Executive Summary / Key Takeaways

• Thryv is successfully navigating the critical "pinch point" of its transformation, with SaaS revenue reaching 61% of total revenue in Q1 2025 and adjusted EBITDA margins hitting a record 20% in Q2, demonstrating that the business model shift is gaining financial traction.
• The company's strategic pivot from subscriber acquisition to ARPU expansion—targeting growth from $4,000 to $8,000 annual ARPU—represents a more capital-efficient path to value creation, though it introduces execution risk if existing customers don't deepen their product adoption.
• The Keap acquisition and verticalization strategy (exemplified by the HVAC vertical showing 25% revenue lifts for pilot customers) are creating differentiated, industry-specific solutions that could sustain pricing power, but integration challenges in Keap's demand generation business have already prompted management to guide conservatively.
• While the SEC inquiry into digital-to-SaaS conversions creates near-term overhang, the underlying business generates strong cash flows ($56.25 million TTM free cash flow) and trades at a substantial discount to pure-play SaaS peers, suggesting potential re-rating as the marketing services segment winds down by 2028.
• The central investment case hinges on whether Thryv can maintain its 33% SaaS growth trajectory while executing its ARPU strategy, with 2026 marking the inflection point where SaaS EBITDA becomes the majority of company profits.

Setting the Scene: From Yellow Pages to AI-Powered SMB Platform

Thryv Holdings, incorporated in 2012 but with roots tracing back to 1886 Yellow Pages publishing, operates at the intersection of two colliding worlds: the declining legacy of print and digital marketing services, and the accelerating demand for AI-enabled SaaS platforms among small and medium businesses. The company makes money through two distinct segments: a high-margin, fast-growing SaaS business that provides an all-in-one business management platform, and a declining but cash-generative marketing services segment that still produced $251 million in revenue through the first nine months of 2025.

The SMB software industry is brutally fragmented, with competitors ranging from domain registrars like GoDaddy to marketing automation platforms like HubSpot , website builders like Wix , and review aggregators like Yelp . Each offers point solutions that solve specific problems, but Thryv's strategic differentiation lies in its integrated approach—combining CRM, marketing, payments, and operations into a single platform while leveraging its legacy local SEO data from properties like Yellowpages.com. This heritage provides authoritative local search data that even Google (GOOGL) cannot influence, creating a subtle but durable advantage in answer engine optimization.

Industry trends are aligning in Thryv's favor. AI adoption among small businesses surged 41% in 2025, with usage jumping from 39% to 55% year-over-year. Simultaneously, small businesses are shifting from piecing together point solutions to seeking complete platforms—a "Goldilocks moment" where concerns about keeping order books full drive investment in marketing tools. Thryv's strategy of moving upmarket to businesses spending $400+ monthly positions it to capture this demand while targeting more stable, higher-margin customers.

Technology, Products, and Strategic Differentiation

Thryv's platform architecture represents a departure from the modular approach of competitors. While HubSpot excels at inbound marketing and GoDaddy dominates domain registration, Thryv integrates these functions into a unified system where Marketing Center, Business Center, Workforce Center, and Reporting Center share data and workflows. This integration creates switching costs that point solution providers cannot match—when a customer adopts a second paid product, their churn rate drops by as much as half.

The $77 million Keap acquisition, completed in October 2024, added critical automation capabilities and 13,000 clients while delivering $10 million in immediate EBITDA synergies through vendor consolidation. More importantly, it enabled Thryv's verticalization strategy. The HVAC vertical, launched in July 2025, doesn't just repackage generic tools—it customizes Keap's automation builder and Thryv's Marketing Center for industry-specific workflows, delivering pilot customers a 10% lift in jobs booked and 25% increase in total revenue. This approach deepens engagement and justifies premium pricing, addressing the core challenge of ARPU expansion.

AI integration across the platform is accelerating, with features like social captioning, review response assistance, AI website builder, and call analysis with lead scoring rolling out in beta. Management describes this as a "big tailwind" for 2026, but the real moat isn't the AI features themselves—it's the ontology of SMB data that makes them actionable. While Wix can launch AI site builders faster and HubSpot can personalize email campaigns better, Thryv's platform connects these capabilities to actual business outcomes like appointment bookings and payment collection.

