, I mean, with, okay, so since there was a private equity firm, we're just kind of looking to dispose of it,

and I mean, who wants to buy a yellow page business? I mean, the exact reason for your pushback is kind of why I think that there's, and a rightful pushback, right? I think it's correct. I think that that kind of makes there be a market discount. And I guess I just fundamentally disagree with what the market's value is on that. You know, I think that it'll produce cash over time. I believe the story. And I think that there's going to be something there. You know, I mean, this is something you see with like, you know, rural telcos or, you know, regional ISPs.

You know, I mean, the market value is never there, but they keep produced in cash flow over time, especially when you get them on a highly variable cost structure to go along with the revenue decline, you know, census and Thrive have both done. You know, so, and, you know, come for this is Yellow Pages Canada, right? That's a public entity, and you can see where, you know, they kind of bucked the trend of bankruptcies and stuff. They will be, per their last filing,

they're going to be paying off all their debt as soon as all the pre-payment penalties and stuff are done, which is the first of May or the end of May 1. They're declaring dividends, and frankly, I think they're prepping for a sale. right after that. And I think that Thrive's probably going to buy them. That would make a lot of sense.

You know, I mean, it goes with the English-speaking country aspect of Australia. It goes with the good management. You know, you can add on Canada, keep the remote work. You know, there's commonality in a language. You know, SaaS businesses could, I think, really thrive, for lack of a better term, in Canada. You know, so, you know, I think that seeing the LOPHSA Canada buck that trend helps. And, I mean, they've been shareholder friendly. So, yeah, I just think that there's a private party market.

I agree with you. I think Yellow Pages, Canada would be a great acquisition. But let's finish your some of the parts because then I think it'll help us dive into why the census acquisition is great. So we both just said, hey, call it four times EBDA that gets you on the marketing business. That would get you about $1.5 billion of value from marketing business. That's about the whole enterprise value.

So that covers one piece of the sum of the parts. The other piece is the thrive business that you're so excited about, right? So, aiming for about 140 to 145 million in revenue in 2021. How do you think about valuing that part of the business? I mean, if you throw a 10x multiple on that, which is what Paulson was talking about on the conference call, you know, that's another billion and a half right there. So, you know, that's substantial. You know, HubSpot, again, it's a higher quality SaaS. Much stickier, their churn rates are less than half of what thrives will be on a good day, probably.

But even if it's a 5x revenue, like still kind of compelling. You know, I tend to think that there's going to be more growth there and more revenue than they're talking about in part because I think they're getting their average revenue per user up. I think Thrive Pay is going to help a lot with that. I don't think you're paying anything for Thrive Pay as the payment process to platform that will be standalone, which is compelling. And then census. I mean, you know, for some of the math on that. So let's say since this has 100,000 customers right now, which is a little bit low, but let's just make it easy. So you got 100,000, and let's say they get a 10% conversion rate, which is exactly...

Are you using a calculator right now? I am. This is old school. I love it. I love it. He just showed a real old school. What's that kind of you called? I can't remember, but he showed a real one for those who are listening on the podcast.

It was like $8 on Amazon. I love them. Big keys. I respect it. Yeah. So anyway, if you get the 10% conversion rate that the Yellow Pages said, and this will take, you know, a year and a half, two years probably, maybe a little bit more. But, you know, I think it'll happen.

And I was going to save this for the end of the September. They said, hey, we bought another Yellow Page business that didn't have Thrive, I think it was 2017 or something. And within two years, we got 10% of their customers onto the Thrive platform. So you're not pulling 10, like, when I first read your piece on it, I was like, he's just pulling 10% out of nowhere. That's a pretty big assumption. they've got a track record of having done this.

So I just wanted to support your point there. Well, thank you. And the other thing, too, is SaaS adoption in Australia is lower than it is in America, right? So I think that that may actually help them a little bit in terms of getting more people up, just because, like, you know, Australia may be a couple years behind. So they would stand a reason they would catch up. So anyway, so let's take their average revenue per user and multiply it by the 10,000. They're getting $290 a month roughly.

