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spk02: Good afternoon, my name is Sylvie and I will be your conference operator today. I would like to welcome everyone to Thinkific's third quarter 2021 financial results conference call. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, press star then number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. Thank you. As a reminder, this conference call is being recorded. Janet Craig, you may begin your conference.
spk11: Thank you, Sylvie, and good afternoon, everyone. Welcome to Thinkific's earnings call for the third quarter of 2021. Joining me today are Greg Smith, co-founder and CEO, Miranda Levers, co-founder and COO, and Karine Waugh, CFO. After the prepared remarks, we will open the call to questions. During the call today, we will make forward-looking statements that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligations to update these statements except as required by law. You can read about these risks and uncertainties in our regulatory filings that were filed earlier today. Our commentary today will include adjusted financial measures which are non-IFRS measures. They should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the two can be found in our regulatory documents, which are available on our website. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Such key performance indicators may be calculated in a manner different to similar key performance indicators used by other companies. I should also note we have a slide deck that supports the remarks available to download on the webcast interface or on our website. And finally, please note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. I will now turn the call over to Greg Smith, CEO of Thinkific.
spk04: Thank you, Janet.
spk03: Hello, and welcome to our third quarter 2021 conference call. Thank you for joining us. As you know, we are fanatical about our customers, our creators' success. And we do this by listening to our creators to continuously innovate the Thinkific platform to best serve the needs of our creators to help meet their needs in business and their goals. This includes building a thriving partner community, which offers products and services to our creators to further help them in building their businesses. This focus on our creators' success in turn feeds our success and growth. As a result, in the third quarter, we delivered another strong quarter. We had growth across all of our key metrics. We grew quarterly revenue 65% year-over-year to $9.9 million, which was above the outlook we provided back in August. And each of our KPIs, paying customers, ARR, ARPU, and GMV delivered growth year over year. In the third quarter, paying customers continued to drive our growth and ARPU continued to strengthen. Paying customers grew 43% year over year to $30,700. ARPU grew 7% year over year to $110 per month, mainly driven by existing customers upgrading to higher tier plans as they build on their success. ARR grew 56% year over year to $41 million due to a combination of new customers and ARPU expansion. GMV grew 26% year over year to $100.5 million and was consistent with the second quarter. Since the start of Thinkific in 2012, we have continuously innovated to support the success of our course creators. Each year, our product becomes easier to use and more powerful. And the results of this are apparent in the compounding success of our creators. As a result, from day one, we have been rewarded with a continuous year-on-year improvement in our customer retention. The last two years are no exception. As you know, we like to share creator stories, not only to celebrate their success, but also to provide real-life examples of how they are using the Thinkific platform to advance their business. One particularly inspiring story is from Sydney Montgomery, a 27-year-old powerhouse who is breaking down barriers to higher education for underserved populations, mostly women, providing them with the tools, knowledge, and confidence to achieve their dreams. Sydney shared with us, I don't think we need a dichotomy between doing good and being profitable. I truly believe that you can do good and be wildly profitable. As CEO of her own now burgeoning consultancy, Her results are phenomenal. 78% of her clients have gotten into a top 30 law school and 56% of her students have achieved scholarships representing at least half of their tuition for law school, breaking generational cycles of debt and poverty. She achieved this by empowering clients with information and guidance to avoid common pitfalls in applications and by providing crucial community mentorship and mindfulness support to all of her students. When searching for effective ways to market her business, Sydney came across Thinkific's Think in Colour Summit community, a collective of inspirational female entrepreneurs of colour. She added, I knew I needed something and Thinkific came at the right time. Think in Colour really shaped me. Thinkific made scaling my business a reality and surpassed my wildest expectations. After Think in Colour and the Think in Colour Accelerator in July 2020, I launched my first law school application boot camp. a small group program that allowed me to go from my one-on-one services to one-to-many services. Through Thinkific, I was able to launch my first asynchronous course, a step-by-step guide to brainstorming, structuring, and drafting your personal statement. As a result of these successes, at the age of 26, I was able to completely pivot to working full-time as an educational consultant. In fact, Sydney has done so well, she is on pace to triple her six-digit income in 2021 relative to 2020 and employs several people. Her business serves hundreds of students across the United States and internationally through digital products such as online course offerings, group programs, and one-on-one consulting services. She aspires to create a nationwide mentoring network between pre-law students and attorneys of color. Sydney's story is inspiring and makes us proud of the success we're enabling for our customers. It's stories like that that motivate our team to constantly create more features and solutions and to be the platform of choice for our creators. and it deepens our belief in the social impact we can have by some of the programs we run, like Think in Colour. Continually improving our products, features, and performance is critical to our success, and we have spoken a lot in the past about the launch of Thinkific Payments and its importance to the success of our creators. As you know, we had a private release in July, and today we have announced the full launch of Thinkific Payments. It is now available to all new and existing customers in Canada and the U.S. It is a powerful suite of tools built to help our creators sell more and spend less time on administration. It is expected to accelerate Thinkific's long-term growth by allowing us to share in the success of our creators. The new embedded payment processor is directly integrated into a creator's Thinkific dashboard, enabling them to accept payments, manage payouts, process refunds, and update banking and business information without the friction of integrating a third party payment provider. Thinkific Payments adds new functionality that is expected to help our creators by saving them time and increasing their revenue. Beyond efficient payment processing, two additional key features form the first part of the Thinkific Payments platform, performance checkout and order bumps. Performance checkout, a primary value driver for Thinkific Payments, enables creators to optimize