Thinkific Labs Inc.

Good afternoon, my name is Konstantin and I will be your conference operator today. I would like to welcome everyone to Thinkific's second quarter 2025 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, August 6th, 2025. I would now like to turn the conference over to Joo-Hun Kim, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Thinkific's second quarter 2025 financial 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 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 will now turn the call over to Greg Smith, CEO and co-founder of Thinkific.

Hello, and welcome to Thinkific's Q2 fiscal 2025 earnings call. Q2 marked the official launch of our move up market, and we are now well underway to executing on a strategy aligning Thinkific's differentiated learning commerce platform to support our ideal customers. By leveraging our core strengths, Integrating courses, communities, AI, and commerce, we plan on meeting the growing demand for scalable, education-driven revenue models. We're confident that this approach, along with our continued commitment to driving customer success, will ultimately accelerate growth for Thinkific. On today's call, I'll provide an update on our ongoing transition upmarket with a focus on our progress in artificial intelligence. AI represents a transformative opportunity to enhance our platform. We've already integrated AI capabilities that help our customers create content more efficiently. Looking ahead, our product roadmap is centered on AI agents that serve the needs of our best customers, designed to enhance the student learning experience and manage interactions as well as sales at scale. A move that I believe positions us at the forefront of the industry. With respect to our team, I'm delighted to announce Russ Mann as Thinkific's new chairman of the board. Russ brings a wealth of leadership experience in the technology sector, particularly with SaaS companies, and a strong track record with high growth organizations. His expertise makes him an ideal fit to guide our board moving forward, and his contributions have already proven impactful. I'm also grateful that Fraser will remain on our board of directors, where his valuable experience and insights will continue to be greatly appreciated. Over the past quarters, I've shared elements of our new strategies, specifically how we are sharpening our focus on the upmarket segment and adjusting our go-to-market strategy to align with the increasing demand from larger, more established customers. These are businesses that are launching academies, certification programs, and training hubs to scale their revenue. Today, I want to spend more time on how our product roadmap aligns with this vision. We're working to create an integrated platform that both attracts more scaled and successful businesses into self-serve while also increasing the upgrade flow to and through our plus plans. We have a series of initiatives laid out over the next 12 to 16 months that cover both an expansion of product features and a comprehensive relook at drivers of ARPU to ensure our platform is both competitive and compelling to our new target market and drives expansion opportunities. This platform leverages AI throughout to enhance a student's learning experiences, incorporating assistants that personalize learning and communities to foster collaboration, discussion, and deeper learning. I view AI as an essential driver of Thinkific's competitive advantage and future growth. Rather than treating AI as a peripheral tool or simple assistant, Thinkific is fundamentally integrating AI into every facet of our operations. I've encouraged every team member, regardless of their role, to explore how AI can be woven into their daily work. We want to foster a culture that not only utilizes AI, but lives and breathes it throughout the organization. AI is enabling Thinkific to rethink its approach to product development and provide us with significant strategic flexibility. It has already accelerated our ability to design and prototype product improvements and innovate exciting new features. We expect it to boost the productivity of our R&D teams going forward. We had been exploring some specific M&A opportunities to swiftly bring a competitive product to market. Thinkific now finds that in some cases, AI empowers our own teams to develop features and capabilities more rapidly and efficiently. This minimizes acquisition risk, reducing time to market, and reinforces the company's agility to respond to changing market needs. That said, we continue to consider if build versus buy makes the most sense for us. And note, we're fortunate that our balance sheet allows us that flexibility. I believe that Thinkific is uniquely positioned to lead in the use of AI in a few key areas. Our 13 years of experience working with tens of thousands of customers has given us access to an extensive proprietary data set built on millions of real learning interactions. We can leverage this data set combined with the specific content of each of our customers to help empower them to scale their businesses and have a bigger impact. This kind of insight gives us an edge over new entrants or existing players that lack a focus on commerce, learning, and community interactions or a data set of this magnitude. Thinkific's AI is built specifically to help our customers sell more, teach better, and run their businesses more efficiently. Our data advantage combined with constant innovation is what will keep us ahead as AI reshapes the future of online learning. We can combine this with our customers' unique personalities, businesses, and approaches to learning and selling to empower each of them to compete better. Another area of focus is community-driven learning. We're committed to advancing blended learning ecosystems that seamlessly integrated structured courses, interactive discussions, community spaces, and live sessions. These are proven drivers to significantly increase the value we provide to our customers and their customers, the students. While our existing integrated communities product lays a strong foundation, our goal is to elevate it further by enhancing its functionality and feature set to meet and exceed the capabilities of leading market players. Positioning Thinkific as the premier platform for community-enabled learning experiences. This will also be an enabler of strong recurring revenue for our customers, and especially in demand by larger businesses, which will also benefit Thinkific with a much more stable stream of commerce revenue. Finally, a near-term priority is to provide richer commerce and B2B selling tools and features that are required for us to drive adoption of Thinkific Commerce by higher GMV customers in Plus and SelfServe. This quarter, we released tools to help with subscription management, allowing our customers to better sell and manage on a recurring revenue basis, as well as bulk licensing facilitation, the ability to better sell large quantities of licenses in their programs to a single corporate buyer. We will continue to invest in reducing friction in our customer sales, supporting recurring revenue growth, improving their international reach, and empowering these companies to scale their revenue as they grow their own businesses. Commerce is native on the Thinkific platform. It is not a bolt-on from a third party and is integrated with a student's learning journey and a deepening set of AI-enhanced data tools. This approach represents a strategic advantage and we're committed to continued investment to strengthen our leadership position and deliver unmatched value to our customers and our partners. Our aggressive product roadmap for the coming quarters is designed to deliver impactful and differentiated features that empower our customers to help their students succeed. These aren't just updates, they're transformative tools designed to redefine how learning experiences are built and monetized, giving our customers the tools to grow their businesses. We're investing for the long term, backed by a strong balance sheet and a profitable and recurring core subscription business, which gives us strategic flexibility and allows us to continue driving profitable growth as we execute on our plan. We expect the most compelling of our new features to launch in the first half of 2026 and expect to see positive leading indicators in the following quarters. The metrics we'll be watching closely are ARPU, ARR, and GPV. Success will be measured by, first, moving ARPU as we see a mixed shift into higher tiers of product and begin attracting more upmarket customers. Then, a reacceleration of ARR growth as we improve and grow our go-to-market and accelerate upmarket customer acquisition. And finally, GPV growth as we improve the adoption of and attract higher GMV customers onto Thinkific Commerce. With these initiatives in motion, I'm confident that we're positioned to deliver long-term value for our customers and our shareholders. With that, I'm going to turn it over to Corrine, who will provide more details on those leading indicators and provide specifics of our financial performance in Q2.

