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spk03: conference call. As a reminder, this conference call is being broadcast live on the internet and recorded. 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'd like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, followed by two. Thank you. I would now like to turn the conference call over to Ms. Janet Craig. Please go ahead.
spk04: Thank you, Pam, and good afternoon, everyone. Welcome to Thinkific's earning call for the fourth quarter of 2021. Joining me today are Greg Smith, co-founder and CEO, and Karine Wah, 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 obligation 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 our remarks available to download on the webcast interface or on our website. And finally, all dollar amounts discussed today are in U.S. dollars unless otherwise indicated. I'll now turn the call over to Greg Smith, CEO of Thinkific.
spk06: Thank you, Janet. Hello, and welcome to our fourth quarter and year-end 2021 conference call. Thank you for joining us. At Thinkific, we remain fanatical about our creators' businesses and continue to advance our products, platform, and features to support and expand their success. In the fourth quarter, we continued to do just that, and our results, as well as our confidence in the future, are a reflection of our commitment to our creators. Turning to just some of the highlights of our performance, total paying customers grew year-over-year by over 32%. to 32,300. That represents a 73% compound annual growth rate or CAGR over the past two years. Q4 2021 ARR or annual recurring revenue grew 43% year over year to 43.8 million compared to 30.7 million in Q4 2020, a CAGR of 89% from our 2019 results. ARPU grew by 9% to $114 in Q4 2021 compared with 105 in Q4 2020. This continued increase in ARPU, or average revenue per user per month, is driven by upgrades to higher paid plans from our existing creators, expansion of our Plus business, and the beginning of Thinkific Payments revenue. Combined, our growing customers and higher ARPU resulted in a significant year-over-year increase to annual revenue, which grew by over 81% to $31.8 million in 2021, with Q4 2021 revenue of $10.8 million, a 49% increase over $7.2 million in Q4 2020. As we continue to attract new creators to our platform and our existing creators continue to experience success and upgrade to higher tier plans. This represents a CAGR over the past two years of 97%. Payments tracked ahead of our expectations in the quarter with 6% of GMV for the quarter being processed through Thinkific payments. GMV for 2021 was $415 million, up 50% from 2020, as our customers continued to experience success selling learning products on Thinkific. Thinkific continues to execute against its business strategy, including product-led growth and innovation. This includes growth across all our KPIs, including ARR, ARPU, paying customers, and GMV. Launch of the Thinkific App Store, launch of Thinkific Payments, scaling Thinkific for growth, including... investments in R&D to continue to support the success of our creators and broaden the suite of services to support the knowledge economy, investments in sales and marketing to drive brand and broader awareness, strengthening our executive leadership team, and hiring more thinkers, particularly in R&D and sales and marketing, to support our growth. As you know, we love to share creator stories with you, and our creators span across industry, age group, and geography. Today, I wanted to touch on Kat Norton, who combined her incredible skills with Excel and TikTok. She took her ideas onto TikTok, then Instagram, where she now has over a million followers, and then to Thinkific. She's been featured in publications such as Forbes and Business Insider. With her fun and informative style, she's truly a great example of the power of entrepreneurship and the knowledge economy. While working her full-time job, she took her passion for Excel and created a side hustle with TikTok videos and quickly became Miss Excel. While her TikTok videos went viral, she also needed a revenue model. She found Thinkific and started with a single course. And within months, Kat's teaching business surpassed her day job. Now, Miss Excel offers courses, coaching, group sales, and a private community. Thinkific gave her a uniquely accessible solution to design courses her own way while building her customer journey around her strengths. Kat told us, Thinkific made it really easy for me to grow a seven-figure business in 12 months. And what I love most of all is the impact I'm able to have with my content. I'm excited to launch into some new areas shortly as I learn more about my audience. And that's what we do best, helping creators grow and build their own business under their brand with full control over their content, customers, and revenue. As you know, Thinkific Payments was available to all creators in the United States and Canada in early November. We're in the early phases of expanding Thinkific Payments support for creators doing business in the UK, Australia, and New Zealand. Thinkific Payments is expected to accelerate Thinkific's long-term growth by allowing us to share in the success of our creators, including increasing lifetime customer value significantly, while customer acquisition costs stay the same, all at no additional cost to our creators. Thinkific Payments was designed with the success of our creators in mind, giving them new revenue streams and helping them earn more from their existing learning products with our differentiated selling features. It is a powerful suite of tools built to help our creators sell more and spend less time on administration. In the private release last summer, we saw strong receptivity, and our expectation when we launched is that we would continue to see creators embrace it, and they did. 