Thinkific Labs Inc. (THNC) Earnings Call Transcript & Summary

Hello, and welcome to the Annual General Meeting of Shareholders of Thinkific Labs Inc. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you'll be deemed to consent to the recording, transfer and use of same. If you do disclose personal information of another person in today's meeting, you'll be deemed to represent a warrant to Computershare and the corporation that you first sustain all required consents for the disclosure recording transfer and use of such personal information from all appropriate persons before your disclosure.

All right. Thank you. Thank you, Michelle. I'd like to welcome all of you to the 2022 Annual General Meeting of the Shareholders of Thinkific Labs Inc. Our inaugural meeting as a fellow company. I am Fraser Hall, the Chair of the Board of Directors, and joining me are other members of the Board of Directors: they are Greg Smith, Thinkific CEO; Steve Krenzer; Katie May; and Brandon Nussey. Lisa Shields sends her regrets. Additionally, we are joined by Board nominee Melanie Kalemba. Non-director participants include Corinne Hua, CFO; and Ed Ma, QC Corporate Counsel and Corporate Secretary. The company is holding the meeting in a virtual-only format. There will be a brief management presentation and Q&A after the AGM has concluded. Shareholders will have the opportunity to participate and vote in this meeting through Computershare's online meeting platform. Voting on all matters before today's meeting will be conducted by the following procedure. Voting on all matters will be conducted by electronic ballot through the online system. Only registered shareholders and duly appointed proxy holders who have properly logged in with their 15-digit control number or invitation code will be able to vote on each business item. To vote, click on the Vote tab on the right side of the screen, and simply click on your choice for or withhold or against as applicable. A confirmation message will appear to show your vote has been received. To change your vote, simply change your selection. The votes you have submitted on each polling item at the time the poll closes will be recorded. Totals in favor or against or withhold as the case may be, for each resolution item will be tallied by the scrutineer once voting is completed, and the Chair will report on the preliminary outcome of all motions at the end of the meeting. We remind you that if you are a registered shareholder and you have already voted by proxy, unless you wish to change your vote, you do not need to vote again. Those in attendance who have registered as guests are not able to move motions, submit any questions, vote or take any other action. Once the polls close, your votes will automatically be submitted for resolution, will reflect closed on the virtual meeting site. For efficiency, we will be opening all polls on the matters that will be voted on at the beginning of the meeting once quorum is established and we'll close these polls after the last matter has been dealt with. Questions or objections in respect of a motion can be submitted by any registered shareholder or duly appointed proxy holder using the instant messaging service of the online interface. Please note that there may be a slight delay in questions being submitted to us. Throughout the meeting, we will pause and provide you time to ask your questions using the instant messaging service on the online interface. [Operator Instructions] To expedite the meeting in accordance with the articles of the company, I will move motions and no need to be seconded. I now ask the 2022 Annual General Meeting of Shareholders of Thinkific come to order. Unless there is objection, I will preside as Chair of the meeting, and I'll ask Ed Ma, Corporate Counsel and Corporate Secretary of the company to act as Secretary of the meeting. In addition, unless there is an objection, I will appoint [indiscernible] of Computershare Investor Services, Inc. to act as scrutineer for the meeting. Secretary has advised me that the notice calling this meeting, together with the form of proxy and management information circular, have been sent to each director of the company, the auditor of the company and the shareholders of the company of record on April 29, 2022. The record date for the meeting April 29, 2022. Additional copies of these materials can be assessed through today's virtual meeting platform by clicking the documents tab on your screen. Accordingly, unless there is an objection, I will dispense with the reading of the notice of meeting. The quorum for the transaction of business of this meeting is 2 persons, who are, or who represent by proxy shareholders who, in aggregate, hold at least 25% of the issued shares entitled to be voted at this meeting. The scrutineers' report shows a quorum of shareholders of the company to be present. Accordingly, I declare that the requisite quorum of the shareholders is present and that the meeting is duly and properly constituted for the transaction of business. I direct that the confirmation of mailing of the notice of meeting received by Computershare Investor Services Inc. and the scrutineer's complete report on attendance be annexed to the meeting -- minutes of the meeting. I declare the polls now open. [Voting]

