Thinkific Labs Inc.

Good afternoon, my name is Constantine and I will be your conference operator for today. I would like to welcome everyone to Thinkific's third quarter fiscal 2024 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 at any time during the call you require operator assistance, please press star zero. I would now like to turn the conference call over to Joon-Hun Kim, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Thinkific's third quarter fiscal 2024 results earnings call. Joining me today are Greg Smith, CEO and co-founder of Thinkific, and Karine Hua, CFO. After the prepared remarks, we will open up the call to questions. During the call today, we will discuss our business outlook and 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. These comments are based on our predictions and expectations as of today. 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 different manner to similar key performance indicators used by other companies. I would also note we have a slide deck that will support our remarks available to download on the webcast interface on our website. And finally, all dollar amounts discussed today are in U.S. dollars unless otherwise indicated. I will now turn the call over to Greg Smith, CEO and co-founder of Thinkific.

Hello, and welcome to Thinkific's Q3 2024 earnings call. Thinkific's unwavering commitment to customer success continues to drive strong financial performance. Our customers are benefiting from the rapid pace of innovation over the past year, which has led to more customers finding success with Thinkific Commerce and an acceleration of growth in both Thinkific Plus and self-serve revenues. During the quarter, we observed a significant increase in the volume of customers finding success with our Thinkific Commerce solution. Penetration rose to 47%, up 700 basis points from the prior quarter's 40%, which accelerated self-serve to 10% growth in the quarter. Plus revenue growth accelerated to 32% on the back of our record new customer bookings in Q2. And in Q3, we signed our largest plus deal to date. Leap sign-ups grew to 37,000, up from 30,000 reported in Q2, demonstrating strong demand, and particularly with social first creators who are increasingly looking to monetize their subscriber bases. Additionally, we are well on our way to stabilizing our self-serve customer base and improving activation process. Last quarter, we promised a number of changes in Q3, and we have delivered on each. An acceleration in revenue growth rate, positive EBITDA, and here we've actually over-delivered with an acceleration, continued positive cash flow from operations, the first steps in improving customer additions, continued adoption of Thinkific Commerce. Additionally, we spoke to improving activation rates for new customers and the improvement we should see in total customer additions. I'm pleased to share that the work started in Q3 is already showing early indications of success. I remain confident it's a matter of when, not if, we'll see the acceleration of customer additions in ARR. I still expect this to be a multi-quarter timeline to see real results here. This quarter did see an improvement from Q2. Q3 saw the continuation of customers choosing and seeing success with Thinkific Commerce. The feedback has been overwhelmingly positive with many customers sharing how Thinkific Commerce has boosted both their sales volume and transaction sizes. I shared previously that customers leveraging Thinkific Commerce experience transaction sizes that are 22% higher compared to those not using Thinkific Commerce. With the continuous enhancements and new features we are adding to the platform, this has now increased to 31%. That means that for those who choose Thinkific Commerce, their transactions are on average 31% larger. This is great news for anyone choosing Thinkific Commerce and is a direct result of our commitment to helping our customers sell more. One such customer who made the switch to Thinkific Commerce this quarter was a firm that helps their students pass electric power engineering exams. They were committed to an IT strategy of using best-of-breed solutions, Thinkific for learning and a third-party vendor for payments. When they saw the ways Thinkific Commerce can better support their specific use cases, improve customer experiences, and increase their sales, they chose to transfer over a million in GMV to Thinkific Commerce. Thinkific Commerce truly is now the best-of-breed solution for our customers to help increase their sales. We continue to have high levels of engagement with our customers on the value Thinkific Commerce delivers and ended the quarter with 49% penetration. This gives us confidence we can carry the momentum through Q4, which is a critical time for many of our customers. Q3 was an exceptional quarter of growth for Thinkific Commerce. And while I expect the growth to continue, net increases going forward will likely be more in line with prior quarters with Q3 as a standout. Looking ahead, we will also continue adding features that enable our customers to sell more. Specifically in Q4, we plan to include custom invoices, abandoned cart retargeting, enhanced landing pages to help drive student engagement, and