Thinkific Labs Inc.

Good afternoon. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to Thinkific's fourth quarter and full year fiscal 2024 financial results conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, March 5, 2025. I would now like to turn a conference call over to Mr. Ju Han Kim, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Thinkific's fourth quarter and full year fiscal 2024 results earnings call. Joining me today are Greg Smith, CEO and co-founder of Thinkific, and Corinne 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 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 will now turn the call over to Greg Smith. CEO and co-founder of Thinkific.

Thanks, Juhan. Welcome, everyone, to Thinkific's Q4 and full fiscal year 2024 earnings call. Thinkific's unwavering commitment to customer success continues to drive both innovation and solid financial performance. 2024 was pivotal for Thinkific as the company transitioned from cost-cutting to a strategy focused on profitable growth. We accelerated investment in the business, which enabled us to scale plus and expand the penetration of Thinkific Commerce into our customer base. We stabilized our top-line growth rate and generated strong cash flow from operations. The level of innovation at Thinkific is strong and includes significant investments in AI implementation to accelerate value to our customers and to their students. The exceptional value we provide to our customers was evidenced as we earned a place in G2's 2025 Best Software Awards. recognized among the world's top software companies for education and customer service software. Looking ahead to 2025, we acknowledge there is still significant work to be done, and we face some near-term headwinds. However, with a strengthened senior management team and a much improved strategy, I have strong confidence in our ability to execute our mission to help our customers grow their businesses, and as they succeed, we'll see Thinkific grow alongside them. Over the past quarters, we've been building our senior leadership team with the specific goal of delivering efficient growth. To that end, senior management has developed and is now executing a more focused strategy, one that really leans into our strengths and takes a more focused view of the customers that we can serve best. I believe we've identified an excellent opportunity to fundamentally change for the better, and we are in the midst of that change now. As we move to take advantage of this opportunity as quickly as possible, it will mean some near-term impact on results. In a moment, I'll give you a high-level view of the changes we're making, but let me start with some context on how we got here. In the back half of 2024, we completed a comprehensive study of our market. This involves surveying thousands of customers, potential customers, and included competitors' customers. We combined the results of this research with an analysis of our market, competitors, and our own business and data to develop our strategy for the years ahead. During this process, we identified some significant opportunities for us to differentiate in the market. and open a path to further growth by prioritizing a segment of customers that we are best situated to serve and they're best able to succeed on Thinkific. We also identified some mistakes we were making, specifically putting too much effort and energy into attracting segments of customers that were less likely to succeed on Thinkific. This mistake is reflected in our GMV and some of our growth measures, particularly in our self-serve business. However, the exceptional growth in Thinkific Commerce and Plus is an indicator of a bigger opportunity for us. specifically focusing on these higher GMV and more likely to succeed customers, will still be serving experts, entrepreneurs, academies, and small businesses, but with a real focus on those that have the characteristics we've identified as an ideal fit for Thinkific. Those that we can serve best and deliver great results to. This is a significantly sized segment of our TAM, representing those that are most likely to value Thinkific's specific strengths. They are also most likely to succeed, stay longer, and have higher ARPU. representing a total addressable market north of $25 billion. And within that, we've identified significantly underserved segments. As we look forward, we will dedicate our efforts to these customers. This narrowing of our customer focus allows us to really double down on our strengths and get much better return on our investments. It allows us to better focus our product investments to meet their needs and our marketing to attract them. On the R&D side, we'll be focusing our roadmap on ensuring we are a unique and premium offering for these customers. They have unmet needs that will allow us to differentiate. Additionally, the work we've already put in in evolving our AI platform will allow us to better serve this segment of the market. And I see significant opportunities for us to innovate with AI that will be particularly attractive and unique for these customers. For go-to-market, we've already started to evolve our messaging to better attract and retain this customer segment. We already have a healthy number of these customers using Thinkific today, and with this focused effort to serve them, we believe we'll make them happier, more loyal, and more importantly, more successful in their own businesses as we innovate for their needs. While this transition up market is already in motion, it will take some time, and so we expect some impact on short-term GMV and ARR as part of this transition. We'll be making this move as rapidly as possible. I will elaborate more on this plan and the impacts we expect it to have on growing revenue shortly, but first, a little about Q4. While solid overall, we came in at the low end of our guidance for Q4. As highlighted, much of this is tied closely to the mistakes we've made and we expect to improve significantly with our new focus. Foreign exchange did have a large impact on net ARR growth. Plus, bookings were consistent with prior quarters, but back-end loaded, which delayed revenue recognition into Q1. We observed a slowdown in GMV and GPV growth, which affects our commerce revenue. GMV is a metric that we have little influence over in the short term, but with our improved customer focus, we expect to see long-term improvements here. We've been open and transparent about the challenges we face here, and I reiterate that we know what the problems are. And while there's much to be done, we're on a path that I'm confident will deliver strong results in the future. At the same time, we've seen strong growth in penetration rates. GPV is a percentage of GMV at 52%. indicating the strength in our Thinkific Commerce innovations and its attractiveness to customers. The combination of our strength in Plus and Commerce