customer conversions and reduce cart abandonment. It offers a faster, seamless, single-page checkout experience that requires less information from purchasers, which makes checkout faster and increases conversion rates. Order bumps help creators earn more from their customers by suggesting complementary products at optimal stages of the checkout process. This allows creators to sell more products in a single sale, increasing their average order size. Both of these features have been high on the list of requests from our creators, and we're proud to be able to launch them within our Thinkific payments offering. Turning now to the Thinkific App Store. The Thinkific App Store continues to be a key tool that enables our creators to customize their product offerings and is an important part of our long-term growth strategy. It connects developers who can create and sell custom applications to creators who seek to further optimize functionality beyond Thinkific's core platform. The majority of app developers that launched on Thinkific's App Store in the past six months are seeing increasing revenue from app sales month on month through their exposure to the Thinkific customer base. The Thinkific App Store also accelerates our platform's R&D, adding new functionality by leveraging our growing ecosystem of third-party developers as we continue to build out our products and technologies. Our creators continue to embrace this new offering with a significant portion of paying customers leveraging at least one app. Our app store is a key component to the success of our largest customers. Product analytics show that customers who adopt apps generate more student enrollments on average than customers without apps. The Thinkific app inventory continued to grow steadily in the third quarter, including apps that provide additional live student experiences, facilitate personalized student communication, and incorporate rich learning experiences. A great example of our app store in action is our app developer partner, Motrain. Motrain empowers creators to grow their online knowledge businesses by creating a personalized rewards store that boosts student enrollment and completion rates. Students can earn virtual coins for completing lessons that they can spend on rewards tailored to meet their interests, such as swag items, premium content, and discounts. Motrain provides gamification functionality to increase the completion rates of online programs, strengthening the student content connection. Jeff Campbell, founder and director of Motrain shared, Thinkific App Store allows companies to use our gamification and rewards platform to educate their customers. It builds brand awareness, familiarity, and loyalty while providing companies with a strategic advantage over their competitors. The Thinkific App Store drives commercial success for Motrain and a growing number of other app developers. Collectively, the functionality that third-party developers create on Thinkific's open platform uniquely solves a greater range of needs for a greater range of our customers. In the short term, Thinkific is focusing on increasing adoption of apps by customers. In the long term, the success of the app store will be measured by its impact on customer success through GMV and other customer success metrics, as well as the success of our partners. We talk a lot about courses at Thinkific, but in fact, we allow creators to offer much more than courses. From membership sites to private communities, creators can offer a suite of products to their customers using Thinkific. Sydney Montgomery, the creator I mentioned earlier, is a great example of someone offering a full suite of products from coaching and consulting to courses and creating her own community. And while we introduced communities a couple of years ago, we are seeing accelerating adoption of communities by our creators. With Thinkific, you can create your own private branded communities for your students or customers. Communities increase the value a creator brings to their audience. They facilitate engagement between community members, and often become a key part of the reason to stay and can generate additional revenue for the creator. With this type of success, we are continuing to invest in our community's offering. In fact, this quarter we launched Spaces in Thinkific Communities. Spaces are sub-segments of a community where members can gather around a topic or area of interest or a group. This new feature allows creators to run cohort-based classes and segment communities for things like instructor updates, collect feedback, host discussions on a topic, or even run office hours. Additional Thinkific community enhancements in the third quarter include engagement tools like improved commenting and reactions. We are accelerating our R&D efforts and launched a number of other improvements this quarter, including a Thinkific Plus portal, enabling Plus customers to manage multiple sites on one unified dashboard. A new site page interface, making it easier than ever for creators to add, remove and edit pages and sections in their Thinkific websites. And social sharing for students to create viral loops and help creators grow their audience. This allows students to share their course progress and completion on social channels, which in turn helps promote the course and the creator. Our partner ecosystem is a core part of our strategy and we continue to strengthen it with the launch of the first of its kind store on Fiverr Marketplace. a place where our creators can be matched with digital freelancers skilled in design, branding, email marketing, and other key disciplines integral to building and scaling successful businesses. The Thinkific store on Fiverr is not the only place creators can go to find professional help in selling their expertise online. We also have our own experts marketplace where expert level partners help with a wide variety of tasks from marketing strategy to custom web development. Our growing partner network combined with our open and connected platform continues to add value to our customers and differentiate us in our industry. Thinkific is both easy to get started with and also powerful enough for creators to achieve their full potential by customizing and extending our open platform to meet their vision. None of this incredible work could have been done without the amazing team that we have built. We continue to invest in our talent across the board, enhancing our performance and sustaining our competitive advantage. While every individual hire at Thinkific is important to us, I did want to highlight two senior executive hires that we're really excited about. Hank Kampler joined us as our chief marketing officer a few weeks ago, and we were looking forward to all that he brings to the table. With a deep history in branding, communication, sustainability, and marketing, we believe that he will be able to take us to the next level of market awareness. At the same time, Chris McGuire moved into the role of chief technology officer. Chris moved from his VP of engineering role with us taking over the role from Matt Payne, who is staying with Thinkific, but has moved to a new role of SVP of Innovation. And at a time when it seems, at least in North America, many companies are dealing with the Great Resignation, we have extremely high retention, and we work hard on this. It's not only the result of our rigorous hiring process, exceptional onboarding, but also the culture we have built within the company and our strong belief in our mission. To speak about our current results, I'm going to turn the call over to Corinne.