Thanks, Greg, and good afternoon, everyone. Our financial performance in Q2 provides clear evidence of the ability to deliver solid results, even as we navigate through strategic change. For the second quarter, revenue was $18.1 million, up 12% from the prior year. Revenue exceeded the high end of our guidance range because of better than expected GMV and the strong ARR growth last quarter that led to solid sequential subscription revenue growth. Subscription revenue of $14.9 million was up 6% year over year and $270,000 from the prior quarter, driven by the strong ARR performance in Q1. ARR at June 30th was $60.5 million, up 6% year-over-year, and up $361,000 from the prior quarter. I'll dig into more of a breakdown by business unit in a moment. Commerce revenue was $3.2 million, up 48% year-over-year, and in line with seasonal trends compared to Q1. The year-over-year increase of 48% is a result of the growth of our penetration rate, which is measured by GPV as a percentage of our GMV. which grew 58% or up another 200 basis points from the prior quarter. With over 80% of new customers choosing Pay of the Commerce and the release of new features targeted for plus customers, we believe there's a continued runway for us to improve penetration in coming quarters. The take rate was steady at 4.5%. Recently added value-added features can drive incremental improvements to take rate as we move into 2026. GMV of $111 million was flat year on year and down sequentially compared to Q1 GMV of $117 million due to seasonality. Our commerce performance improved slightly from Q1, where we saw some large gains with customers focused on vocational accreditation and skills, alongside educators promoting investment and financial advice. That said, we remain cautious and intend to be conservative in our outlook for GMV for the rest of the year. ARPU of $169 per month was up 9% year-over-year versus the prior year's $155, and up slightly from the prior quarter's $168 per month. The increase in ARPU reflects the growth of Thinkific Plus, whose monthly subscription fee is 20 times that of SelfServe, and the growth in commerce revenue. On the plus side, we saw a 6% price expansion. and see further opportunity for growth as we continue to move upmarket and drive adoption of our commerce features in PLUS. Now on to revenue by customer group. Self-serve revenue was $13.4 million, up 8% year-over-year, a slight increase from the 7% annual growth in Q1. The year-over-year improvement was driven by commerce revenue growth as we achieved higher penetration rates within self-serve. The steady acceleration from the prior quarter resulted from the ARR growth self-serve had in Q1. When we look at the first half of the year in total, we are seeing some benefits from the improvements we've been making to onboarding and activation. Moving to Benefit Plus, which is built for businesses with more complex needs, premium level of service, and enterprise class features and security, saw revenue of $4.7 million, up 25% from the prior year. Q2 plus ARR growth was affected by senior sales leadership turnover that had an impact on the onboarding and productivity ramp of new AEs. Additionally, as we shift our focus at market with larger customers, we've seen an extension to sales cycles. This led new customer ARR growth to fall below our expectations after having several consecutive quarters of record or near record growth. Like Q1, more than 50% of new deals signed in the quarter were multi-year with expansion levers included. We believe this will be a catalyst to accelerate growth NLR, or net revenue retention, in coming quarters. At present, commerce is not a material component of PLUS revenue, but with the recent release of B2B selling functionality in Thinkific Commerce, penetration into our PLUS customer base will improve, and we believe commerce is poised to be a significant driver of growth in PLUS revenue in coming quarters. Moving on to the P&L. For our discussion on OPEX, I'd like to approach things a little differently this quarter. At a high level, spending Q2 was relatively consistent with what we've seen historically. Our growth margin ticked down slightly, reflecting continued success in commerce and the resulting mixed shift. And our total OPEX expenses largely stayed in line with trends. What I'd like to do is talk more about our investment philosophy and capital deployment strategy. First of all, we are fully committed to the upmarket shift. This means we are shifting our internal investments in a very material way to support this new and growing opportunity. Within our gross margin, we are doing the opposite of many companies and increasing our investment in live customer support. While AI is a big and growing part of our support infrastructure, our largest customers value real human-to-human advice and support from our team. This will be a key component of our ability to attract and retain six-figure ARR contracts going forward. When we combine this investment in premium level service with the productivity improvements we're finding with AI, we should be able to maintain our subscription gross margin run rate at roughly 81 to 82%. Within sales and marketing, we have updated our marketing to increase our focus on our upmarket customer segment. This includes our new brand identity and associated marketing campaigns, which began in Q2 and will continue through the rest of the year. On the plus side, we continue to invest in scaling our sales team and setting the right incentives for both growth and retention. and we are now allocating close to half our total sales and marketing spend on Plus. Our research and development team have also shifted their efforts in line with this new strategy. 