Um, so that's, uh, that's not right, is it? Yeah, okay. So it's a 2.9 million a month times we got 12. So that's 34.8 million. Call 35 million bucks in in additional revenue. So the census acquisition alone is going to give them, what, 30% growth, right? On top of what they're already guiding. And, and so, okay, so, and they're paying 200, million dollars for this thing right uh 200 million divide about 35 million so that's that's 5.7 times revenue um for uh for the users they're getting and that's if you value the cash flow of that business and zero yeah so i don't think it's right hey we bought this legacy yellow page business for a fair it's a cheap price you know 1.5 times trailing ebada or something and then we just because we

have this Thrive product, we got all the optionality from that for free. And as you're saying, if you do the math on if they can hit that 10% marking in, I mean, they could create theoretically, $300, $300, $400 million of software as a service value from this $200 million acquisition that, by the way, is bringing in cash flow the whole time from the legacy product. So that's what I was driven. And that makes the point I was going to say, like, when you do the sum of the parts, we're going to value it as, hey, software as a service, five X revenue, is worth one thing. Marketing three times, four times EBITDA is worth another. That's going to get you to one value, but it misses the synergies between the two businesses and especially the

synergies between, hey, we go by census. Hey, we go by the census of England. We go by yellow pages in Canada and we get these synergies over and over and over again. And by the way, as we do that and Thrive gets a little bigger, maybe that revenue multi goes up a little bit because it's a little bigger or maybe, you know, it gets some operating leverage to the revenue. Like, there, there is a real synergistic one plus one equals 2.5 play here is I guess what I'm trying to drive at. Yeah. And so, you know, like, let's say that they're paying 1.5 or 5.5 tons revenue roughly for these customers, right? If you value them in a 10x multiple, right, that's pretty accreted, right? And then, you know, like something like Cubspot, you know, a couple years down the

room may want to come in and buy fraud, right? So they can issue stock at 20 times revenue. a company for 10, 12, it's immediately created for HubSpot, you know, kind of makes some sense. You know, maybe it's not in the HubSpot's interest to you. I don't know. But I'm saying it's a possibility that can get you some really wild prices for that. But just being reasonable with stuff from a ground level and just thinking of this from a really value plate, it's still very cheap because of all the opportunity. Now, the other thing, too, is that Joel Walsh, the CEO, he has a history with doing this sort of thing, right? He came in and took over Cambien.

Let's talk to Joe Washington a second because I do have questions on him. I just, just for people, we were throwing a lot of mouth around. You can correct me if I'm wrong, but if I said the software as a service business is worth five times revenue, that would be worth $700 million. If we said marketing legacy yellow pages worth four times revenue, four times EBDA, that's $1.4 billion. That would be a $2.1 billion EV. That would get us to, I think, about a $43 stock.

And obviously, we hadn't given them upside from cents. We haven't given them, you know, maybe the one plus one equals 2.5 we talked about. But I think that's reasonable-ish. I don't think I've adjusted for warrants there, but it wouldn't be a huge adjustment at that point. Is my math, would you push back hard on any piece of that math or anything? No, no, I have no pushback on how you did that. I mean, if I had books back, it would be like I personally am ascribing value of census, right? So, you know, like me personally, like as it sits, because I do believe the census story,

I think I said it's probably 60 bucks. But, you know, I buy the census story. And I get that, you know, some people, they want to see the numbers before they, they give them a value. But, I mean, the market is predicting force ultimately, right? So, you know, I'm kind of predicting that with my valuation. And then again, you know, there's not getting credit to any potential consolidation of the industry like, you know, in England or something. Because, you know, we'll wait to talk about Joe Walsh, but part of the census acquisition. He'd known the head of census for quite some time.