spk06: Thanks, Greg. Turning to our financial performance for the quarter. In the third quarter of 2021, we continue to execute against our strategy and deliver on our business plan, which is shown through our strong growth in paying customers and expansion of our average revenue per user per month, ARPU. We see our creators continuing to experience success in our platform as they adopt and upgrade to higher tier plans. The combined growth in paying customers and ARPU raised annual recurring revenue to $41 million at the end of Q3. Let's discuss each of these key measures in a bit more detail, starting with paying customers. We ended the third quarter with 30,700 paying customers, representing an increase of 43% year-over-year. We are seeing a greater proportion of our existing paying customers upgrading their plans, including those joining our highest-tier offering, Thinkific Plus. This is reflected in our ARCU expansion. In July, we all saw economies reopen and lockdowns lift. creators and their customers alike spent time outside and away from digital technology. Because of this, we saw growth in paying customers taper a little in early summer, which reversed in late August and September, as people returned to more stabilized activity levels. As consumer behavior continues to find its new level of normal, we expect to see our growth rates come more in line with our growth rates in 2019. As Greg said earlier, we continue to see ongoing improvement in customer retention and and 2020 and 2021 are no exception. Entrepreneurs and established businesses continue to come to Thinkific from a broad range of backgrounds, industries, and geographies. Thinkific is making it easier for more creators and partners worldwide to build direct and authentic business relationships in creative ways that work for them. Our average revenue per user increased 7% year-over-year to $110 per month ahead of planned. This growth was primarily driven by subscription plan upgrades from existing paying customers. We are proud to see our creators continue to experience success and see benefits of our higher tier subscription plans, such as Thinkific Plus. Plus is our highest tier plan and gives creators our complete product offering, a dedicated customer success manager, and access to the new Plus portal for managing multiple environments. making it the platform of choice for larger businesses and for existing customers scaling to new levels of success. GMB in the quarter expanded by 26% year over year to $100.5 million and was consistent with the dollar volume from the second quarter of 2021. As mentioned, the reopening trends in the summer pulled some of those out of activity offline, and we saw a strong rebound in student and creator activity in late August and throughout September. Please note that there is also some inherent seasonality in GMV, as we discussed last quarter, with many of our creators opting to run their largest programs in the fall and winter months. We continue to view GMV as a key indicator of our creators' success, while recognizing that it does not capture the whole breadth of creator success. Our creators succeed not only through monetizing their courses, but also offerings that add value and grow their business in ways other than direct monetization. such as audience building, brand promotion, and delivering products that add value alongside existing products and services. Turning to our P&L. In the third quarter, our revenue grew to $9.9 million, a year-over-year increase of 65%. Our revenue growth exceeded expectations and continues to trend ahead of plan, largely driven by a stronger mix of higher-tier customers. We continue to be excited about the biggest problems we can solve for creators and how we can positively impact our long-term growth rates. Growth margin for the third quarter of this year was in line with prior quarters at 76% compared to 79% in the same quarter last year. We are exceptionally proud of the work of our customer support teams and see them as a key pillar in the long-term success of both our customers and Thinkific as a whole. Investments we make in this area are strategic in nature. We will continue to scale and evolve our teams to meet the needs of our growing customer base and our expanding product offering. While supporting investments will trend slightly ahead of revenue, other costs such as hosting fees and payment processing fees were managed closely to be in line with, or slightly below, our increase in revenue. Cogifit continues to make significant investments in scaling our business and creating success for our creators. Operating expenses expanded to $15.2 million and represented 154% of revenue compared to $5.1 million, or 85% of revenue, in the same period last year. The biggest change in absolute dollars was in research and development, with an increase of $3.8 million year over year, primarily due to an increase in personnel costs as we grow and scale the team. Our R&D teams continue to drive exciting advancements across our platform, along with developing new product features, including the further development of Thinkific Payments and Thinkific Communities. Sales and marketing increased $3.5 million year over year, primarily due to continued focus on our growth-orientated investments, specifically paid advertising, promotional costs, and commissions to our affiliates. We also saw an increase in compensation costs as we grew our team size to support our long-term sales and marketing efforts to expand our customer base. General and administrative expenses grew by $2.9 million compared to the same period last year, This increased investment is tied to the expansion