100% of all new features developed are aimed squarely at our upmarket customer opportunity. In Q2, this includes the release of updating our B2B selling tools and enhanced community features. We are working through a fully updated roadmap of product features. and are operating with a high level of certainty around what will make us successful in this space. It's also worth reiterating that artificial intelligence is not only front and center for improving our own R&D productivity, but also plays a key role in our customer-facing roadmap. We are in the early stages of a years-long endeavor, and with careful capital allocation and strong execution from the team, we expect to materially drive revenue growth in 2026. Our success will be marked in three stages. First, we expect to see an acceleration in ARPU growth. This will come from a combination of attracting new customers that receive and pay for greater value from Thinkific, as well as from expansion within our existing successful customers. This move in ARPU will be the first revenue-drining sign that the plan is working. During this transition, we may see some accelerated churn as we spin off lower-fit and lower-priced customers. Second, after ARPU expansion, our overall ARL will begin to accelerate. During this period, we should see improvements in retention that further contribute to ARR growth as it will attract and retain higher value and more successful customers. Following ARR growth, our GPV will accelerate as customers gain the benefits of combining commerce features with their educational offerings. When we dig into our top customers today, we see an amazing volume of continuing education and professional development academies, from psychologists teaching the most recent learnings in their field to real estate associations offering continuing education to their members to outdoor enthusiasts, providing online national park guides. Our customers and their offerings are unique and exciting. Each of these areas are on track to earn millions for their businesses this year. We see the success of these customers and we know they are at the tip of the iceberg of what could be accomplished with Thinkific. Turning back to Q2, adjusted EBITDA was 1 million or 6% of total revenue versus the 874,000 or 5% in Q2 of 2024. In the context of our strategic focus at market, we plan to accelerate targeted investments to drive growth. We will remain disciplined and prioritize initiatives that have a clear and strong return on investment and remain committed to our strategy of profitable growth and positive cash flow from operations. Cash flow from operations was $2.3 million versus $180,000 in Q2 of 2024 and $3.2 million in Q1 of 2025. The high cash conversion of adjusted EBITDA to cash flow from operations is a testament to the quality of our earnings and the power of our financial model. Cash flow from operations has been benefiting from operational efficiencies we have and continue to make in our working capital. In the long run, we believe adjusted EBITDA to be the best predictor of cash flow from operations. Moving to the balance sheet, cash and cash flow equivalents as of June 30 of 25 was $52.5 million, an increase of about $1.1 million from the prior quarter as a result of solid cash flow from operations. In April, Thinkific eliminated its dual-class structure by converting all multi-voting shares to single-voting shares on a one-for-one basis. In addition, in June, we completed a secondary offering of approximately Canadian $15 million of Rhino Group shares These actions help simplify the company's capital structure and minimize the market impact of a large block sale and is further evidence of management's commitment to unlocking value for our shareholders. I want to note that as a result of the Rhino secondary offering, the company had to suspend its NCIB beginning on June 10th and intends to resume it when our blackout period ends at the end of this week. As we believe that at current share price, share repurchases represent a compelling opportunity to enhance shareholder value. During the quarter, Dengivic repurchased approximately 282,000 shares for a total cash consideration of $536,000. I'll end with a few comments and guidance. For Q3 2025, the company expects revenue between $18.1 and $18.4 million, which represents a growth rate of 5% to 7% year over year. The deceleration in top-line growth primarily reflects tougher compares as Q3 of 2024 benefited from the release of SCORM, a feature that had significant pent-up demand, and the introduction of our gateway fee that led to higher adoption of Thinkific Commerce. We also anticipate that the combination of the Salesforce disruption we experienced in Q2 and the continued macro headwinds in GMV will delay some growth in the near term. We intend to continue investment in key areas previously outlined, expenses expected to grow sequentially. Nonetheless, we remain committed to profitable growth and, despite potential near-term margin fluctuations, we believe we can expand adjusted EBITDA as we achieve scale. We're shifting up market by delivering a premium student experience powered by AI, personalized learning, and engaging communities to drive revenue, retention, and brand value for our customers. These features are essential for businesses looking to provide a modern, engaging learning environment aligned with their premium positioning. Combined with our powerful commerce capabilities, we're the learning commerce platform for serious, growth-minded businesses.

