We recently covered the news that Thryv had filed an S-1 to take the company public. Last week we listened to, and participated in, a virtual investor presentation the company hosted. The presentation began with company CEO Joe Walsh outlining the rationale for the re-listing and detailing the experience of the company’s leadership team. Walsh also spent some time on his personal history of building Yellow Book (now part of hibu) via some 77 acquisitions, then transitioning to a public company via the tie-up with the U.K.’s Yell.
Walsh then went on to provide an overview of the Thryv business today. The presentation was very intentional in making a clear distinction between the marketing services business and the SaaS business. As he was presenting the overview of the company, Walsh noted that the company has moved to a remote-first model. Thryv made this decision as early as June 2020, which suggests that the leadership may have been contemplating a remote-first model for some time. The pandemic situation provided a convenient opportunity to make it “official”.
Matching Up Against a Tough Field
According to the prospectus the company’s mission is “dedicated to supporting local, independent businesses and franchises by providing innovative marketing solutions and cloud-based tools to the entrepreneurs who run them.”
At this writing the company has 2,444 employees driving an estimated $511,000 per employee. We looked around to find some comparables and used Hubspot as one since Hubspot was called out in the presentation as one among a number of key competitors. Our estimated revenue per employee for Hubspot is about $366,000 per employee – or about 70% of Thryv’s.
We also took a look at GoDaddy, another competitor to Thryv, and estimated its revenue per employee at about $427,000 or 83% as productive on a per-employee basis as Thrvy. We also took a look at Yelp, whose revenue per employee we estimated at around $182,000. That is just 35% of Thryv’s.
The presentation was certainly revealing in the level of detail the company provided. Some of the key numbers to consider are summarized in this table.
Thryv by the Numbers
|Revenue and %||Customers||Estimated Monthly Revenue per Customer||Comments|
|SaaS||$127M and 10%||44,000||$240||Increasing demand; considerable runway|
|Print Yellow Pages||$551M and 43%||285,000||$161||Declining at 20% per year; highly profitable|
|Search Engine Marketing||$201M and 16%||21,000||$797||Highest revenue per customer; considerable reliance on Google and very low margin|
|Internet Yellow Pages||$308M and 24%||145,000||$177||High margin; declining revenue expected|
|Presence||$100M and 8%||42,000||$198||Some high utility products – listing management and high potential products – video|
Other interesting data the company chose to disclose included the number of employees in its sales organization. They break the country into four logical regions – West, South, Midwest, Northeast. In terms of outside sales representatives, Thryv has 742 business advisors. Of these, 305 work in telephone sales.
Thryv compares its 1,047 business advisors to Yelp’s 1,850 sales representatives. To our knowledge, all of Yelp’s reps work as inside salespeople. In addition to the 1,047 business advisors, another 300 FTEs are focused on sales management, training, and other support activities. The presentation does not delineate the number of customer success employees, but in the remarks made by the leadership team as well as in our conversation with Ryan Cantor at Localogy 20/20, this is an increasingly important function in the company. With some 44,000 SaaS customers, we would estimate that the company has a least 150 team members (assumes each customer success employee handles 300 SaaS customers) focused on customer success for the SaaS business.
‘Thryving’ Through COVID
The company walked investors through their assessment of Covid-19’s impact on the company. We summarize the key points here.
- Eighty percent of their customers are in lower-risk verticals. The company does not tend to work with dining and retail businesses — two of the categories most impacted by Covid-19 (perhaps with the expectation of pizza, which has probably fared better than most restaurant categories).
- Thryv has a broadly distributed customer base – with just California, Texas, and Florida representing more than 5% of company revenue. This has insulated them from being too exposed to any one hard hit region.
- WFH has created more demand for home services. This represents the company’s largest category of customers. This trend plays into the benefits of leveraging the Thryv SaaS solution so that home services businesses can operate more effectively given the increased demand.
- The shift to a remote working model delivered higher productivity early on. Ryan Cantor did acknowledge in our conversation that now that the dust has settled, there’s likely to be some rationalization of employees whose temperament doesn’t align with the WFH model; it also greatly broadens Thryv’s hiring flexibility as location no longer matters.
- SaaS sales have accelerated during the pandemic as small business owners adopt technology because either they now have time to implement technology and/or they must implement technology to accommodate great customer demand.
Converting Legacy to Saas
The company showcased the increase in SaaS solution sales during the first six months of 2020. Monthly sales rose from 462 “units” in January to just over 1,000 units in June. Walsh said that the trend has continued for the months of July and August. Company leadership was quick to point out that just 10% of legacy customers had chosen to adopt the Thryv SaaS solution.