of our team size across all G&A functions to support our long-term growth, along with expenses related to public company costs, which we did not incur in the prior year. This resulted in our adjusted EBITDA loss for the quarter of $6.3 million, compared with a loss of $0.02 million a year ago. This was $1.7 million better than expected. which was driven by lower spend across operating expenditures while exceeding our revenue expectations. We incurred lower marketing expenses, were more efficient with R&D consulting projects, as well as some delayed hiring and favorable foreign exchange impacts on our predominantly Canadian payroll spend. We are confident that by investing in top-line growth to capture the market opportunity, we have the right strategy to create long-term stakeholder value. You'll find a summarized table of the calculations for adjusted EBITDA in our press release, MD&A, and in the investor presentation on our website. Thinkific's business performance accelerated materially over the last two years, partly due to the industry's rapid evolution and driven by changes in demographics, working ideologies, and technology. These changes are propelling the shift towards digital consumption and the creation of online content. Our long-term total addressable market, combined with the GIFX highly differentiated platform, as well as our continued evolution of products, features, and functionalities to support our customers, position us very well to have significant growth in the mid to long term. For the fourth quarter of 2021, we expect revenues in the range of $10.5 to $10.7 million, representing year-over-year growth of 45% to 48%. This will bring the full-year revenue to approximately $37.9 million, representing growth of approximately 80%. Adjusted EBITDA loss in the range of $7.8 to $8.4 million, bringing the adjusted EBITDA loss for 2021 to approximately $18.8 million. We believe we are just getting started and will continue to invest in our product, our people, and our platform with the long-term in mind. As consumer behavior stabilizes, We expect our long-term growth levels to be in line with 2019. And to wrap up the call, I will turn it back over to Greg.
spk04: Thank you, Corrine.
spk03: Before we open up the call for questions, I want to close on a few key points. Our growth plans remain on track and on strategy, presented at the time of our IPO in April of 2021, a focused, differentiated strategy to deliver growth. We are on track to deliver as expected this quarter and expect to deliver on plan for the year. We are building our business for the long term, investing in our differentiated market leadership position. Our strategic focus continues to be growing our customer base, continued innovation to enhance success for our creators, and continued expansion of our partner ecosystem. We are committed to continually meeting the growing demand for feature innovation and offering our creators easy to use, highly available, scalable, and efficient technology. We will continue to invest in our brand to capitalize on the large and growing market, making data-driven decisions that are going to be key to our long-term success. This investment is key to our strategy and consistent with what is required to build brand awareness and customer engagement. Our strong quarter, we believe, underscores the strength of our strategy and the strength of Thinkific's business model. I'll now turn the call back to Sylvie, our operator for questions.
spk02: Thank you, sir. Ladies and gentlemen, if you do have a question, please press star followed by 1 on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw your question, simply press star followed by 2. And if you're using a speakerphone, we do ask that you please lift your handset before pressing any keys. Please go ahead and press star 1 now if you do have any questions. And your first question will be from Richard C. at National Bank Financial.
spk01: Yes, thank you. So congratulations on the launch of the payments broadly here. I'm kind of curious, you know, you had trials going on through the summer. I'm wondering if we could maybe share some trends or learnings that you saw from those trials.
spk06: Yes, as you mentioned, we released privately in July and had great success in terms of being able to continue to open it up to additional groups of new customers. We found that we were able to have quite good success in terms of the new customers and are happy to now have all existing customers with access to the product. But a little bit too early to tell in terms of sharing information as to how we're doing from adoption. The key metric for us that we're using to measure success is our adoption of GMV. And so that's a big part of what we're looking at as we go forward. And as we think about, you know, I know we've spoken oftentimes around, you know, achieving something similar to what other companies in similar markets to us have had, which is that 20% to 30% long-term success. we are looking at something similar to that for us as we go forward. Today, we're not certain of what growth would look like, but based on current results, targeting low team penetration in our early quarters. And so I think we're quite excited to come to date and look forward to seeing what's possible for our creators as we go forward.
spk01: Okay, great. And then you sort of talked about once we're sure, hopefully through this pandemic, that you're going to return to 2019 growth rates. Just sort of wondering, are you being fairly conservative there? Because, you know, some of this remote learning seems like it's going to stick here. What are you basing that on right now?