The upmarket shift is quantifiable. The U.S. field sales force now targets businesses with annual contract values around $6,000, focusing on companies with 10-15 employees rather than solopreneurs. These larger businesses exhibit lower churn and higher lifetime value, making the ARPU expansion strategy more than a pricing exercise—it's a quality improvement in the customer base. The addition of Sean Wechter as CTO in September 2025, with his focus on AI and integrations, signals that interoperability will be critical as Thryv moves upmarket and needs to coexist with vertical-specific back-office tools like ServiceTitan.

Financial Performance & Segment Dynamics

The SaaS segment's financial trajectory validates the transformation thesis. Q3 2025 revenue of $115.9 million grew 33% year-over-year, with Keap contributing $16.8 million and digital marketing conversions adding $5.5 million. The 73% gross margin and 17% adjusted EBITDA margin demonstrate software economics. While the SaaS segment boasts a higher gross margin (73%) compared to the marketing services segment (65%), its adjusted EBITDA margin (17%) is currently lower than that of marketing services (25%). More telling is the margin expansion: SaaS EBITDA margin hit a record 20% in Q2 2025, confirming that scale is driving operational leverage.

ARPU expansion is the engine of future growth. Monthly SaaS ARPU reached $365 in Q3, up 19% year-over-year, with Keap clients averaging $437 versus Thryv's $355. Management's target of growing annual ARPU from $4,000 to $8,000 over the next few years implies a doubling of revenue per customer without requiring proportional sales and marketing spend. This is crucial because customer acquisition costs in the SMB space are notoriously high, and Thryv's strategy of selling additional products to existing customers is demonstrably more efficient—clients using two or more products grew to 20% of the base, up from 16% a year ago.

The marketing services segment, while declining, remains strategically vital. The 7.7% revenue drop in Q3 masks a deliberate acceleration of digital-to-SaaS conversions that reduced marketing services revenue by $5.5 million but added the same amount to SaaS revenue. Print revenue increased 41.8% due to publication timing shifts from 18-month to 24-month cycles, but this is a temporary boost masking a secular decline. The segment still generated $21.2 million in EBITDA, providing cash to fund the SaaS transition through 2028 and beyond, with cash flows expected to last through 2030.

Balance sheet strength is improving through the pinch point. Net debt fell to $265 million in Q3, bringing leverage to 1.9x EBITDA. The company prepaid two years of required amortization in just 13 months, reducing mandatory payments from $52.5 million annually to $35 million. This deleveraging, combined with $89.78 million in TTM operating cash flow and $56.25 million in free cash flow, means Thryv has passed the liquidity crunch that constrained capital allocation decisions. As CEO Joe Walsh noted, the company can now "make decisions for the first time about how to allocate" free cash flow rather than being forced to "invest hand over fist in our product and cut everything else and pay down debt."

Outlook, Management Guidance, and Execution Risk

Management's guidance reflects both confidence and conservatism. Q4 2025 SaaS revenue is projected at $118-121 million, implying full-year revenue of $460-463 million at a 15-16% EBITDA margin. This represents a modest adjustment from prior guidance, which Walsh attributed specifically to softness in Keap's demand generation side—"we didn't love the economics that were there." This candor is instructive: it isolates the underperformance to a specific, addressable area rather than indicating broad-based weakness.

The underlying assumptions are explicit. Walsh believes the market is "fine" and that Thryv's results are "mostly our fault" when execution falters, emphasizing that even in a weak macro environment, strong execution can drive results. The company assumes its "break-fix" customer base—HVAC, plumbing, auto repair—is resilient and that the current environment represents a "Goldilocks moment" where SMBs are actively investing in marketing tools. This assumption is critical because it underpins the ARPU expansion strategy; if small businesses retrench on spending, the plan to double ARPU could fail.

The path to pure-play SaaS is clearly mapped. By 2026, the majority of EBITDA will come from SaaS, and by 2027, overall revenue growth will resume as the marketing services drag diminishes. This timeline matters because it sets expectations for when the market should begin valuing Thryv as a software company rather than a declining media business. The vertical strategy will expand beyond HVAC to broader home services, and product-led growth initiatives like the Reporting Center's free trial motion will diversify customer acquisition beyond direct sales.

Execution risks are concentrated in three areas. First, the Keap integration must be fixed—Walsh acknowledges the demand generation economics were poor, and the company has "pulled back" on some investments. Second, the ARPU expansion strategy requires successful cross-selling; while early data is encouraging (seasoned clients spend $5,400 annually vs. $4,200 average), there's no guarantee all customers will adopt additional products. Third, the SEC inquiry, while described as a "fact-finding inquiry" with no legal conclusion, creates uncertainty that could pressure the stock until resolved.

