Thryv Q2: Valuation Yet To Catch Up With Improving Fundamentals

Thryv (THRY) reported robust Q2 results, with its SaaS business growing 48% year-over-year (25% organic) and achieving a 700 basis point expansion in Adjusted EBITDA margins to 20.3%, signaling strong operating leverage. The high-growth SaaS segment now constitutes over half of total revenue, supported by healthy metrics like 103% net retention, while the company actively reduces its debt load, projecting a substantial decline in net debt by year-end. Despite this strong operational performance and improving financial profile, THRY trades at a significant valuation discount compared to its SaaS peers, suggesting considerable upside potential.

Analysis

Thryv's (THRY) second-quarter results highlight a successful strategic pivot, with its SaaS business emerging as the primary value driver. The segment's revenue grew an impressive 48% year-over-year, or 25% on an organic basis, and now accounts for more than half of the company's total revenue. Profitability demonstrated significant operating leverage, as SaaS Adjusted EBITDA margins expanded 700 basis points to 20.3%, substantially beating management's guidance. The quality of this growth is underscored by strong underlying metrics, including a 103% seasoned net retention rate and a 74% adjusted gross margin, placing it among high-quality peers. While full-year SaaS revenue guidance was slightly lowered to a midpoint of $462.5 million to accommodate the shedding of lower-margin revenue from the Keap acquisition, this was more than offset by an increase in the SaaS Adjusted EBITDA midpoint to $72 million. This indicates a focus on profitable growth. The primary overhang, a net debt load of $265 million, is being actively addressed by resilient cash flows from the legacy print business, with projections suggesting net debt could fall to near $200 million by year-end. Despite these strong fundamentals, Thryv's SaaS business trades at a significant discount, valued at just 1.2 times revenue, compared to peers like HubSpot (HUBS) and ServiceTitan (TTAN) which command multiples above 10.

Key Decisions for Investors

• Investors should assess the valuation gap between Thryv's SaaS segment, trading at 1.2 times revenue, and its slower-growing peers trading above 10 times, as the convergence of this multiple represents the core investment thesis.
• It is critical to monitor the company's progress on deleveraging, as the projected reduction in net debt to approximately $200 million by year-end would significantly de-risk the balance sheet and unlock capital for growth or shareholder returns.
• Track key SaaS performance metrics, particularly the net retention rate (currently 103%) and cross-selling momentum, as continued strength will be crucial for justifying a market re-rating and validating the shift away from the legacy print business.