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. We are helping our creators who live to teach sell more naturally. This creator-centric payments processing was embraced by our customers, and we saw 6% of all of our GMV processed using Thinkific Payments in the fourth quarter. When Thinkific Payments was launched, it was offered as the first among options for payment processing. In the future, it will become the default payments processing system for new customers. In the midterm, we believe we can reach penetration rates consistent with what we have seen with other similar SaaS players, in the range of 20% to 30% or greater, with long-term potential being even more substantial. Turning to other updates on the product and feature front, in Q4, we continued to differentiate our feature set to strengthen our ecosystem. We extended the value of our open platform with new solutions for all customers. We've added solutions for learning experiences, selling, and business operations. Our app store includes apps from well-known brands such as Zoom, Google Analytics, MailChimp, and ActiveCampaign, and other lesser-known brands such as Drop-In Blog, which provides our creators with key functionality to help them market and sell their courses. The Thinkific App Store allows partners such as agencies and developers to create apps that extend our platform's capabilities, increasing the value and functionality for our creators and attracting new creators to Thinkific. A few weeks ago, we held our annual creator conference, Amplify, a free virtual event that brings together the top minds in the knowledge economy to educate and inspire digital creators across the globe. We saw strong attendance with over 25,000 digital creators registered from over 110 countries. The event provided the opportunity for attendees to learn from many of the industry's most celebrated knowledge economy experts, network with other global creators, gain practical tools and advice, and use tailored offers from Thinkific to launch or scale their digital learning business. We saw strong engagement with the Thinkific platform, with double the uptake of Amplify's core promotional offer in 2021 compared to 2020. With this strong engagement, we look to convert potential and current creators engaging with us into paying customers. which takes me to the topic of the evolving market and our marketing strategies. We're seeing more and more signs that our market is growing. Whether we're looking at the rise of entrepreneurship, the growing creator economy, or people's desire to engage and learn online, all signs suggest that we're witnessing the evolution of our market from niche to more mass market. The early adopters and creators that sparked the initial interest in growth in the market remain. But the increased interest we've seen in campaigns such as Black Friday and Amplify and the growth in traffic indicates that we're moving into the next phase of the market, beyond early adopters towards a more mainstream mass market. It's still early days as we build a clearer picture on the data coming in, but it's exciting because it means our market is moving from niche high-end creators to a much wider set of potential customers. As our market opportunity evolves, we must also change our sales and marketing strategies. We'd been very effective in our channel marketing strategy when the market was early adopters and people that were more solution aware. With the knowledge economy moving mainstream, we're now investing in and adopting a marketing strategy that will accelerate adoption, including an integrated marketing approach to create multiple customer touchpoints and content, branding, and messaging that speaks to the mainstream. This is the cornerstone of our new go-to-market strategy. This means we are now looking more at the total funnel from awareness to engagement to the customer journey and lifecycle marketing through to sales and conversion. We're working to update our go-to-market strategies here in the beginning of 2022 and are already starting to see signs of strength in our new approach, which we expect will become more apparent in the latter half of this year. What is really gratifying about the success of Amplify, the evolution of the market and marketing strategies, is that it reinforces four things. The strength of our platform and the engagement we have within the creator community, providing our creators with the tools to be in charge of their success and build their brand in their unique ways. Our conviction in the growth and adoption of knowledge commerce. The critical new hires we've made in our executive team were the right ones to continue to propel our business and our long-term growth trajectory. With our product-led strategy, our differentiated platform, and our ability to engage and convert creators, I am confident in our ability to capture the market opportunity ahead of us. Before I hand the call over to Corinne, I wanted to touch on one other announcement we had today, a new appointment to our board of directors. We're excited for Steve Krenzer to join our board. He brings substantial expertise that is relevant to scaling high-growth organizations, and he has deep experience in finance, operations, sales, and marketing. To speak about our current results, I'm going to turn the call over to Karine.