You know, they'd met in person. They'd done some sharing of processes, I believe. He talked about one of the calls. Joe Walsh is really well connected in this industry. You know, he's been in England for stuff. I mean, he's well connected. So if there was going to be a deal maker to make this work and kind of roll this stuff up to get this really neat, almost like buying the land and getting the timber or the oil underneath of it for free thing,

Joe Walsh is the guy to do it. Great. Well, let's talk to Joe Walsh. Perfect transition. So, you know, I think he's a lot of investors who listen to this are going to think back to CanVM. It was ABCD when it was publicly traded. And a lot of people made a lot of money following him into that roll up and eventually. So I'll let you go into that story. But, you know, I am of two minds here, right? Because I think Joe Walsh is a good track record. I think he's executing the right strategy here. But at the same time, he's been the CEO of this company since

2014. Obviously, there was a bankruptcy, 2016, 2017. I don't think you can throw all that on him. But, you know, he's been here for seven years. They're trying to do a software as a service startup. Why, when you say all that, I do think, like, why is this guy the right guy to lead this business? And, you know, Andrew Jeffer talking so highly of him, he's been here for seven, eight years. We've had a bankruptcy. You know, are we putting it a little bit too much shine on him? Maybe. I mean, you know, we could be. But, but, you know, I want to bet on him. I mean, he's got, like you said, he's got a great track record. And I think part of the track record is at Fribe, actually.

I mean, they've already made back all the money that they've invested into the SaaS business, right? They're generating positive cash flow from it and even. I mean, you can, you can, they very clearly highlight all this in their, their presentations, which all of their presentations and like their Stevens conference and all that stuff are great things to catch you up. But their new conference call, it was actually yesterday with their 10K. release was really good. They have a really nice presentation that I have pulled up here in case I need to reference it. You know, but, you know, they grew a SaaS business from zero to 45,000 subscribers, right, over the course of, you know, five, six years, something like that. That's impressive.

You know, and the company, the SaaS business is generating cash flow and profits. You know, they aren't running the thing at a loss because, you know, there were a bunch of distress, there were a bunch of distressed debt guys that control the board. They've since kind of re-aligned the board a little bit, got some more software people in there. But this was not going to be a money pit where they just kept, you know, like a blue apron would have been or something where they're like, well, we need to get these customers and it's just growth, growth, growth, growth. We don't care about anything else, you know. So they cared about cash flow. And I think that that that responsibility that they had in that kind of shows the business acumen the guy has. I mean, that's not something.

And they haven't issued a ton of equity. I mean, they bought back a bunch of shares. You know, they did that about maybe nine months a year ago, something like that. So he's just of a different, he's got of a different cloth than a lot of these fast guys. He had a quote, and I tweeted this out, but it was a quote something along the lines of, they got that board refreshed last year. And the board of directors came in and they said, what the hell are you doing? You're making too much money in your software as a service business, right?

Hey, that's just a great quote. I would love somebody to come in and be like, Andrew, you're making too much money, dial it back a little bit. But, you know, it did, it's a cute quote. It's really interesting. It speaks to, hey, we're switching thrive from a, we're switching it to a bigger growth category, right? We're going to reinvest into it. But at the same time, when I say, hey, this guy's been CEO for seven years and he was running the business, he was running thrive for cash flow for all these years when he had this huge opportunity. you know, you can see why it raises some questions in the back of my mind.

Yeah, yeah, I can see that. I mean, he's kind of zigging when others might as that, you know? I mean, that's the fair point. But at the end of the day, with small business software, the time for the growth period for a lot of those companies is right now, right? It's not five years ago because small businesses were not on like CRMs and stuff. I mean, that's a totally new thing. You know, I mean, and you can see that with.

just the adoption of text messaging by people and, you know, cell phones and people emailing. Zoom. Yeah, exactly. Yeah. Nowadays, you say to anyone, hey, let's hop on a Zoom call. Everybody's ready. 18 months ago, a lot of people would have been like, why are we, what? Yeah, my mom's aerobics over Zoom, right?