Risks and Asymmetries

The SEC subpoena regarding digital-to-SaaS conversions represents the most immediate risk. While management maintains the conversions are legitimate and the churn rates of converted clients match those of native SaaS customers, any finding of impropriety could result in reputational harm, legal liability, and forced changes to the conversion strategy that would eliminate a key growth driver. The investigation is ongoing, and the company has not disclosed its potential exposure.

The ARPU expansion strategy introduces a different risk: execution failure. If Thryv cannot convince customers to adopt additional products, growth could stall. The 700 basis point decline in seasoned net revenue retention to 94% is partially attributed to "noise" from converting lower-commitment marketing services clients, but it also reflects that cancellations by long-term clients are outpacing upsells. Management views this as temporary, but if the trend persists, it would undermine the core thesis.

Keap integration challenges have already surfaced. Walsh's admission that the "demand generation side of the Keap business" had economics they "didn't love" suggests the acquisition may not deliver the expected synergies. While $10 million in EBITDA synergies were realized quickly, the revenue growth contribution could be weaker than projected, limiting the overall impact of the deal.

On the upside, successful verticalization could create significant value. The HVAC vertical's 25% revenue lift for pilot customers, if replicated across thousands of clients, would accelerate ARPU growth beyond management's $8,000 target. Similarly, the AI features rolling out could drive a "big tailwind" that differentiates Thryv from competitors and justifies premium pricing. The company's misclassification under GICS as advertising rather than software creates potential for multiple expansion once the transformation is complete.

Valuation Context

Trading at $6.10 per share, Thryv carries a market capitalization of $268 million and enterprise value of $529 million. The valuation metrics reflect a company in transition: EV/Revenue of 0.68x stands at a dramatic discount to pure-play SaaS peers like HubSpot (6.42x), GoDaddy (4.18x), and Wix (2.96x). This gap is justified while marketing services still represents 40% of revenue, but it creates potential for re-rating as the SaaS segment approaches 70-80% of the mix by 2027.

Cash flow multiples tell a more nuanced story. The stock trades at 7.41x free cash flow and 3.97x operating cash flow, both well below the 10-15x range typical for growing SaaS businesses. This suggests the market is pricing in either declining cash generation or continued legacy drag. However, with free cash flow of $56.25 million over the trailing twelve months and the marketing services segment expected to generate cash through 2030, the downside protection is material.

Profitability metrics are improving but still reflect the transformation. Gross margin of 67.36% lags behind HubSpot 's 84% and Yelp (YELP)'s 90% due to the lower-margin marketing services business, but the SaaS segment's 73% gross margin is competitive. Operating margin of 9.61% is below GoDaddy (GDDY)'s 23.88% but above the negative margins of Wix (WIX) and HubSpot (HUBS), indicating Thryv has achieved profitability while larger peers still burn cash on growth.

The balance sheet is manageable for a transforming business. Debt-to-equity of 1.23x and leverage of 1.9x EBITDA are not excessive, particularly given the company's ability to prepay debt and generate consistent cash flow. The $34.5 million remaining on the share repurchase authorization, combined with Walsh's statement that "we can buy back stock" given the "mispriced" valuation, suggests management sees the stock as undervalued relative to intrinsic worth.

Conclusion

Thryv Holdings is passing through the most critical phase of its transformation from legacy marketing services to pure-play SaaS. The financial evidence is compelling: SaaS revenue growing at 33% with 20% EBITDA margins, ARPU expanding 19% year-over-year, and the company generating $56 million in free cash flow while deleveraging the balance sheet. The strategic pivot from subscriber growth to ARPU expansion, while initially pressuring net revenue retention, represents a more sustainable path to value creation in the fragmented SMB software market.

The investment case hinges on execution of three interlocking initiatives: fixing Keap's demand generation economics, successfully cross-selling additional products to drive ARPU toward the $8,000 target, and navigating the SEC inquiry without material impact. If management delivers, the valuation gap relative to pure-play SaaS peers should close as marketing services winds down and the market re-rates the business on software multiples. The downside is protected by legacy cash flows through 2030, while the upside is amplified by verticalization and AI integration that competitors cannot easily replicate. For investors willing to own the execution risk, Thryv offers a rare combination of transformation momentum, cash generation, and valuation discount in the SMB SaaS space.