spk05: Thanks, Greg. It was a strong quarter, which caps off a year of rapid growth for Thinkific, and we are pleased with the progress across the key drivers of the business. We continue to grow our customer base, expand our ARPU, and the initial adoption of Thinkific Payments has been strong. The success of our creators underpin this growth. Total paying customers was up 32% year-over-year, and ARPU increased 9% over the year, reaching $114 per month. We delivered our GameStar plan in 2021 and had top-line growth for the fourth quarter of 49% to $10.8 million, with full-year revenue growth of 81% to $38.1 million. We saw growth in paying customers and expansion of ARPU, and together these increased our annual recurring revenue by 43% to $43.8 million. And gross merchandise value, or GMV, reached $415 million in 2021, an increase of 50% year over year. Let's discuss each of these key measures in a bit more detail, starting with paying customers. We ended 2021 with 32,300 paying customers, an increase of 32% compared to where we ended 2020, when we had phenomenal 126% annual growth in paying customers. Together, from 2019 to 2021, we experienced a compound annual growth rate of 73% per year in total paying customers. This is a reflection of the large and growing market we see in front of us and our strong growth in the market as we continue to attract new creators. While we're happy with the growth here in 2021, one of the things we recognize as our fourth quarter results solidified was the room for improvement on how we are converting our free-to-pay customers, as we didn't see our record-high free customer accounts in Q3 materialize into record-high paid accounts. which really reinforced the evolution of our go-to-market approach, which Greg spoke to. Annual revenue per user per month increased 9% year over year to $114 per month. And that level of growth has been reasonably consistent over the past two years. We're consistently seeing increases in ARPU from creators upgrading to higher paid plans as they experience success in the platform, which is a key factor for our growth strategy. We're also seeing larger deals from Thinkific Plus customers, is our highest-tier plan, ideal for scaling and larger businesses with a dedicated customer success manager. We continue to see PLUS becoming the platform of choice for larger businesses looking to add education to their business offering and for existing customers who are scaling to new levels of success. In the fourth quarter, we also saw early contributions to our Proximity Gifted Payments, which launched fully to customers in the U.S. and Canada on November 8th. Fourth quarter GMV expanded by 22% year-over-year to $105 million, an increase that reflects our higher total number of paying customers and a greater number of creators monetizing their knowledge products on the platform. We believe that GMV is a key indicator that helps us gauge the success of our creators, our funding on the platform. Year-over-year, this number increased by 50%, with creators earning $415 million on the GIFT in 2021. As Greg mentioned, Digific Payments is our own payment processing solution, and we have seen strong adoption amongst our North American creators. Adoption is tracked ahead of expectations, with 6% of fourth quarter GMV being processed using Digific Payments, a rate that we expect will reach 10% in the first quarter of 2022. The launch of Digific Payments was an important milestone for our business. It aligns us with our creators' success, and we've reduced the administrative burden of managing their businesses by helping them sell more through additional features. At the same time, we received a new revenue stream from processing these transactions that we didn't have before. We remain excited about the growth of payments in the mid to long term. Moving now to our P&L, as I mentioned earlier, fourth quarter revenue was up 49% at $10.8 million, which is just ahead of where we saw the quarter coming in. We have again seen new paying customers looking to build their businesses within Kithik, and existing customers realizing the value of our higher tier subscription plans, which drove revenue ahead of plan. We also experienced stronger penetration of payments, a good indicator that our creators are seeing value in this offering. Our investments in R&D and sales and marketing were key to us delivering on our top line. However, we recognize the need to calibrate our spend and drive higher ROI on our R&D and sales and marketing dollars moving forward. Gross margin for the fourth quarter was 74%, compared with 79% last year, as we spent the past year building capacity within our customer support teams. We're expanding the team to support new product launches, such as Thinkific Payments, and have enhanced our service offering to include live chat. We are exceptionally proud of our customer support teams, and we see them as a key pillar in the long-term success of Thinkific, both from the perspective of ensuring our paying customers and plus customers are successful, and as a key partner in helping freemium customers convert to paying customers. Thinkific continues to make significant investments in scaling our business as a key driver of our future growth outlook. In Q4 2021, we spent $18.4 million. Spending for the quarter did come in higher than we had originally forecast as we encountered a more competitive hiring landscape during the quarter. The largest drivers of our increased spending across the board relate to personnel cost. as we grew and scaled the Thinkific team across departments. We are a product-led growth company, and our increased spend in R&D, which was at 4.7 million compared to Q4 of 2020, is driving toward just that, delivering the product innovation that will help our creators succeed. On the sales and marketing front, expenses were up 4.3 million compared to the prior year, as we added new team members. We began to adapt our sales and marketing spend to reflect the changing market we are seeing with specific investments in our Black Friday campaign and gearing up for the Amplify Conference in January. And then lastly, GNA spending was up $3.3 million compared to Q4 last year, with increased expenses reflecting our growing team to support our expanding operations, along with the expenses related to public company costs, which we didn't incur in the prior year. Looking ahead, we expect spending to ramp in the beginning of 2020, two, albeit at a slower pace than it did in 2021. We added many new thinkers to the team in the second half of 21, and we're excited to see what our team will accomplish in 22. We will not hire at the same rate, and we will focus our efforts on driving efficiency across the company. Taken together, these investments resulted in an adjusted EBITDA loss for the quarter of $8.7 million compared to a break-even a year ago. This was 0.3 million higher than our expectations for the quarter, driven largely by the