The last Annual General Meeting of the company was held on April 2, 2021. The minutes of that meeting are filed in the company's minute book and are available for inspection. Unless there's any objection, I will dispense with reading of the minutes of the 2021 Annual General Meeting. We now proceed to the first item of business. I now present to the meeting the audited consolidated financial statements of the company as at and for the fiscal year ended December 31 and 2021, together with the auditor's report to the shareholders thereon. Copies of such documents have been mailed to the shareholders, who requested such statements and are available on SEDAR. Once again, copies of these materials can be accessed through today's virtual meeting platform by clicking the documents tab on the screen. The audited financial statements together with the auditors' report thereon are now placed before the meeting. No vote is required for the reception of these documents. Accordingly, I declare these documents have been received. The next set of business is to set the number of directors for the ensuing year. Under the company's articles, the Board will consist of the number of directors set by ordinary resolution. The Board of Directors currently consists of 6 directors. The anticipated addition of Ms. Melanie Kalemba will take the board to a total of 7 directors. Our decision to increase the number of Board directors from 6 to 9 is a proactive one. While Thinkific's articles provide the Board the ability to increase the number of directors by 1/3 between AGMs, we determined for a good governance perspective that this was a more transparent approach to shareholders. I now call a motion to set the number of directors at 9 for the ensuing year. Are there any questions on the motion? As there are no questions, I would now ask shareholders and proxy holders present to vote by ballot setting the number of directors if you have not already done so. We will now pause for a moment. This will be a longer pause while votes are recorded on this motion. [Voting]

As noted earlier, preliminary voting results for all resolutions will be summarized at the end of the meeting. I'll now move to the next item of business. The next item of business is the election of directors. The management information circular contains the names of 7 persons who are proposed by management for election at this meeting. I now move to nominate the following management nominees for election until the next Annual General Meeting or until the appointment of their successors. Braden Fraser Hall, it's myself; Greg Smith; Steve Krenzer; Katie May; Brandon Nussey; Lisa Shields and Melanie Kalemba. In accordance with the company's advanced notice policy for director nominations, no further nominations may be made at this time. Are there any questions on this motion? As there are no questions, I would now ask shareholders and proxy holders present to vote by ballot on the election of directors if they have not already done so. We'll now pause, again a longer pause while the votes are recorded on this motion. [Voting]

As noted earlier, preliminary voting results for all resolutions will be summarized at the end of the meeting. I will now move to the next item of the business. We will now proceed with the appointment of the auditor of the company and to authorize the directors of the company to fix the remuneration of the auditor. I now move that KPMG LLP, chartered accountants, be appointed as auditor of the company until the next annual meeting of the shareholders or until a successor is appointed, and that the Board of Directors be authorized to fix auditors remuneration. Are there any questions on this motion. As there are no questions, I now ask shareholders and proxy holders present to vote by ballot on the appointment and remuneration of the auditors. If you have not already done so. We will pause for a moment while the votes are recorded on this motion. [Voting]

Voting on all matters is now closed. I will now take a brief pause for the results. I've now been advised that the scrutineer has completed the tabulation of votes for all resolutions. Based on the preliminary tabulation, I can confirm that the requisite majorities have been obtained for setting the number of directors, the election of the nominated directors, and the appointment and remuneration of the auditor. The detailed voting results of this meeting will be posted on the company's SEDAR profile after this meeting. The formal items of the business are set out in the notice meeting have now been dealt with. As there is no further business, I now declare the meeting is terminated, and now I'll turn the floor over to Greg Smith for a brief management presentation and Q&A.