spk03: Yeah, so we're confident in the future in terms of returning to those growth rates, and certainly we're looking for opportunities to continue to expand even beyond that. Um, yeah, looking ahead to next year, we've seen strong while looking, looking at this past year, we've seen strong growth in average revenue per user. We expect that to accelerate and expand even faster next year. Plus we have that addition of payments. Um, so we'll be continuing to expand ARPU. Um, also a lot of strong indicators in our confidence of both the improve the transparency of our data. with plenty of new levers to drive our growth next year and beyond and then strong signs of continued acceleration of paying customer growth as well as retention so all of those leading to us having a lot of confidence in terms of building up to back up to those pre-pandemic growth rates and then of course we'll be leaning into all of the levers we have to continue to accelerate okay great and just one last quick one for me in terms of the sort of the next 12 months uh
spk01: with respect to investment, R&D, G&A, etc. Can you be a bit more specific in terms of what the current priorities are in terms of that investment?
spk03: Yes, happy to elaborate a little bit on that. On the R&D front and product front, we continue to invest in, and we've talked a little bit about communities, about payments, and about our partner ecosystem and App Store. So those are three key areas that we've had launches for. So community has been around for a couple of years. We're investing more heavily in that now, as we've seen that the use of it accelerate over the last couple of years. So continued investment in that area, as well as in making the entire platform more open and connected. And that's really the platform piece that the app store is sort of the front forward facing public facing component of that. But there's a lot more investment in that area to continue to make the platform more connectable, more accessible, customizable and more connected through our partner ecosystem. And then, of course, on payments, we call it payments, but really the primary focus there is on delivering success for our customers. And so there's going to be continued investment in that area of driving success for our customers. And then, of course, there's some other things we're working on that, again, all focus around solving the biggest problems for our customers and driving success for them, where we'll lean into next year with the growing R&D team we have. Okay, great. One other thing I would just share on the R&D front is because we're a product-led company, it's a big component of what will drive our future key metrics. So everything from finding and attracting and having people see us and then choose us to converting through to pay, to retaining, to referring others to us, and then their own success on the platform. These are all things that we push forward on every year as we push more into our R&D.
spk01: That's great. Thank you.
spk03: Thanks.
spk11: Great. Thanks, Richard.
spk02: Sylvie, next caller, please. Next question will be from Todd Coupland at CIBC. Please go ahead.
spk10: Hi, Jack. Good evening, everyone. I was wondering if you could expand on the rhythm in the quarter. You talked about how There was a pause in July, and you did discuss that last quarter, and then it sounds like it picked up in August and September. Could you just give us a little bit more color on how that played out and the magnitude of the improvement as you went through the quarter?
spk04: Yeah, happy to.
spk03: Fundamentally, if we look at the cohorts of our customers that came in over the pandemic period, they look the same as our customers in the past and those coming in after. I don't know if we can yet say after. Some of the nice things that we're seeing is we talked a little bit about transparency of data back in July, August, and what we're seeing is returning to transparent data when we look across country performance, we've been seeing more consistent growth across all of our top countries where we would expect to be in line with our expectations. We have seen that the cohorts over 2020 and 21 have continued the trend of improving retention on the platform year in, year out from the time we started. So no change there where they just each year with the release of new product and new features and new services to support our customers, that that trend continues to improve year in and year out. So all of that has continued to accelerate. And then again, our customer growth or new customers has continued to, or started to accelerate in August and September. And so we expect that to continue to be strong going forward. So again, A couple of other things I could share that might help with sort of some of that transparency of data and what we're seeing now is this Q3 was our strongest second only to Q2 2020, strongest for new free customers, which is a great indication for our conversion through in the long term to new paying customer ads. So with lots of new free customers coming on now, they do convert over days, weeks, months, and even years. That's a nice bank of free accounts that will then continue to convert for us and also a sign that our sales and marketing spend is working there. Also, a little more of a vanity metric, but it's the strongest quarter to date with new visitors to our site, which indicates some of the strength of our brand spend and more people coming in and visiting. And of course, we're continuing to iterate on everything that we're doing there. And as well, our back-to-school campaign, which is something we've run in prior years, was the best yet, beating our 2020 campaign in the same vein as well. So all of those signs pointing to things continuing to strengthen for us.
spk10: And Greg, when you think about that sort of best quarter for new or sort of for free customers since Q2 2020, Do you relate that to the benefits from early branding and investments from the IPO proceeds, or is it the market? Can you just talk about attributes for where that's coming from?
spk03: Yeah, we've been investing in sales and marketing, in our brand spend, in our campaigns that we're running, and also in our team. And I think the team investments, both on R&D and sales and marketing, do take time to see returns. And I think we're starting to see early returns there of some of that team. Now, we then want to continue to convert that through into paid and revenue. But it's really more us leaning into our growth rather than any specific changes in the market. Okay.