competitive hiring environment we encountered in the fourth quarter. You'll find a summary of the calculations for our adjusted EBITDA in our press release, MD&A, and the investor presentation on our website. When we reflect on our 2021 results, we're very happy with the results of the year, especially when we consider these numbers are building off of the exceptional growth we experienced in 2020. We've only just scratched the surface of our tab and are experiencing the shift from niche to mass market a bit earlier than maybe we expected. This, in turn, is prompting some of our adjustments to our go-to-market approach as we head into 2022. Even as we saw some near-term headwinds related to our free-to-pay conversion, as marketing delivers on its new plan, we are confident in our ability to deliver because of the success we had in 2021 and the plan and team we have for 2022. When we look across our key metrics and the tremendous growth we've seen since the end of 2019, we had compounding annual growth rates of 73% in total paying customers, 89% in ARR, 10% in ARPU, building up to an outstanding 97% CAGR for revenue. We've delivered on our product-led growth strategy, delivering two major product launches in 2021, with more to come in 2022. which is reflecting our growing ARPU and our ability to attract new creators to the platform. As we look towards 2022, we continue to see a large and growing market in front of us and are confident that by investing in our top-line growth, we will capture the market opportunity. Our future outlook is going to be driven by continuing to innovate our product to help our creators succeed, attracting new customers, and helping them through the customer journey by evolving our go-to-market strategy. And this is built off of the foundation of a successful business with the right mindset, a strong team, and a great culture where our teams can bring their best efforts. Thinkific is at the center of the knowledge economy, offering a comprehensive platform for creators to educate, create communities, and build their own personal brand. In 2021, Thinkific achieved growth in revenue, ARPU, and ARR, driven by the continued adoption of our platform and customers moving to higher tier plans. In 2022 and beyond, Thinkific believes its growth will also be fueled by the increased adoption of Thinkific payments, the launch of new products, brightening and deepening our ecosystem, our large and growing TAM, as well as increased effectiveness in our sales and marketing. This translates into expectations for Q1 2022 to be revenue in the range of $11.6 to $11.8 million, representing year-over-year growth of 40% to 42%. and adjusted EBITDA loss in the range of $10.2 to $10.8 million. Long-term growth will be based on the strength of our platform, the mass market adoption of knowledge economy, and our sales and marketing engine. A key part of our path forward includes a commitment to sustainability as well as social impact. In 2022, you should expect us to define our ESG metrics and in the midterm, a broad communication around our sustainability strategy. One area here we're particularly focused on and proud of is our commitment within the company to diversity and inclusion. And we are very deliberate about this. The entire team is gender balanced, with 50% that identify as male, 47% female, and 3% non-binary or prefer not to disclose. And to wrap up the call, I'll turn it back over to Greg.
spk06: Before we open up the call for questions, I wanted to close on a few key points. After exponential growth in 2020, we saw very strong growth in 2021 across our key performance indicators. We are deeply encouraged and continue to be excited about the market opportunities we have ahead of us. With the market moving to mass market, it opens up our TAM to be even greater than before. And to capture that TAM, we are remaining agile and adapting to how we go after this market. The engagement and success of our creator community has never been stronger. And we believe that with the introduction of more features like Thinkific Payments and beyond, this will only continue. I'll now turn the call back to Pam, our operator, for questions.
spk03: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star followed by two. And if you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Tanis Moskopoulos with BMO Capital Markets. Please go ahead.
spk08: Hi, good afternoon. Hey, Greg, I wanted to clarify something. So just trying to reconcile your commentary around how the market's going mainstream, but then we've also seen your growth accelerate and your discussion about the need to shift the strategy. So just help us understand, I guess, You know, you looked in your prepared remarks, just help us clarify what needs to be changed in the strategy. So is it that you're getting a good volume of people, you know, trying the product for free, but not adequate conversion because more education needs to happen or just clarify that dynamic for us? Thanks.
spk06: Thank you, Thanos. Yeah, happy to dive in there. So We did see that in say Q4 over Q3 that overall traffic has been stronger than in prior years. So traffic continues to be strong and growing. Although we think there's an even deeper opportunity in the market that we can capture through our sort of top of funnel approach. Paid conversion is actually up but in part driven by or paid customers as you saw was up Q4 over Q3. But we wanted to see a better conversion of some of those strong Q3 free accounts that came in in Q3. And in part, the new paying customers in Q4 came from the strength we expect there, which is from our Black Friday campaign, as opposed to converting through some of those customers from Q3. So what this represents for us is seeing a lot of signals that the overall market is growing, but we need to change our go-to-market approach to lean in and take advantage of it. So represents a few specific opportunities for us and excited to see Hank, our new CMO, leaning in to take advantage of these. One of them is an opportunity to actually decrease our cost of acquisition through different marketing channels and marketing approaches. In the past, we've had a very strong channel approach. Over the last couple of years, that was the right approach to take where we saw customers being very solution aware and knowing what they were looking for, being more in that early innovator, earlier adopter category. As we move more into the, say, early majority mass market, we see them being still very interested, but a little earlier, same kind of customer, same quality of customer. but a little earlier in the customer journey. So it takes a little bit more nurture to convert them through the funnel. And in addition to that, it just means there's a greater opportunity for us to reach them in our top of funnel. So what we should see is our spend come down, but overall acquisition come up and expecting for that to play out in the latter half of this year. Okay.