We are now happy to take your questions. Thank you very much.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any keys. Your first question comes from the line of Gavin Fairweather from Cormark. Please go ahead.

Oh, hey, good afternoon. Maybe just to start, I know we've been talking about this shift up market for a couple of quarters now, but I know you really unveiled that to your community in Q2. So curious what feedback you got from plus customers, self-serve customers, and might be too early, but given your tinkering with the go-to-market, I am curious if you're seeing any shift in the top of funnel towards your ICPs.

Yeah, I appreciate it. Thanks, Gavin. A positive feedback overall, I think unveiling that, you know, we did, we rolled it out quite carefully to our partners. So partners who are working with us on integrations and services for our customers and initially received really strong. Well, initially, and so far I've received really strong feedback on them on this movement. I think they recognize it's a, it's us leaning in on the best fit customers for us and for them. So that was a good sign initially. And then as we rolled out the new site and the new branding, positive feedback from customers as well. And then alongside of that, we've been talking with customers a lot more openly about our product investments, what are the developments that we've released and what's to come. And that's seen some really positive impact. So all signs right now still pointing to yes. Don't have as much data specifically on the top of funnel new ICP coming in. We are doing everything we can to qualify those, but it's not a perfectly qualified categorization of ICP or not as they come in. But so far, it's a good response from customer base in terms of where we're making our investments and what it means for them.