payment support for ACH, automated clearinghouse. The ACH payment option and invoice enhancement are particularly exciting as this will allow us to expand into the total customer sales space, which can both help our customers sell more as well as increase our gross payments volume. ACH and invoicing are also interesting for expanding commerce usage to our plus customers, who are larger and often process larger volumes of payments on methods other than credit cards. Given the robust growth we are seeing in Plus new customers, we believe this can be a material driver of GMV and Thinkific Commerce growth in the future. It will also improve the value we deliver to our Plus customers. Q3 was a remarkable quarter for Plus, with top-line growth accelerating to 32% on the back of the record new customer bookings in Q2. We also signed our largest deal to date with a large heavy equipment company, that has over 30 locations across North America. Our commerce features were of particular interest to this new customer. While PLUS has traditionally been popular with learning academies and training centers, we see a very large and untapped market opportunity with businesses that are looking to extend learning to their own customers and partners, often as a new revenue stream. This company has a revenue generating training division that teaches customers how to safely operate and maintain their full range of machinery. By doing this, their customers get the most out of their purchases, come back for future purchases, and become better brand advocates. They chose Thinkific because of our proven, scalable, and secure platform with out-of-the-box flexibility and customization capabilities. This contract is a landmark not only for its size, but because it was sourced and won with the help of an integration partner, a distribution channel which we plan on leaning into as we expand plus. Gorm also continues to be a driver of new customer acquisition, and despite having only been available for a relatively short time, has already brought in 27 new customers, acting as a critical growth factor in growing new ARR since its release. Last quarter, I told you we were going to increase headcount in our plus sales team. That process is now complete. While it does take some time to fully ramp new hires, this is an area of strength for us, and I'm pleased to share that all the new team members have already managed to close new deals. Congrats. The overall level of engagement remains high, and we had solid deal flow through the quarter. We have also built up and qualified larger opportunities we believe we can capitalize on in Q4, and I'm confident we can continue to grow plus at levels consistent with prior quarters. SelfServe had a solid quarter and was up a little over 10% year on year on the back of strong growth and think of it commerce revenue. As expected, we did a better job of managing the timing of promotions and other marketing efforts and the impact those have on paying customer count and ARR. We rolled out a suite of AI tools that address common challenges faced by our customers, such as driving impactful sales and marketing initiatives when they don't have previous experience in these specialist areas. The AI tools were part of the improvements to the Thinkific onboarding experience, making it easier than ever for customers of all types to sign up and start with Thinkific. It's still early, and I still expect this to be a multi-corridor initiative. However, the leading indicators are moving in the right direction, and we are helping a greater number of our customers successfully launch and sell their digital products and earn their first dollar sooner. One recent launch that has met with remarkable success is the enhanced digital downloads feature rolled out in Q2. We had a new customer monetize their 50,000-person newsletter list within 24 hours of signing up to Thinkific. Although it's only been a few months since our Chief Product and Technology Officer and Chief Revenue Officer, Ryan and Amanda, joined, they have already spent considerable time strategizing on the revitalization of self-serve, and I'm really excited about the fresh ideas and new perspectives they have brought to the table that we plan on implementing. Their intelligent insight and incredible enthusiasm is infectious, and we have a slate of improvements already in the pipe. I'm confident we've identified the problems that held back our growth last quarter and have found solutions to address these. With the improvements we have already made and will continue to make in Q4, I'm more confident than ever in our ability to drive our self-serve ARR growth trajectory and believe self-serve powered by commerce will become an important source of growth for Thinkific. Before I hand over the call to Corrine, I want to welcome Russ Mann, Lori L., and Paula Boggs to Thinkific's board. They bring valuable experience and perspectives that I believe will be crucial as we enter a new phase of growth and innovation. I also want to thank Steve Krenzer and Katie May for their tireless dedication over the years as they retire from the board. Their many contributions to Thinkific are much appreciated. With that, let me hand the call over to you, Corrine.