spk08: And I know you don't disclose churn, but can you comment qualitatively on how that's been trending in recent months? Has that been pretty consistent, or has there been any change in that dynamic?
spk06: Definitely. It continues to improve. So throughout the life of the company, churn retention continues to improve across the board.
spk08: Okay. And then a question for Karim in terms of as we look at OpEx and Churn, the EBITDA guidance for next quarter. I realize you're not providing full-year guidance, but help us understand, might the EBITDA loss in Q1 be sort of the high watermark for the year, or how do we think about how EBITDA evolves on a quarterly basis after Q1?
spk05: Yeah, Thanos, actually, we see it very much the way you just said it. We do see Q1 being a peak for our EBITDA loss. We spent much of 2021 investing in growing our team and delivering on our product roadmap. Moving into 2022, we've slowed our hiring and our focus on efficient execution of top line growth, which Greg just spoke about. And as you saw, our Q1 guidance has our adjusted EBITDA loss in the range of 10.2 to 10.8 million for Q1 and improving from there throughout the rest of 2022. Okay.
spk08: Maybe last one for me. On payments, has the penetration been driven, you know, I guess primarily from new customers, or has there been a good amount of conversion from existing base, or is it really based in that regard?
spk05: We did see quite exceptional adoption of our payments features from customers. We had 6% for all of Q4, which only launched in November 8th to all customers, and so quite successful from that perspective. We're expecting to see Q1 come in at 10%. And so quite happy with the growth we're seeing there from a long-term perspective, or mid-term, I guess I should say. We're still seeing that 20 to 30% that other SaaS companies have experienced. But if we look more specifically at Q1, we're looking at probably 3.5% to 4% of revenue coming from payments. I'm not sure if I grasped your question. No, sorry.
spk08: Yeah, I meant just in terms of where the payments customers are coming from. Are they... you know, almost entirely kind of new customers, or have you started converting existing customers over to payments?
spk05: Yes, we have started seeing existing customers move over, but we do see the majority of our growth coming from new customers. But we continue to do, you know, a number of different marketing campaigns with existing customers, but there is just a little bit more friction in that process as they do have to take action to go from Stripe or PayPal today over to Thinkific Payments. But we have seen a good uptake to date, and I expect it to continue throughout the rest of 2022.
spk04: All right, thanks for passing the line. Great, thanks, Thanos. Pam, next caller, please.
spk03: Your next question comes from Todd Copeland with CIBC. Please go ahead.
spk01: Good evening, everyone. I wanted to ask about returning to the 2019 growth rate that you talked about last quarter. With the adjustment in marketing focused on pre-funnel upgrades and I guess widening the funnel, Is that still an achievable target in 2022?
spk09: Thanks, Todd.
spk06: I appreciate that. Yeah, the long-term growth, so we still see it as a long-term coming in post-2022 where we return to that 60%, 65% growth rate that we saw in 2019. And so we should see the real strength come in in the latter half of this year.
spk09: Okay.
spk01: So do you expect that this new marketing approach can accelerate the business above that 2019 level, or does that just get you to that level? How are you thinking about that?
spk06: We're thinking... Early in the shift, I think what I'm seeing is that the market overall is very strong, so there's a lot of opportunity for us. We see it in our own data, in traffic we're seeing, in some of the campaigns and surveys we've run, and some of the data coming out of Stripe around the creator economy, even in the movement of, say, YouTube and Instagram, to take more advantage of this space with paid content on YouTube, paid content on Instagram, all good indications of the size of the overall market. So the hope, yes, is that with the new approach, we're able to tap into that larger and growing TAM, which could continue to increase that growth rate. I don't know that I could yet speculate that we push exactly beyond those rates, but the hope would be so. Okay.
spk01: And competitively, you know, with the market broadening out, are you seeing adjustments by competitors in the market as well? Have they observed this? And... Is this a response or do you feel you're leading with this adjustment?
spk06: I think we're leading with this adjustment on the competitive front. Some of the really interesting things is really on that, not so much direct competitors, but other players seeing the opportunity in the space like YouTube and Instagram. And that's a really interesting evolution for us. We saw it coming and it really highlights the strength of our differentiated approach where we offer quite a different offering than them, where it actually allows us to have our creators use those platforms and and the features that they're releasing in a way that's complimentary to what we offer, but haven't seen any direct competitors respond to what we're seeing yet.