Appreciate that. And then secondly, maybe just on the ARR trajectory for the second half, you called out the potential for maybe a bit of elevated churn and self-serve as you work through the transition. Plus continues to grow nicely. So maybe just curious whether that could fully offset what you're seeing in self-serve. Any thoughts there over the back of the year would be helpful.

Yeah, and to be clear on that, I think we'll see a bit in both areas, as in both areas, like the movement of market is going to happen in both self-serve and plus. And so I think we will see some, we probably already are seeing some trend there of less ideal fit customers. And especially as we focus our product investments on the ideal fit for us. We will see some of that there. I think that should be offset more so over time as we move to higher ARPU, both from onboarding new customers that are able to take a higher price point or are able to expand with Thinkific as they see their success. That should start to offset that. And then we should also see, as we bring on more of these ideal customers, part of the reason we move towards them is they tend to be a lot stickier. So we should see that improve over time. But there will be this short time period where I think in both areas of the business, we'll see a bit more churn. And we still expect to grow. So we'll still grow revenue steadily. But this is just going to be one of those moderating factors in the near term that moderates growth until we see this come together.

Yeah, I appreciate that. You could see that in the Q3 guide too. Maybe just taking a step back, I know scale is more important right now than margins, but given your shift up market, should be margin of creative over the long-term. I'm curious if you have any thoughts on, you know, where the longer-term margin potential of the business may be as you kind of work through this multi-year transition.

That's a great question, Kevin. We, you know, really do see us as long-term rule of 40 business. And so, you know, first of all, we want to get our revenue, you know, at a higher rate, but EBITDA follows. And I think, you know, where we'd be really happy is to be able to see, you know, revenue growth in that 20 to 30%, then our margin, you know, kind of being, you know, 10 to 20 is probably a nice place for us. We know that's quite possible with this financial model. And so I think it's just going to be how quickly we can get the revenue growth up and then the EBITDA should follow.

Maybe just lastly for me, I noticed the whole host of new commerce functionality and it sounds like you're getting closer towards monetizing payments and plus. Curious how you Or when do you think you'll be able to start making that push into monetizing the plus payments to a greater extent? And how do you plan to attack that opportunity?

We've actually started that earlier this year and are starting to see some good success. We've been really pleased with the team's ability to get trained up on how to introduce this right in the beginning of sales calls, but also our customer success team with existing customers. And we've, you know, seen, you know, early signs, and I think our continued growth and our penetration rate is reflective of that. And we're excited to see, you know, that continue to grow as we, you know, get through that process of, you know, bringing on new customers, but then also helping new listing customers move over. So, you know, in progress and probably in future quarters, we could even share maybe a bit of a breakdown between penetration, between where we're at with self-serve versus plus, but it's beginning strong.

Thanks so much. I'll pass the line. Your next question comes from the line of Steven Mackelson from BMO Capital Markets.

Please go ahead.

Hey, despite the turmoil in the sales force, it does seem like it was a good quarter for customer additions.

Can you speak to any of the factors behind that? Yeah, in terms of, thanks, Stephen, I appreciate the question.

So in terms of seeing it, yeah, I mean, you're right in that we're still doing a good job of adding new customers. I think that we would like to see that go even further, though, and I think it's sort of recognizing the opportunity to do more. Impressed with the team that we have, but just acknowledging that we did have some turmoil at turnover and turmoil, and that created some distraction. And so I think it just represents the opportunity for us to do even better in the future. It's going to take a little bit for us to work through that. But to me, it just represents, again, opportunity to do a bit better as we go forward.

Okay. So would it be a little bit more skewed towards self-serve this most recent quarter? And I guess, would you expect that to kind of switch back to more focus on upmarket as you, I guess, add more to the sales team?