tie very closely to our path forward, and we'll be doubling down in these areas. We continue to grow profitably. In addition to Amanda and Ryan, we've added experienced, execution-focused talent, and I'm confident we have the team to deliver on our more focused strategy. We've made significant improvements in activation, which is the process of onboarding new customers and ensuring that they get value from Thinkific. The combination of user experience design improvements and innovations with AI-enabled onboarding have seen positive results in the early stages of our customer journey. We have begun specifically targeting higher GMV customers, and the success we've had with this group validates our market research and our new direction. In September, we signed Scott Galloway's company, Section. Scott Galloway is a marketing professor at NYU who reaches millions with his podcast, newsletter, and YouTube broadcasts. His company, Section, delivers AI education to teams and individuals to improve efficiency, productivity, and creativity. Section joined Thinkific to increase their distribution through our unique partnership with Spotify. This quarter, we added Keith Ferrazzi, recognized global thought leader in executive leadership and change management. He and his team transformed Fortune 500 executive teams to help them achieve unprecedented results through high-performance teams. He's a number one New York Times bestselling author of five books and is often featured in many leading publications like the Wall Street Journal, Forbes, and Fortune. He joined Thinkific to release the course based on his latest book, Never Lead Alone. We also signed Charles Kahn, who is the chairman of Patagonia, co-founder of Monograph Capital, former CEO of the Rose Trust, and author of Bulletproof Problem Solving and The Imperfectionist. Charles joined Thinkific to scale the online course version of Bulletproof Problem Solving, and our high-growth customer team is partnering with him on his transition to our platform. We're looking at ways to accelerate growth in Plus from its already high level of growth. On subscription revenue alone, Plus customers start in an average pricing tier that's 20 times higher than a typical self-serve customer. There is an opportunity here with renewed investment to both attract more new customers to Plus and also see more upgrades from within our base. One example this quarter is a multi-billion dollar software company that is in the security and identity space that was a self-serve customer. Realizing they needed a secure enterprise-grade platform along with an upgrade path to deliver higher quality personalized service so they could turn it into a profit center, we were able to successfully upgrade them to Plus. We were also looking to better identify customers in our sales funnel that would be better off starting with Plus rather than trying out self-serve and upgrading at a later date. we've launched an outbound channel for Plus. Here, we are targeting businesses in verticals where Plus is already enjoying significant levels of success. Historically, all of our Plus leads have come inbound, and this addition opens a new growth opportunity. One area of differentiation from our peers that drives a lot of our success, especially in Plus, is commerce, specifically the fact that it's core to Thinkific's offering and built into everything we do. We are leaning into this strength as we think it has several untapped vectors for growth. We have discussed in the past how Thinkific Commerce users see transaction sizes that are 31% larger than customers who don't take advantage of Thinkific Commerce. There's a real opportunity here for more of our plus customers to take advantage of this and switch to Thinkific Commerce to increase their sales. We're expanding our commerce offering internationally, bringing North American features like our sales tax solution to the EU and UK with multi-currency options in the pipeline. This spring, we'll be rolling out more functionality required by larger customers, especially those in Plus. Last quarter, we started with ACH, which will soon be followed by custom invoicing and improvements to group orders. Currently, most of our transactional revenue comes from self-serve customers. However, Plus customers represent a significant avenue for revenue growth. By eliminating the barriers Plus customers face in adopting Thinkific Commerce as their complete commerce solution, we can tap into this and capitalize on this significant opportunity all the while driving increased revenue for our customers. Breen will go into more detail on this opportunity for growth in both GMV and GPV. While it will take time to roll out the required functionality and get our plus customers on to Thinkific Commerce, this impact can be transformative. Finally, we want to better monetize our R&D efforts by packaging them to be more results-oriented, specifically to drive more revenue for our customers while ensuring we attract and retain the customers that we are best suited to serve well. We're developing a product roadmap that has a well-structured strategic framework to assist our customers in growing their businesses. This contrasts with the more tactical features-based planning approach that was used while we were cutting costs. Here, I'm going to be more circumspect on the details we reveal, but we intend to integrate impactful products into the platform, features that are often sold as standalone offerings by other vendors. We're actively identifying additional product opportunities, and in each case, we'll carefully weigh the time required for internal development versus acquisition. We're open to small tuck-in acquisitions if we believe it's a strategic fit and can significantly accelerate our product roadmap. Additionally, the foundation we've laid with AI opens the door to some exciting innovation that we expect to release later this year. In summary, we are following a much more focused strategy that leans into our strengths. First and foremost, a much clearer view of which customers we can serve best informs all of our strategy. This allows us to better position ourselves with a unique and valuable solution to meet their specific and often unmet needs. Our go-to-market will evolve to be much more focused on attracting this type of customer. While the core of what Thinkific is remains the same, this is a profound change in how we execute and serve our customers and should deliver significant benefits to our best customers while driving improved results for Thinkific. Over the past few quarters, we've assembled a highly capable team and developed a focused strategy to better serve a large and untapped market. I have conviction that our focused strategy and strong execution will transform this company, resulting in significant long-term growth and enhanced shareholder value. With that, I'll turn it over to Corrine.