spk10: My second question had to do with the fourth quarter guide. You turned payments on to all customers. I don't know. It seems like it's a few months early, two or three months, I guess, or something along those lines. You can correct me if my impression is wrong on that. What kind of payments expectations is built into the fourth quarter? And if there aren't any how would that cause Q4 to flex if you start to get new customers come on and I think payments is default for them when they come on now that it's available to everyone. Just talk about those dynamics. Thanks a lot.
spk06: I'll jump in and talk to the Q4 guidance and specifically payments. So quite excited that we've launched payments and are expecting to have it contribute, but just marginally in Q4. We're really excited I'm expecting much more material impact as we get into 2022. And what we have included from a payment perspective in the Q4 guide is about one to one and a half percent of our total revenue coming in from payments. And so it remains small, but as you know, we've only launched today. And so, you know, only November 8th, lots of time still for us to, you know, have customers move over. And as we talked about in the past, it's, you know, You know, easy for us to have new customers use as a default option, but it's actually the adoption of existing customers who need to take action to order to move over to payments. And so while our marketing team is doing a great job of, you know, helping them with that and making sure that the benefits are well known, it will just take time. And so we've got, you know, a marginal amount for the Q4 number.
spk10: Great. Thanks for the color. Appreciate it.
spk11: Great. Thanks, Todd. Sylvia, next caller, please.
spk02: Certainly. Next question is from Thanos Marshall-Poulos. from BMO. Please go ahead.
spk09: Hi, good afternoon. Maybe just expanding on the last point, are you investing a lot of effort currently in terms of migrating existing customers over to payments, or in the near term, is that less of a focus relative to ensuring a successful ramp-up of the new customers adopting it?
spk06: Thanos, I missed the last part of that question. Can you just repeat it again?
spk09: Yeah, sorry, just whether the marketing team is putting a lot of focus right now on converting existing customers over to payments or whether that's taking a bit of a backseat versus just ensuring you get a good attach rate on the new customers walking in.
spk06: Definitely doing both things. I think the payments team has a product marketing group specifically allocated with them, and so there is not really a give or take between the two. which we're fortunate to be able to have. And so while we've got a great plan going forward for helping current customers adopt Think Effect payments, there's a separate team that's also doing the overall converting free customers, continuing to market ourselves to the broader audience.
spk09: Okay. You mentioned that hiring was maybe a bit slower than you expected. Is that a function of – maybe just the realities of the current labor market, or is that just maybe a conservative decision from your perspective?
spk05: Yeah, Miranda here, happy to take that. Yeah, so certainly I would say that every tech company out there right now is vying for talent in a now much more global talent environment. So I think similarly to what I said last time, our culture is really strong, and that is an incredible draw for us to acquire talent in the marketplace. And, you know, leaning into that, we see us leaning into our lowest year to date yet for attrition. We see employee attrition go down every year. But, you know, despite all that, you know, continuing to hire, but also being really intentional and picky about who we invite to join our team as we grow. So continuing to Continuing to grow, I will always on this call ask for your great leads and referrals for great talent because we are growing our team. But we'll continue to do that with care and attention in mind.
spk09: Okay, great. And last one for me is if I look at GMV per average customer, it seems to have trended a bit down versus the June quarter. Does that just reflect the fact that the signups of new customers is kind of accelerated? So is that including the metric or is there something else as far as why it's sequentially?
spk04: Yeah, great question.
spk03: I'd say that that's part of the bigger package there. So there isn't, you know, we don't see a concerning sign in that in the data that we've looked at. And I'd say it's part of the bigger package of GMV that the real value to our customers, unlike, say, a conventional retail e-commerce platform, which could be encapsulated in one GMV number. We have a lot of sales and revenue going to our customers through our platform that isn't recorded and captured in GMV. The amounts we capture in there right now are PayPal and Stripe. And so we see some seasonality fluctuations in that. We see, which is sometimes just people running campaigns at different times, you know, winter, Q4, Q4 and Q1 tend to be times of big promotions that drive that. So there is some element of that. There's also this factor that we don't capture all the value going to the customers, even in the sales that they're making. Plus, we do see a continued increase in success of our customers in terms of other value that they're getting, like enrollments into their programs that isn't always captured in even a dollar value or sale. So, for example, you could have someone selling a guitar that also has a free course where they're getting value, bringing people into and using them on Thinkific, but not generating a dollar specifically to our system, but it is tied closely to their revenue. And so we continue to see that strong growth of success in our customers. I think that's also a long tail or lagging indicator reflected in the strengthening retention of our customers on the platform as well. Whereas if we saw our customers declining in their success and the value we're getting, you'd expect to see a decline in the retention, but we continue to see that ramp in our retention. Plus, I'd just highlight that the additional figures not captured in the GMV still represent opportunity for us to both capture it back into reported GMV in the long run, but also to bring that into payments and the potential for payments revenue. And that is a significant portion there as well that isn't recorded in the GMV.