Yeah, still, we're all in on the upmarket move. Some of that happens within self-serve. And yes, we will be adding more on the sales side. And that should, over time, improve the growth rate on Plus or in terms of new additions on Plus. I don't know if that perfectly answers your question or is what you're looking for.

Yeah, I think it does it. And just a final one, a final quick one. As you... continuous move up market. Have you changed your, I guess in terms of an ideal customer profile, has your assessment of whether they are GMV focused or not GMV focused, how has that changed as you've studied the pipeline and the top of funnel?

Yeah, that's a big part of it is still very much GMV focused. I mean, I think we will always see some people choose to use us for reasons that are not GMV. We've seen that even Our banner head when we first launched the company was create and sell beautiful online courses. And even then we saw something like 30% of people coming to us using us for non-GMV, non-selling purposes and getting value from it. But our focus is on investing in and attracting and really doubling down on one of our strategic strengths here in commerce. So the ability to help our customers sell just means we add so much more value. So while people may choose us to use choose to use us for some other reasons. That's where we're going to focus our investment in attracting, selling, and building for that group. The nice thing is that's a competitive area that we've built up differentiation over time and we're continuing to invest in. So it'll get stronger and stronger for our customers. And it does, as you've seen, show up on the P&L, which I think is a critical component of a strategic advantage and defining it and determining that you want to continue to invest in it.

All right. Thanks for taking my questions. Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchstone phone. If you're using a speakerphone, please make sure to lift your handset before you press any keys. Your next question comes from the line of Robert Young from Canaccord Genuity. Please go ahead.

Hi, good evening. I had some technical problems. I'm sorry if I retraced something that was already addressed here, but I think you mentioned 6% price

expansion in the plus business despite some of the issues here and so what was the driver there was was that uh commerce or was there anything else out to call was there anything else to call out there the most significant part of that was actually acquiring customers at a higher price point and so while it wasn't a price change it was just based on our pricing tiers and the size of customers that were coming in i think it's a really good indicator of where we're at with you know starting to attract those upper market customers But I don't want to minimize, you know, the attachment of commerce is starting and it played a small role there, but not as significant as the price point at which new customers are coming in.

Okay. And then the disruption in the sales force in Plus. I know that you were expanding and then you paused that expansion. I think you were perhaps honing in on a customer profile, a better understanding of the customer profile. And so, As you resume the growth in the go-to-market, does it give you an opportunity to change direction or adjust the strategy?

Is there anything there worth describing?

Yeah, I think it's a good point. And there's sort of a broader topic there of how we're investing in sales and thinking about it alongside this strategy. So I think there is an opportunity to continue to invest in sales. As always, we look at it very much as what is the pipeline? So we're hiring to make sure that we're able to feed all mouths and that they're able to have enough pipeline to perform well. And so we look closely at that. quarter by quarter and that helps us build out our our hiring but we are investing definitely in the sales team and that creates an opportunity to to grow that over time and to lean into this upmarket customer in particular okay um and um i think that's all i've got i'll pass the line thanks robert

Your next question comes from the line of Todd Coupland from CIDC.

Please go ahead.

Oh, good evening, everyone. I didn't see this. Apologize if it was in the material. But did you give an updated customer count for Q2?

And if so, what was it? I don't think we did, but I think we're happy to share that. I mean, we'll find out for you in a moment. Yeah.

Okay.

It's 35,747. So we're up 3% year over year.

Okay. Great. And I was just wondering how we should think about churn over whatever period is required to adapt to the go-to-market updates. How are you planning for that? Are you planning for churn through the balance of this year and into next year? Yeah, just a little color on the rhythm and how we should think about that.