And my mom, like, my brother affectionately refers to her as a virus for, like, cell phones and anything computer-related. And she can do Zoom now. So I think that there's that same story. of corollary with small business getting on these softwares. And so, you know, I think it was smart to run profitably for the time, you know, kind of zinging when others might have been zagging. And they ultimately state solvent with all their debt load. So there does need to be some credit for that because they navigated a lot of debt paydown and a lot of debt payments.

And, you know, I think they're kind of reap into rewards of that right now because they were able to raise $700 million of debt to kind of fund the census acquisition. And grant, it's, you know, it's junk debt right now. It's rated. You know, whatever. junk debts rate of that and you know they're paying you know eight and a half percent or something on it but they did get their interest rate down some and you know the terms were relatively similar to a debt offering that uh ginnett recently did which you know the apologizer are involved with that right so you know there's some industry more like reason stuff let me give me my last pushback because I'm sensitive time and I want to have time for you to just give anything else on your mind that

you're thinking about but you know I think my last pushback would be uh Joe Wollinger CEO comes out and buys $4 million worth of shares on the open market, week and a half, two weeks ago, something, right? At thinking about it for $18 per share. And obviously, that's a hugely bullish time, right? The CEO coming out, writing $4 million check out of his own pocket. I'm with you. At the same time, you know, I'm just looking at the insider sales, moderate capital, Paulson, Golden Tree. I mean, they have been hammering the stock over the past a couple months, right? You and I are bullish. We're doing the sum of the parse math. We're saying, hey, this marketing service business, huge cash flow, huge hidden gem in the software

as a service business, tons of equity value underneath this. At the same time, they're not super levered. They go to a really accretive acquisition, not super levered, and they're rated junk. They're paying huge interest rates in today's market and everything, right? So you can see the bullishness, but at the same time, super sophisticated investors bailing out. Rating services, debt investors, everything, they don't see the margin of safety that we're kind of talking about here. So what's the discrepancy? How do you think about that? It may not necessarily be that they don't necessarily see the margin of safety. It's just that this type of investment isn't what they do, right? I mean, these were distressed debt guys that bought all the debt

in bankruptcy, right? So if you're a distressed fund and then like all the stuff, and that's kind of the cloth you're cut of, you know, it's a really big transition to go to, you know, hey, let's let's cash flow this thing and then let's grow the SaaS business and do this other thing, right? I mean, it's, you know, I mean, you know, with the houses I do, you know, like we, we buy houses that are falling down and we rebuild them while they're still standing, right? And sometimes it was, it probably would have been better to tear it down and do a new build. But I'll be honest, like, I have no intellectual fascination towards doing a new build. Like, I would never do a development out, you know, in green space. Like, I just, I don't want to do it.

Like, I could make a bunch of money to do it. I wouldn't do it because I just don't want to. So I think that it might be something like that with some of these debt funds. You know, it's just not what they do. And it's probably a large position for him, too. You know, I mean, Mudrick's stock right now is probably valued, you know, this is a swag. You know, maybe 400 million bucks, something like that. He owns maybe 60% of the company.

So, you know, that's a pretty big amount of money for the funds that he's got it in. So, you know, I mean, I think it would kind of be responsive. for his investors, for him to kind of reduce the exposure a little bit. You know, if, you know, I mean, me personally, right, if I, if I had 80% of my stock in a company, it's still possible for me to be bullish on the stock, but be selling it just from a risk control perspective. Yep. I think that's something that's missed by a lot of people with that.

The other thing, too, is, I mean, Paulson, you know, he seems to be pushing for a spin off the SaaS. I've originally had that as part of my investment thesis was, hey, this thing will be spun off for 10-touch revenue or something like that, and that's a big catalyst. And the more that I dug into it, I just started to really like the SaaS and, you know, think that there's a lot of growth potential there to really do some compelling things. And so, you know, maybe Paulson was doing a little bit of spike selling or something of that nature. Some people on Twitter were calling him Paper Hands Paulson for whatever reason.

