Thryv Holdings Seeks Direct Listing On Nasdaq Instead Of IPO

IPOStreet

Thryv Holdings (THRY) intends to perform a direct listing of its common stock, according to an S-1 registration statement.

The firm provides digital and offline marketing services to small and medium businesses primarily in the United States.

THRY is producing contracting topline revenue and reduced gross profit despite industry growth, so I’m concerned about its growth trajectory.

DFW Airport, Texas-based Thryv was founded to provide technology solutions to small and medium businesses including:

  • Marketing services - Yellow Pages & online search
  • SaaS - Lead management online platform

Management is headed by president and Chief Executive Officer Mr. Joseph Walsh, who has been with the firm since October 2014 and was previously Chairman of Cambium Learning Group and president and CEO of Yellowbook.

Below is a brief overview video of Thryv's offerings:

Source: SEO Marketing Masters

Thryv has received at least $1 billion from investors including Mudrick Capital, GoldenTree Asset Management, Paulson & Co. and Yosemite Sellers Representative.

The company currently serves more than 360,000 small business clients through its two segments of marketing services and SaaS lead management.

Thryv reaches its audience through a multi-channel sales process that includes both an inside and outside sales force, channel partners and through targeted online campaigns.

Sales and Marketing expenses as a percentage of total revenue have been dropping as revenues have decreased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was stable at negative (1.0x) in the most recent reporting period.

According to a 2020 market research report by Grand View Research, the global digital marketing software market was an estimated $43.8 billion in 2019.

The market is expected to grow at a CAGR of 17.4% from 2020 to 2027. This is a high CAGR growth for an already large market.

The main drivers for this expected growth are a growing trend for location-based advertising, video-oriented advertising and the use of social media advertising opportunities.

Also, below is the U.S. digital marketing software historical and forecast chart, broken down by solution:

thryvmkt

The company faces competition from other search engines, portals and online directories such as Google (GOOGL) and Yelp (YELP).

For its SaaS offering, THRY faces competition from other companies offering integrated or unbundled marketing software and cloud-based SaaS software to SMBs.

Thryv’s recent financial results can be summarized as follows:

  • Contracting topline revenue
  • Decreasing gross profit but increasing gross margin
  • Growing operating profit and net income
  • Decreasing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

thryvpl

Source: Company registration statement

As of June 30, 2020, Thryv had $1.6 million in cash and $1.26 billion in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $211.8 million.

Thryv intends to perform a direct listing of its common stock and has registered a total of 26.7 million shares of common stock for its shareholder base.

Assuming the most recent private sale price per share of $10.17, the company’s enterprise value upon the first trade would approximate $976 million.

Upon the direct listing, the float to outstanding shares ratio will be approximately 85.14%.

The company will not receive any proceeds from the direct listing. Management says:

The Registered Stockholders may, or may not, elect to sell shares of our common stock covered by this prospectus. To the extent any Registered Stockholder chooses to sell shares of our common stock covered by this prospectus, we will not receive any proceeds from any such sales of our common stock.

Management’s presentation of the company roadshow is not available, but the firm intends to hold an ‘investor day’ where it will provide information.

The advisor to the direct listing is I-Bankers Securities.

Commentary

Thryv is seeking a direct listing on the Nasdaq to allow its shareholders to sell shares to the degree they wish.

Approximately 90% of the shares are owned by four institutional shareholders, private equity firms.

The firm’s financials show consistently contracting topline revenue in recent periods, decreasing gross profit, but increasing operating and net profits, while free cash flow has been significant.

Sales and Marketing expenses as a percentage of total revenue have dropped; its Sales and Marketing efficiency rate has remained stable at a negative (1.0x)

The market opportunity for digital marketing and online search services is expected to grow substantially over the coming years, so it is concerning that the firm has experienced contracting revenue in a growing market, indicating it is losing market share to others.

As to valuation, compared to partial competitor Yelp, the listing (assuming its most recent private transaction price) is priced at a lower EV/Revenue multiple, but the revenue picture is worse.

The continued drop in topline revenue and gross profit is a bad look and tells me something's not right here.

For interested investors, it may be more savvy to watch the stock in the aftermarket to see if it trades down below $10 per share.

Accordingly, my opinion on the listing is NEUTRAL due to concerns about the firm’s growth trajectory.

Expected Direct Listing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Direct listing stocks can be very volatile in the days immediately after an listing. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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