Yeah, thanks, Todd. I won't have a perfect timing answer on it, but I'll give as much color as I can. It's something that, I mean, there will always be some churn as in any SaaS business, but the acceleration of churn in part around non-fit customers. I think, yeah, we probably see that through the balance of this year in particular as we really work to make this shift happen. There's a bunch of work. As much as it's launched and our website articulates it well and we're starting to attract these kinds of customers, there's still a bunch of work we need to do on the product side to ensure we properly meet the needs of these ideal customers for us and that we're able to attract them, attract them at the right price points and continue to see them expand on Thinkific. So as we go through that, we'll start to see ARPU move, as Corinne highlighted first. And I think as ARPU moves, that will also be an indicator of retention moving positively because it's signaling we're bringing in the right type of people who tend to be stickier and stay longer. And the combination of those, of course, moves something important as well, which is our net dollar, our net revenue retention. So yeah, I think we will see that continue to have a moderating effect on growth over the balance of this year. Not sure exactly when It all turns together, but the order of operations that we're looking at in these metrics is the ARPU first, then the ARR, and then finally the GPV. And those first two is where you'll see that shift in retention and net dollar retention.

Okay, that's great. And in terms of the types of things, to the extent you could talk about it, product roadmap to... to get you in a stronger position with target ideal clients? What types of things should we be watching for along those lines? Thanks a lot.

Yeah, no, thanks. Great question. And I'm really excited to talk about this stuff. I think firstly, I'll just give you a bit of the lens we look at for R&D. So the lenses we're looking at to evaluate these investments in R&D is first, it's got to solve big problems for our best customers. And so that should be driving revenue for them. via helping them create more impactful learning experiences or just improving their ability to sell through Thinkific, or it should create cost savings. So that really means we're solving problems that hit our customers P&L. Second, we're looking at creating differentiation that ties into our core strategy. And so it has to fit within that bucket. And third, that it generates strong cash flows or cost savings, or in other words, ROI or value for Thinkific. That one is harder to calculate precisely, but when we apply those lenses, that helps us develop our roadmap in terms of what we're investing in. I think some good examples of that that we've done is things like the subscription management for our customers where they're able to better manage their overall recurring revenue subscriptions means it's generating revenue on a recurring basis for our customers, creating a more reliable business for them, but it also creates commerce revenue and expansion revenue for us at Thinkific and fits well within our core differentiation and strategy. So it kind of ticks all those boxes. Another one is this bulk licensing we talked about where we allow customers to go and sell a large volume of licenses to a single customer of theirs. Again, hits a lot of those boxes or all three of those boxes for us. And then looking forward, as I talked about one of the areas, I won't share specific product roadmap launches coming up just because we do like to surprise our customers and marketing with those. But a key area I think we're really excited in is looking at AI. I think this opens the doors to new cash flows and reduce costs both for our customers and for us. And our focus there, to give you a bit more color in the future, is really on learning and selling. These areas that we're quite good at of creating great learning experiences for our customers and then helping them sell them. This is these areas that we can uniquely differentiate because we're so focused there, because we have experience there, and because we have a lot of data to help make them much higher quality AI products. So in that area, we're investing in some acute feature launches. that are really unique, specific differentiators for our customers in terms of how they create those learning experiences and then how they sell them, but also the infrastructure to support continued innovation. I think this is a really important piece of it is just ensuring that we and most other software companies out there are not going to keep pace with the open AIs of the world. So we need to make sure that our infrastructure allows us to leverage our competitive strengths and data combined with their innovation to release the best new features for our customers.

Just, I guess, one observation, Greg. I don't know if you noticed this today, but Shopify talked about a universal cart across multiple stores that could sit inside an open AI search. And I thought that that was kind of interesting. So, you know, I don't know if there are, you know, analogs for learning with somebody in the AI space. if you've given any thought to that. But if you have and can share some color, that'd be appreciative. And that's it for me. Thanks.

Yeah, absolutely. I think Corrine's had some conversations on that. I'll pass it over to you.

Thanks, Greg. One thing I'd love to add is how powerful our partnership is with Stripe and the work that they're doing to help solve problems just like this. I know they're a partner of Shopify's as well. I think puts us in a really good position to be able to do you know, things similar to how Shopify is looking at it. I think there's lots of change happening in agentic commerce, and we look forward to, you know, leaning on our relationship with Stripe to be at the forefront of that.

Great. Thanks a lot. Appreciate it. Thanks, Todd. Your last question is from the line of Richard Say from National Bank Financial.

Please go ahead.

Yes, thank you. You know, Greg, you sort of mentioned acquisitions in your opening remarks. So what else are obviously getting into specifics? Are you looking for, you know, technical capabilities to expand the channel? And I guess separately, you know, is this something that you're looking for from sort of a niche tuck-in, or would you be considering things that are transformative?