spk01: Right. And on that, like the TikTok example was compelling, going to a million dollars plus or whatever in GMV in a year. Is that what you're talking about? Are you seeing more examples like that, whether it's coming off of YouTube or TikTok or other social platforms?
spk06: Yeah, more examples of people like that and the growth overall in those social platforms, TikTok for sure being one of those opportunities. The opportunity of those platforms being a place for our creators to start, grow an audience, but also add on as essentially a marketing or additional even revenue channel. On the YouTube and Instagram side, they both have now the options to have paid content, which is targeted a little bit more at the influencer and somewhat the entertainment audience, but still definitely touches our space and the education space, but that's where we see that differentiated approach where what we offer them is their custom brand site, the ability to control the content, the customer, the data, to have really customized learning experiences, and of course, all the integrations into their business tools being a strong play there.
spk01: Last question for me. GMV, while the growth was a little bit slower than I would have expected in the fourth quarter, it did improve sequentially where it had gone down in the third quarter sequentially. Can you just talk about the dynamics of GMV growth in Q4 and sort of how that tracked versus your expectations? Thanks a lot.
spk06: Thanks. Yeah, we were happy to see that up at the tail end of last year. Q4 at $105 million, up 4% from Q3. That was our second highest quarter for GMV growth. driven in part by the success of our creators during their own Black Friday promotions, but also some of the adoption of Thinkific payments and the selling features that we offer, we believe is helping our creators increase the average order value, which can help drive some growth in this as well. Our GMV can fluctuate with the creator's promotional schedules, but we do expect this to continue to grow from Q4 levels into Q1.
spk09: Great. Thanks a lot, Greg.
spk04: Great. Thanks, Todd.
spk03: Pam, next caller, please. Your next question comes from Richard Say with National Bank Financial. Please go ahead.
spk02: Yes, thanks. Just want to sort of clarify, you sound super optimistic about the pipeline and some of the metrics that you've been tracking. Has that all kind of happened even under sort of these reopenings? I guess the question I have is I'm trying to parse out that pipeline negative impact, I guess, of reopening and sort of the positive momentum you have in the business? Like, can you kind of give us a bit of color in terms of how that's working?
spk06: Yeah, so from a COVID or reopening perspective, what we've really seen over the last quarter or so is destiny is back in our own hands. We're not looking at it as being in any way driven by macro factors like reopenings. We do look at data still in terms of the impact of openings and closings in different countries and jurisdictions, but see it relatively stable country by country. Small impacts, but not significant to our business so far, or not significant to our business. We do see this, some of the positive factors we're seeing really is this increasing creator success, both in terms of that GMB, but other success metrics that we track for our creators. but also customers who joined during the pandemic continue to perform well, stay with the platform, retention continues to improve, and then seeing this overall growth in the market, which I think is really driven less by any COVID-related factors and much more just that ongoing tailwinds and growth in the market. And so it was becoming more and more apparent to us that that market is still continuing to be strong and a lot of factors driving its growth.
spk02: And are there any sort of like regional – markets or verticals that you'd see kind of outsized traction from a pipeline perspective relatively consistent across the different ones i don't think i haven't seen any there were a few spikes last year based on some regional differences but for the most part across different countries we've seen it be relatively stable okay and then i think that example you share i think it's miss excel sort of came through like a social media channel formerly Is that the most common when it comes to your bigger creators that are coming on board? Or are they coming from other platforms that are competitive to you?
spk06: It's one great place for people to start, grow an audience, or even if they're already with us, to add that as growth and marketing channels. We do see people do it in other ways. There's sort of a Venn diagram with decent overlap with the social channels, but there's also people who start from, say, coaching or authoring or other platforms certain knowledge commerce industries. And then even if you look at, say, Corporate Finance Institute, one of our large customers who's done quite well on the platform just started as a single individual off the side of their desk teaching corporate finance and has now grown into a large and successful company, but less so with a social starting point and much more with a conventional building courses and building an education business. So we do see a huge opportunity in the TikToks, Instagrams, Facebooks and YouTubes, but also significant area that doesn't overlap with that as well in the market.
spk02: Just one last quick one for me, and I may have missed this in your previous comments, but can you elaborate a little bit more on the headwinds with respect to free to paid conversions? What is holding these potential creators back here? What are the top one or two things that have them resisting here to converting?
spk06: Yeah, so in Q4, we did see good conversion free to pay during the quarter, in large part driven by our Black Friday campaign. But some of that Q3 leads didn't convert through as highly as we would have liked. And so that, in part driven by, I think, what we're seeing is increasing overall interest, same kind of customer and the same kind of customer DNA. But as the market is moving more into this early, early majority, we're seeing that they're a little earlier in the, in the customer funnel or sorry, in the customer journey and their, their life cycle. And so need a little bit more nurturing to move them through, to understand what we are and what the offering is and what the, what the solution is to some of their problems. So same kind of people just earlier in their journey requires a little bit more work to work them through the funnel, but also to understand, nurture them through, but gives us that opportunity to have a more cost-effective way of acquiring a larger number of customers. Got it. Thank you very much.