I don't know enough about his track record to make comment on that. I always thought he was pretty smart for figuring out the subprime crisis, but, you know, maybe he's wrong on this. I don't know. But the other thing, too, is like funds, they can't have, you know, part, I think the other side of that is you need to have less insider ownership, you know, of this controlled entity, basically, for other funds to be able to invest in it that really understand the SaaS business, you know, so that the company can be rerated by, by newer investors that understand the SaaS business. Yep. and, you know, there are liquidity requirements for a bunch of funds and stuff. So, you know, I think that there does need to be some shareholder-based turnover for that. And, you know, ultimately, like, Dex Media was on, you know, the Russell, and it was on indexes and the UTS and stuff.

And it's just a matter of time before Thrive gets picked up by that. And I think that they're trying to get some of the insider ownership down so there's some more flow, so that it can be on more ETSs, more in more mutual fund baskets, et cetera, et cetera. And then there can be some really compelling things happening. But again, I kind of view that as a forward-thinking market mechanism, right? Because, you know, if you wait till that happens to start buying the stock, the opportunity is going to be gone. So I'm willing to deal with whatever happens for the next year or whatever it is. It could be two months.

It could be a year and a half. I don't know. But I think that ultimately the market will realize kind of the mistake that is made with this low-float stock. No, look, I don't disagree with you. I will just third two things. A, Paulson going on and asking them for a spin-off, like, I certainly get it. If you think this stock, I'm just going to pull a number, if you think it's worth 50 in a split and it's currently trading at 20, I do, I obviously see the desire to get that short term, split it and grab it. But at the same time, as we talked about, I do think one plus one equals 2.5 here.

And I do think it would be very like short penny wise, pound foolish if you split them up right now, right? Like, again, the census thing, what if they get 10,000 subs from census and they basically acquired all of them for free because they just, they bought the business at a fair value for the elevator. So I think that in the long run, I'm sure that happens, but in the short run, I think that's cutting off your nose is about your face. And then the other thing I'd say, like, I definitely hear you like mudricks, distress, Paulson's distress. It does, it always does worry me when you've got a guy who owns 60% of the stock and he says, hey, I'm leaning into the stock to get rid of it. It's just a concern. It's just a concern. And I do hear you, it's a different thing than what they do.

But, you know, we're here saying some of the parts 40, stock 20, and the large shareholder are saying, let me get out of my stock. No disagreement. I think we've covered a lot here. Again, I'm asking about questions because I was interested as I dug into it and really read those reports. I was getting more and more interested in it. But I want to turn it over to you.

Is there anything you think about with Thrive that you don't think we hit, that you wish we had hit harder? Any last words you want to say here? Let me look at these pets, right? Yeah, it's not really. I mean, it makes up something like 50% of my portfolio between the warrants and stock. I mean, I'm crazy bullish and have a bunch of concentration in it, which is, you know, either going to make you look really smart or really stupid. So, we'll see. Well, I think it's going to make you look really smart. You know, as I've said, I haven't gotten all the way on it yet, but it is, it, it's, it

is a really interesting story. And, you know, I guess the sticking point, as I said at the beginning, I do have, hey, I had that like one year from now writing a letter and saying, hey, we invested in a formerly bankrupt yellow page company and they went bankrupt again. You know, I've got that in my mind. But on the other hand, I do have all the things where it's, hey, there was this dying legacy business, but it had great customer distribution, relationships, cash flow. And they used it to evolve into something so much bigger that, you know, we went from trading at a two times EBITDA multiple to something that should be valued at a 10 times revenue multiple, you know? So I've got both those in my minds. I think it's a super

compelling, interesting thing. I'm a little nervous that I'm going to post this on, I'm going to post this podcast and destroy the opportunity, but that's everyone should do their own work. That's okay. Jeff Moore, great to talk to you. Appreciate you coming on the podcast. Looking forward to the next one. Thanks again.