Yeah, great question. And we're looking closely at this. I use sort of a lot of the same lenses as we look at for R&D investments. So does it solve big problems for our customers? Does it create differentiation tied to our core strategy? And is it going to generate strong cash flow or savings efficiency for us in Kific? Through that lens, what we're looking at to be more specific is more product roadmap accelerants. So what are the big problems we can solve for our customers that we can do through And we look at the lens of build, buy, or partner. So in some cases, it's a small enough group of our customers or more extraneous to our product or an area that doesn't fit with our core strategy where we're going to integrate with a partner. In other cases, it's so ingrained in what we do that it's probably best that we build it ourselves or own it, in which case it's more build or buy. On the buy side, as I highlighted, in a few recent interactions, we've just found that especially with AI now being used by our software team, our engineers, that sometimes we can build these things faster than we can acquire them. But I think in some cases we're going to find that, and this is what we're looking for, is where there's big opportunities It can be added on to Thinkific relatively easily. So the integration cost is not high and it comes out of the box, solving a big problem for our customers that ideally I would look for things that can probably drive ARPU, but retention and acquisition is a close second to that, but more with a focus on ARPU. So solving a big problem for our customers. So that is more a roadmap technical and probably more in the category of tuck-in. Although if we find a bigger tuck-in that can be a bit more transformative, that's great. But I don't think we're looking to acquire, say, a big direct competitor. If one of these tuck-ins or product roadmap accelerants comes along with a customer base that we can cross-sell into, that could be even better. I have found when we look at those, one of the issues is that sometimes that customer base is only partially good for us. So the closer the match, the better. And there are some tools where we can do to look at this, the volume of match between us. So those are some of the things we're looking at in evaluating these. But right now, really looking at what the next big opportunities are for us to solve big problems for our customers. And we have the luxury of having a balance sheet that is strong and growing. And so I do hope we can find a way to put that to work.

Okay, thank you. And then, yeah, as you move up market, does the profile of your competitors change? Like, you know, do you, you know, against who you compete with today, is that going to be the same or is it, are you sort of moving into a new group of competitors?

Yeah, I think it's both. It is shifting a bit. The movement is, it's still within a group of customers that we had served. We're just getting a lot better and a lot more focused and attracting a lot more of them. And so similarly on the competitors, it is probably, you're right, shifting us a little bit more to some of the larger, larger in terms of who they serve, subset of competitors. And so I think this is good in a number of ways because we're going to, you know, in that group of the, you know, often the more conventional LMS or the learning management system that serves larger customers, we are more differentiated in terms of our focus on learning combined with selling. And bringing in both AI, commerce, learning, communities, courses together sets us even more apart within that group. And in fact, as we go to some of these larger customers, they're often talking specifically about our selling and commerce capabilities as a big attraction for them. So I think it sets us up against slightly different people and in a way as well where we're probably opens the gate more for us on pricing and ARPUF.

Okay, great, and I just have one sort of question on the financials. I noticed that your software commitments are up to 6.53 million. That's like three times the amount in December. What's that related to, and what's accounting for that increase?

That's a very specific question.

I don't have the answer to, but I will get back to you on that. Okay, thank you. No problem. Thank you very much.

There are no further questions at this time. I'd like to turn the call over back to Greg Smith for closing comments. Sir, please go ahead.

Thank you, Constantine. Last quarter, I provided details on our upmarket higher GM fee customer that we're targeting. Today, we discussed some of how we're prioritizing our product roadmap to allow us to execute on that strategy. This strategic shift upmarket combined with our product roadmap, I think, positions Thinkific to improve our growth trajectory. By deeply integrating AI, community-driven learning, and enhanced commerce tools, we're going to empower our customers to achieve greater success. And in turn, that drives improved financial performance for Thinkific. We're investing for the long term backed by a strong balance sheet and a profitable core subscription business, and we expect to see positive indicators of success following the launch of some compelling new features in the first half of 2026. We appreciate your time today. Thank you for taking the time to catch up on our progress and look forward to speaking with you and giving an update next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.