spk04: Great. Thanks, Richard. Pam, next caller, please.
spk03: Your next question comes from Robert Young with Canaccord. Please go ahead.
spk00: Hi. If I could just add on to that last question. When you're talking about the customer conversion here, understand the conversion to paid is maybe lower than you wanted to, but are you talking about traffic to the site is very high, but conversion to a freemium signup is lower than expected. And then again, conversion to paid is lower than expected. Like maybe we can just walk through that, those three things, like what is doing well and what's doing worse than you expected.
spk06: Okay. Yeah, definitely. So traffic continues to be, higher than all prior years. But we think there's greater opportunity in the traffic than even what we're getting as we shift to a more top of funnel awareness approach that we haven't leaned into as much when we had over the last couple of years, we had real strength in our channels and converting directly through to paid. So by moving up to increasing our top of funnel awareness approach, we think there's, even though there is strong traffic, there's ability to drive much more of it. Once you get past the traffic, then you go to that conversion of, say, visitors to free accounts. That in Q4 was lower than we expected. And part that speaks to some of the changes in the market and is in part what's prompting that shift in our go-to-market approach. Once they converted through to free, we actually saw a strong conversion to paid in the quarter, but not so much for the leads that came from or the free accounts that came from Q3. So it's a bit of a mix there where conversion in the quarter was strong, but some of those Q3 free accounts didn't convert through in Q4 as we expected. So the combination when we look at all that data really says there's huge opportunity in the market. We need to change our go-to-market approach to capture that top of funnel and continue to push on traffic and then work through the customer journey in a way that nurtures people more because as they come in, They're not quite as much as that point of we're ready to go. We know exactly what you are. Let's sign up for a paid account and launch tomorrow. They need a little bit more nurture and education to come through the funnel. So all of which is we're really excited to see Hank and the marketing team leaning into this and seeing some early indications of the strength in that approach.
spk00: Okay. Okay. That's great. And then. When you were talking about the retention improving across the board, were you talking retention in the paid customer base? Or again, would retention in the freemium also be strengthening or improving?
spk06: Yeah, I don't really look at the retention in the freemium because for us, it's more a source. We don't see a lot of... Once people come into freemium, it's really about how do we nurture them through to a paid account to take advantage of the features we have there. Once someone starts to see any meaningful level of success, they start to convert through into paid accounts. So when I look at retention, it's purely around paid revenue retention and logo retention on our paid plans.
spk00: Okay, great. And then maybe last question. Sounds like Q1 is expected to be the peak of EBITDA loss. But if the go-to-market changes you're making, if they don't pan out the way that you plan or they pan out the way that you're hoping, do you have the ability to adjust? If you're adding a lot of headcount, like if you could just remind us how much of the increase in this go-to-market strategy would be related to, you know, more variable marketing spend that you might be able to pare back if you need to, like if possible. If it doesn't work out the way you plan, and another way of asking, is there a likelihood that you could have quarters that have higher EBITDA loss, or can you adjust?
spk06: We definitely have that ability to adjust, and so our approach to this, we don't expect to see Q1 it'll peak, but under no circumstances do I expect it to continue going up from there. Okay, great.
spk09: Thanks.
spk04: Great. Thanks, Rob. And Pam, if you have the next caller, please.
spk03: Your next question comes from Martin Toner with ATB Capital Markets. Please go ahead.
spk10: Thanks very much. Good afternoon. You mentioned payments having the potential to bring some of the stranded GMV onto the books, if you will. Was there any evidence of that in the first quarter of offering payments?
spk06: Some but slight. So the revenue that customers are generating that is not captured in our GMV, which we believe to be significant, is still something we're working to get the specific data and be able to track more specifically. The only reason we don't share the numbers around it is we don't have perfect information there because it is processed by processors that are not directly on the Thinkific platform. So within the GMV, we have Stripe, Thinkific Payments, PayPal, and starting to capture some more data there. There is opportunity for us to bring that in. I think the feature set we're creating with Thinkific Payments, what we have already, we're already seeing has benefits to customers over any other solution because it's all in one, because it removes administrative headache and saves them time. And we're already hearing that strong feedback from customers. So over time, that should start to pull some of that GMV or some of those sales or processing that's not happening in our GMV in. but still too early to actually say I've seen that happen specifically. The other thing is it creates a stickier GMV and that once they've got that integrated into Thinkific, it's much less likely that they would use anything else at that point. So in the mid to long run, yes, I see this starting to transition some of that into our GMV, still too early to say we've specifically seen that happen though.