spk09: Okay, that makes sense. Thanks a lot, Lauren.
spk11: Great. Thanks, Vance. Next caller, please.
spk02: Will be Gavin Fairweather at Cormark. Please go ahead.
spk08: Oh, hey there. Good afternoon. Can you hear me? Good afternoon. Yes. Hello.
spk04: Hi, Gavin.
spk08: Thank you. Hi. I wanted to dig in on ARPU to start. I mean, it sounds like the expansion was really driven by PLUS. Is there some specific functionality or services that are proving particularly popular with that plan, or is it also maybe attributable to some of your upsell efforts?
spk06: Hi, Gavin. We did launch the new Plus Portal this quarter, although I'm not sure that was as much a driver of this, although probably played a role, but just seeing our customers overall continuing to expand across all of our plans. And that really is the beauty of our product-led growth in that the product does actually give them additional features as they require them, and they can move up a pricing tier in a very natural way. And so I think that's the biggest thing that led to all of this. Maybe worth noting that while we saw great growth this quarter from existing customers upgrading, I think there's even more opportunity for us to lean into that in the future. And so we are quite excited about what's going to come from future expansion. And I would say that our growth could even continue to double in ARPU as we look at customers finding additional features that they want to unlock in the plan.
spk08: That's great. And then maybe just on the order bumps. functionality that you were speaking to. Just to clarify, that's only available on Thinkific Payments, is that correct? Yes, that's correct. Or with Thinkific Payments? Right. So if we think about kind of conversions of the base, like clearly we're starting to see that maybe functionality is a pretty big lever that you can pull. Am I thinking about that right?
spk06: Yes, actually, sorry, just to add one more thing to the order bumps timing. We do plan to make it available to all customers in the future, but today it's available to customers who are signing up with Thinkific payments. So, just wanted to clarify that. It will be available to all in the future. As I was looking at that point, I missed your second question. Would you mind repeating it?
spk08: Yeah, I mean, it's just kind of going a little bit deeper on kind of the conversion of the base conversation around payments. And by the view, you know, functionality is a lever towards kind of driving that. I mean, I guess you're giving your clarification, perhaps, you know, functionality won't be differentiated between customers that are using payments versus not.
spk06: I do believe that payments plays an important role in the stickiness of our product. And I think the more we're able to be that operating system for our course creators, the more they're using the platform on a regular basis, continuing to add value for their customers to the platform, and really becomes the operating system of choice for them. And so I think that's a big part of the benefit of having the payments solution embedded in the platform. Now they have all their information in one place, which makes it so much more simple to manage their business, and they can spend more time doing what they enjoy doing, which is selling more. And so I think that this is just one step of many that we hope to be able to provide for our course creators in the future to help them just continue to find value in the platform and have it be the operating system of choice for their courses and their learning products more broadly.
spk08: Okay, great. That's it for me. Thanks so much.
spk02: Great. Thanks, Gavin. Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star followed by one on your touchtone phone. And your next question will be from Robert Young at Canaccord. Please go ahead.
spk07: Hi. First question I'd like to ask is just if you could explain something that looked a little bit odd to me. When you said earlier in the call that you see a higher proportion of customers upgrading, which is driving ARPU ahead of plan, if I heard that correctly. And I think you said that retention is improving. but the number of paid customers quarter to quarter declined. And so I'm trying to understand that those two things together, as I understand like upgrades would likely drive more paid customers or is it within the paid customers already? When you talk about this upgrade, are you talking from unpaid to paid or is it within the paid? And maybe if you could talk about those two dynamics.
spk06: For sure. So maybe first of all, let me just make sure that there's multiple levers that help us grow our business. And ARPU was the one that we were able to lean on this last quarter. And really, that was expansion of existing customers, moving up our different tiers. But obviously, another option for us is as we continue to have customers attracted to the plan and continue to, you know, convert from free to paid and that's growing up for upgrades is another growth lever. And then the newest one is to give a payment and our adoption of customers onto our platform and then just being able to capture a portion of that GMV. But to address customer count, maybe just specifically this quarter, we are on track to add more customers in Q4 than we did in Q3. And since our last earnings call, as Greg mentioned, we have seen an acceleration, especially in late August and September. And Q4 is continuing to come in as expected, with November normally being our largest addition month of the year. So lots of great opportunities. We look to that going forward. But you're right, this quarter, we really did lean on that RPO and seeing existing customers expand within the product tier. So
spk07: Okay, and so with the upgrades you're talking about, is that already paid customers that are upgrading into a higher plan, or it's not unpaid customers or free customers? You're not talking about the trend of unpaid going to paid, right?
spk06: No, we're talking about the trend of paid customers expanding within the platform.
