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Greystone Capital Management, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of +45.7% was delivered by the fund’s median account for the Q1 of 2021, ahead of its S&P 500 and Russell 2000 benchmarks that delivered a 6.2% and 12.7% returns respectively for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Greystone Capital Management, in their Q1 2021 investor letter, mentioned Thryv Holdings, Inc. (NASDAQ: THRY) and shared their insights on the company. Thryv Holdings, Inc. is a Grapevine, Texas-based software company that currently has a $987.2 million market capitalization. Since the beginning of the year, THRY delivered a 118.67% return, impressively extending its 12-month gains to 167.76%. As of April 26, 2021, the stock closed at $29.78 per share.
Here is what Greystone Capital Management has to say about Thryv Holdings, Inc. in their Q1 2021 investor letter:
"This update couldn’t possibly be more timely, as last quarter I wrote about beginning to utilize starter positions in client accounts for a variety of reasons. During Q1, I bought and sold a starter position in Thryv Software (THRY), a combination marketing software business that also sells (or gives away) digital and print versions of The Yellow Pages. Yes, the Yellow Pages still exist.
The circumstances surrounding the investment were very interesting and included a legacy business in decline that generated a ton of cash to plough into a faster growing and somewhat hidden marketing software platform for small businesses, insider buying and changes to management compensation terms surrounding option grants that might indicate a sale of the business, and the potential spinoff of the faster growing software segment. The cheap valuation, opportunity (and need) to de-lever, and the presence of some activist heavy hitters all presented what looked like a stock that could potentially be worth multiples of the current price.
I’ll keep the business update quite short as we are no longer owners of the business, but at a high level, Thryv is a marketing services business that operates two segments, print and digital marketing services (Yellow Pages) and SaaS (Thryv Software). The business has over 300,000 SMB customers and a decades long history of serving such customers from a marketing standpoint. As mentioned above, the Yellow Pages segment brings in a large chunk of revenue and cash flow for the business which has been historically used to pay down Thryv’s significant debt load.
What will come as a surprise to no one is that both the print and digital Yellow Pages segment of the business is in decline (by about 20% per year) given the rise of the internet and the decrease of landline phone usage. The declines have been tempered somewhat by the businesses’ variable cost structure and cash generation (somewhere around half of the current market cap), which again will be used to pay down debt, lowering interest expense and increasing profitability.
With the marketing software platform the focus moving forward, Thryv’s go-to-market strategy consists of taking the established Yellow Pages customers and transitioning them to Thryv software as there are minimal incremental marketing costs to do so and the software is quite sticky. Execution has been solid to date, with Thryv boasting over 45,000 paying subscribers representing about 10% of their Yellow Pages customer base. The platform has a very high value proposition and seems to be loved by customers, as it can handle everything from marketing and payments to scheduling and website support. The goal is to continue to execute against this low penetration growth runway which should have the effect of transforming the margin profile of the business. Lastly, there are four large funds representing a group of billionaires with an activist bent that own over 90% of the outstanding shares as well as the majority of debt, indicating at the very least that they wouldn’t be interested in lighting their own money on fire.
Ultimately, what I couldn’t get comfortable with was an estimate of the future decline of the Yellow Pages segment, and how that would affect Thryv’s ability to service their debt. Without being able to understand that piece – even with the attractive software business – it would be hard for me to make Thryv a sizeable position or buy more at current somewhat elevated levels. Basically, an increased decline in the Yellow Pages business above what management has projected would make it difficult for Thryv to service their debt obligations and cross sell the marketing software to current clients or SMBs on their way out the door.
Fortunately (or unfortunately), the market seemed to disagree, and following a quick 35% price jump before I was able to get comfortable with my valuation framework, I sold out of the position, happy to take the tax inefficient 35% gain while I do more work and seek out a lower price if given the opportunity."
Our calculations show that Thryv Holdings, Inc. (NASDAQ: THRY) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Thryv Holdings, Inc. was in 9 hedge fund portfolios. THRY delivered a decent 52.31% return in the past 3 months.
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Disclosure: None. This article is originally published at Insider Monkey.