spk10: Great. Thanks, Greg. Is there a playbook to nurture creators that are not yet paying? And can you kind of give us a little color or a few examples of that playbook?
spk06: Yeah, I'm not as well-versed in that playbook, but some of the things is we do, I guess you could say, drink our own Kool-Aid in that there's a significant amount of education we can actually offer to bring them along. Some of it is changes even in how we speak and the language we use. around our brand and what we're offering in that when we first got started, it was very much create and sell online courses. And so, which is a very specific solution set, usually for people who are saying, I know exactly what I want right now. Whereas as we go forward with this, part of it is even just changing who we're speaking to, knowing that we're speaking to the same kind of people, but at a different stage in the journey. So part of it is the language we're using. Part of it is how we're speaking to them. Part of it is what we're offering them, so an education, but also even just nurturing content. So as opposed to where we've really leaned in on the channels, a lot of it has been about direct conversion from, you're interested, let's convert you to a paid plan. Now there can also be much more of a, you're not quite ready yet, let's continue to talk to you and share inspirational stories, tell you about people like Miss Excel, and get you ready to actually make this transition. plus there is opportunities even outside the well as some of these say social channel opportunities grow to show people who are thinking of other ways of say monetizing their audience or monetizing their content to show them what we have between communities paid communities courses and these other learning products give them that great opportunity to monetize and solve the problem they're looking to solve that's great thanks not sure if that directly answers what you're looking for but We should pull Hank, our CMO, and hear him speak about it. It's pretty inspiring.
spk10: Cool. Yeah, that's a good idea. And that's a good caller as well, just from you, Greg. Thanks very much. That's it for me.
spk04: Great. Thanks, Martin. Pam, next caller, please.
spk03: Ladies and gentlemen, as a reminder, if you do have any questions, please press star 1. Your next question comes from Gavin Fairweather with Cormark. Please go ahead.
spk07: Well, hey there, good afternoon. I thought I'd start out just on ARPU and dive a bit deeper on the trends that you're tracking in the customer base. Can you talk about the cadence of upgrades and which plans are proving popular in that base?
spk05: We did see strong growth in ARPU in the fourth quarter, up 9% to $114 per month. And that was driven primarily by customers continuing to upgrade in features throughout the upgrade in our plans to unlock new features. Consistently, our Grow, our Pro, and our ProPlus Grow plans are our most popular plans, and we continue to see that as we have in the past. But we do also see a lot of established businesses and more at-scale creators joining at Plus, which is our highest tier plan, and that's a big part of our future growth into 2022. We have just seen the beginning of payments, and we expect payments to also have a significant increase in ARPU as we look towards 2022, especially in Q1 when we have that full year. or for quarter of revenue from payments. But I know that's not quite your question. It's more around the pricing tiers and continue to see people, you know, landing at pro and adding on that pro plus grow as the main drivers of increasing our pay.
spk07: And then maybe just to talk about sales and marketing evolution a little bit. Can you talk about maybe the timeline or the gating items required to kind of realign and reposition towards the new model?
spk06: Yeah, happy to. So we are leaning in on that right now. Hank joined us just at the tail end of last year as CMO and saw some of the opportunities that we could lean into here. So that's already begun. And then that's where I'd say the changes are happening now. And sometimes that takes a little bit of time to see the direct results. So that's why I'd say speak to the latter half of the year to see those results come in.
spk07: Okay, and then I saw something just about... Are you guys thinking about setting up more of a, you know, call it a marketing arm or kind of a newsletter type distribution out to creators? Is that one of the ways that you're thinking about potentially lowering the CAC ratios and increasing efficiency on the sales side?
spk06: That does, yeah. So Cameron Eganix joined us, the senior marketing role that he's held prior. I've been at Hootsuite, Bench, later. He's leading a team with a mission to reach out and inspire current and future creators as part of the broader marketing strategy. He's also helping within our existing go-to-market around content and is part of this shift to an increased top-of-funnel awareness program. And so one of the key benefits you've highlighted exactly is the decreasing cost of acquisition through these strategies.
spk09: Okay, that's it for me. Thanks so much. Thank you.
spk03: There are no further questions at this time. I'd like to turn the conference back to Mr. Greg Smith for any closing remarks.
spk06: Thank you all. I appreciate your coming to hear from us and for the wonderful questions. We are really excited, as I've shared a few times today, around what we're seeing in the market overall and the continued growth in it. Excited about some of these improvements and evolutions in our go-to-market to take advantage of this growing market. And of course, we are always leaning into and driven entirely by the success of our customers. And that in turn drives the growth of our business. So looking forward to speaking with you all again in the future. And I'm sure you'll hear more from us soon. Thank you.
spk03: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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