spk07: Okay, and then the acceleration, you said that Q4 is on plan. Are you seeing... If you go back to 2019, are you seeing a normal sort of a seasonal sort of path? Would it normally accelerate in August, September? Would you normally see it accelerate into October and presumably through the winter months when people are inside more often?
spk06: There is some natural seasonality. I do think that some of this was compounded just because we've all been, you know, through lockups because of the pandemic. And as we come out of the pandemic, I think, you know, this is new for all of us. And I think there's, you know, obviously a lot that we're learning. What we're excited about is that we're continuing to see things come back to those 2019 growth rates. But it won't be a linear growth path. You know, I think we're, you know, not quite sure what the pandemic has for us coming next. It feels like we're coming through the end of this, but, you know, still cautious on that perspective. I think what we're focused on today is seeing our customers continue to expand in a platform and new customers coming on in quite a healthy way, just as we would expect in Q4.
spk07: Okay, okay. And I mean, the same question, I guess it'll be the same answer on GMV. the seasonality in Q4, if you go back to 2019, would you expect that that would grow materially if you ignore the payments piece?
spk04: Yeah, so we do see that we're looking like we're going to continue to expand GMB.
spk03: But as I said, I think our GMB is one measure within a greater picture of the success that we deliver to our customers. And so overall, we're seeing that customer success continue to grow in terms of the results they're getting on the platform. The nice thing, too, about payments is that over the next, over the long term, over, you know, into 2022, payments should continue to bring and capture more of the success that is already happening into the payments volume, even outside of things that aren't necessarily captured currently in our GMV.
spk07: Okay. I'm just trying to reconcile the quarterly decline last quarter and the quarter before. And I think last quarter you said that it was related to programs that didn't replace. And then I think maybe this quarter there could be a seasonal component. But if we look into Q4, that's going to start to grow quarter over quarter, I would assume.
spk03: Yeah, that would be the expectation.
spk07: And then maybe the earlier question Todd was asking on payments, that 1% to 1.5%, I think you were going to roll it out by the end of 2021, and so is that 1 to 1.5% revenue impact? Is that in addition to what you would have previously thought for the Q4, or is that right in line with what you're planning?
spk06: We're actually quite excited that we're ahead of plan with payments, but that 1 to 1.5% is included in the guidance that we've provided.
spk07: Okay, okay. But if you're like last year when you're looking at the rollout of payments, I guess you wouldn't have expected to get that impact, the 1.5% impact until sometime in 2022, I assume.
spk06: Yeah, when we were originally putting together the plan for 2021, we didn't have an expectation of payments. And so this would be in addition to that. And so that gives us a bit of an upside on this quarter, which is quite exciting. Okay.
spk07: And then Maybe one last one, just on the competitive landscape, I mean, a lot of changes, and maybe if you could talk about if you've seen anything meaningful in your competitors or how they're addressing the market, just everyone coming out of the pandemic with the same questions, I imagine. Maybe if you have any thoughts on that, that would be helpful, and I'll pass the line.
spk04: Yeah, we haven't seen a significant impact.
spk03: I mean, it depends, I guess, on where you speak to competitors. I know there's different impacts on businesses like Coursera, Udemy, Masterclass. I really continue to see those in quite different markets with quite different drivers of their business than our own. And that big differentiator for us is that we put the control and the ownership in the hands of the course creators so that it is their brand, their website, their content, their data, and now with payments and communities, their payments and their communities. So there's a lot more control we put in their hands, which means we sit in a slightly different position if you're making comparisons to those kind of companies as well. But overall, we're, I guess, looking in the side view mirrors sometimes on the competitive front, but still seeing really strong indications in our own business and leaning into the things that the strategy that we've built that I think leaves us in a very differentiated position and expanding that differentiation as we go into next year. The big part of that, of course, is that heavier investment in R&D that we continue to make that we're starting to see. It takes a little bit of time as you add people into the R&D front to see that differentiation come through. And we're starting to see that acceleration of product launches and features and differentiation that we can deliver, which I think will accelerate as we go into next year as well. okay thanks thank you and at this time mr. Smith we have no further questions please proceed thank you very much and thank you everyone for attending the call really appreciate all of the insightful questions and for those of you listening and your support we're excited that we've had a good quarter and continue to see strong indications of I think that one thing we've tried very hard to do is to do what we said we were going to do. And we've continued to do that in terms of delivering on our expectations or ahead of our expectations for the quarter. We've launched payments, app store, and some bonuses like communities. We've had some of our, well, we've seen that our retention continues to improve both by the efforts we put in in terms of the success of teams we have internally, our customer success and support teams, as well as the R&D efforts are continuing to drive the strength in our customer cohorts as they grow with the last couple of years being the no exception to that. And we continue to believe in the strength of our long-term growth plans and strategy. So looking forward to hearing from you between now and the next call. And at the next call, thank you all for attending.
spk02: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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