There are two ways to evaluate this statement. One is that that leaves a considerable upside in cross-selling legacy customers into the Thryv solution. Another view is that a large portion of legacy customers haven’t been convinced that Thryv is a viable option for business management software. Both of these points of view are manageable. The business advisors must be re-trained on how to position the software to legacy clients. The latter challenge can be solved through customer education. Neither is easy, but both are achievable.
From 90/10 to 50/50
Looking forward, the company is expecting SaaS to grow to 100,000 customers in the mid-term and 200,000 in the long term. What those intervals are we do not know, but we’d offer the mid-term being 30 months forward and long term being 60 months forward. Throughout the period, the company expects the average revenue per SaaS customer to remain around $200 per month.
At the same time, the company expects the revenue split between marketing services and SaaS to shift from today’s 90/10 split to 50/50 by the mid-term. This would put the company’s combined revenues at or around $600 million in a 24 to 36-month timeframe. What that means is that Marketing services will continue to decline in topline performance from today’s nearly $1 billion to something closer to $300 million. And we’d argue that most of that will come via marketing services solutions that align with and can be powered by the Thryv SaaS solution. Think SEO, digital presence, payments, customer marketing and engagement, loyalty programs.
Importantly, the company explicitly intends to broaden the “go to market” strategies. The company’s heritage is in owning their customer acquisition channel. The presentation suggested that by the mid-term period, perhaps as much as 20% of Thryv’s SaaS customer acquisition will come through new channels. Achieving this will require the company to bring channel management expertise into the business. It is also the reason that we don’t see a substantive increase in average customer value in the out years. This is because a percentage of those customers will be acquired through other channels where the gross revenues will be shared with others.
Churn-busting Efforts Pay Off
The SaaS churn number was among the most important metrics shared on the call. Since March of 2019 when monthly churn reached 4.7% or just over 55% per year, churn has been on a positive trend. As of June 2020 monthly churn is down to 3.0% or 36% per year – a 35% improvement. Thryv made a conscious effort beginning in early 2019 to shift its marketing and sales efforts towards identifying and converting small businesses that had the highest probability of benefiting from the Thryv SaaS solution. In years prior there was a premium on accelerating customer acquisition, but without the discipline to qualify the customer. The company’s new approach is clearly paying off in improved retention.
One really substantive cultural change the company has had to process involved moving away from the old print Yellow Pages model. In that world, customers signed contracts, and once the book was published, there was little re-engagement with the customer. Until it was time to renew the contract a year later that is. The salesforce just moved on to the next market. Success in the SaaS world requires an entirely different mindset and culture, one where customer engagement really begins once the customer signs an agreement for the SaaS solution. These very different approaches required considerable attention and disciple to make the necessary transition permanent.
More Homegrown Tech
Another interesting point made on the call involved the company’s reliance on technology partners. According to the company, today about half of the “features” of the Thryv solution are homegrown and the other half are resourced from partners. CSO Gordon Henry suggested that this mix may shift in favor of homegrown technology in the coming months and years. This will occur as the company prioritizes the strategic importance of some features over others.
For those of you interested in seeing the presentation for yourself, it is on the company’s website.
Our Key Takeaways
To summarize what we learned and what we think may happen next.
- By moving the re-list, the public now has more data to evaluate Thryv’s strategic and operational performance. This will naturally bring additional scrutiny from investors and curiosity among competitors.
- We’d point to the much-improved churn metric as perhaps the most important number in the presentation and filing. To that point, Ryan Cantor’s quote on our Localogy 20/20 session summed up nicely. He said to be successful in SaaS you have to “be as interested in having your customers use your product as much as you’re interested in selling them your product.”
- One of the questions presented to the management team on the investor call was the obvious opportunity to separate the two businesses. Company CEO Joe Walsh applauded this question and suggested that over the course of the next couple of years this opportunity will continue to present itself. Our view is that when the SaaS revenues achieve parity with the marketing services revenues will be the time we see the company break into two stand-alone entities.
- We would also expect the company eventually to broaden its geographic footprint. The economics of SaaS suggest Thryv might pursue small business customers in other English speaking markets. Canada, Australia, New Zealand, and the U.K. come to mind.
- We also foresee the company pursuing new customer acquisition channel partnerships. We expect these to trend away from digital agencies and toward channels that help small businesses with their operations and processes. These might include payroll companies, payment platforms, MSPs (managed service providers), and insurance companies, for example. These relationships will greatly expand the company’s market coverage. And this could considerably lower Thryv’s overall customer acquisition costs (CAC). But it will also negatively impact total net revenue.