Thank you, Fraser. Good day, everyone. Thanks for attending Thinkific's first ever Annual General Meeting as a public company. Today, I'll review our strategy, the key accomplishments we've had over the past year and share why we're excited about the future at Thinkific. Before I start my remarks, please refer to the disclaimer in the presentation on our website for reference for our use of non-IFRS measures, industry metrics and forward-looking statements in today's presentation. In Thinkific, we believe in the incredible power of education and have seen firsthand that when you unite business and education, you create an unstoppable force for positive change. We exist at this intersection of business and education, and we believe any business can use education as a tool for growth. With Thinkific, you can create a new business or extend an established one. Our creators are the foundation of our business and our efforts to help them be wildly successful underpins every decision we make. Our platform gives our creators everything they need to build, market and sell their products and to run their businesses seamlessly, while providing enterprise-grade functionality with simplicity and ease of use. This ensures our creators are able to start with Thinkific and grow to nearly any size. We've replaced the need to cobble together a fragile mass of solutions and provide businesses with one single platform that covers course creation, marketing and sales, payment processing, website creation and hosting, student engagement, communities and delivery of learning products, all under their brand and on their website. With our solution, we quickly become the heart of their business and are often the core operating system for their entire enterprise. Our business model aligns our success with that of our creators. As creators experience success building their business and audience, we also find success through our tiered pricing with new features to support bigger businesses unlocked at higher tier plans. Our premium offering makes us a great choice for those just beginning their journey by providing a low barrier entry point for creators, who are in their early stages of their entrepreneurial journey. As these creators scale their business and experience success, they can unlock new functionality to support their growing customer base through our paid plans, which scales from $49 a month to $99 a month for small businesses up to our Premium and Plus plans with dedicated support and advanced features for scaling and larger businesses. We are designed to meet the changing needs of creators as they scale and expand their business. A key part of delivering value to our creators is ensuring we are solving their biggest problems and developing the features and tools they need to succeed. In 2021, we delivered 2 major product launches, the Thinkific app store, and Thinkific payments. The App Store serves as a key tool for our course creators to be able to customize their online course offerings and communities and an important part of our long-term growth strategy. Our open platform approach helps solve the unique needs of course creators, while allowing Thinkific to focus on solving the next biggest problem facing the majority of our customers. This lets us accelerate our R&D and add functionality more rapidly than rivals. Then in November 2021, we released Thinkific payments to all our creators in the U.S. and Canada. And through Q1, we processed 11% of our GMV through Thinkific payments, an incredible accomplishment. Thinkific payments helps our creators spend less time on administration so they can focus their efforts doing what they love, creating content, connections, community and teaching. It also helps our creators to sell more with unique features like subscriptions, order bumps that helped increase the average transaction size for creators using Thinkific payments. And through the first quarter of 2022, we continue to introduce improvements to our platform and including new subscription and membership tools, helping more creators build sustainable membership and subscription-based business model as well as further improvement to our high-performance checkout. And we made important improvements to our security features, a key area of focus for our larger customers, including multifactor authentication. Solving creator problems through product innovation, to deliver growth for our shareholders, a win-win for Thinkific and our creators. While we continue to maintain a focus on delivering top line growth for our investors through product innovation, we've also made significant advances in our internal processes over the past year. We're committed to making the right decisions to position ourselves for future success. So far in 2022, we've made a number of decisions to make sure we're building an organization that will be sustainable in the long run. At the end of March this year, we announced a reduction of 20% of our workforce, focusing our team and investments on our growth drivers. We're also taking a step back to look at our pricing strategy, making sure our creators are signed up for the plan that's right for their business, and on a plan that reflects the value they're receiving from our platform and lets them scale properly with Thinkific, aligning our success with their success. And lastly, we've spoken at length in our quarterly calls this year about changes we made and continue to make to evolve our go-to-market strategy. So doing the right things to build a business that's sustainable and ready to deliver strong growth to investors. We are in the early innings of the long-term opportunity to expand in the growing knowledge commerce market. Just as websites and blogs became almost required for any business, we believe businesses adopting education as a growth driver will become ubiquitous. Our TAM, total addressable market, is continuing to expand due to some exceptional market forces, including the rise of the creator economy and entrepreneurship in general and the mass adoption of learning and teaching online. Our market is evolving beyond traditional education products like courses and other learning experiences into memberships and communities, subscriptions and more. This speaks to the larger developing opportunities afforded by the knowledge commerce market. We believe Thinkific is well positioned, and we're doing the right things to position ourselves for success, delivering value to creators and making sure our business is running optimally. So that we can take full advantage of the tremendous opportunity we have in front of us. As I reflect on the past year, our first as a public company, I know that we wouldn't be where we are today without the support of our stakeholders. First, our creators as a source of constant inspiration for us, we are amazed and honored to be part of their efforts to share their knowledge with the world. Our employees go above and beyond, demonstrating our values in everything they do in every interaction, and we wouldn't be where we are without them. Our investors who are fueling our strategy and our growth and our Board of Directors, who are dedicated to making our company the best it can be through passionate debate, providing invaluable guidance and oversight that makes our company better. As I mentioned in the opening, we believe in the incredible power of education and have seen firsthand that when unite business and education together, you create an unstoppable force for positive change. And we couldn't do this without you. Thank you for joining us today and for your interest and investment in Thinkific. At this time, I'll open the platform for questions from our shareholders.

Greg, it's Ed Ma here, Corporate Secretary. We have a question. What are you most excited about right now in terms of future prospects?

Most excited about in terms of future prospects. Great question, all sorts of things that we're excited about here at Thinkific. If I think the big 1 is the opportunity that we're facing in front of us. The TAM, as we sort of outlined at the time of the IPO is very impressive at $28 billion to $34 billion, as we had estimated it. And we see signs that it continues to grow with more people entering the space, things like record high small business starts in the U.S., bigger players like YouTube and Instagram recognizing this opportunity and help validate our estimation of the size of this. Another thing we're really excited about, I think, is the impact that our platform has, both in creating successful entrepreneurs. We consistently share stories at our town halls and team meetings that just I think, evoke a deep sense of passion in our team for the purpose that we're here for. And we get to see amazing results of a positive impact both on the creators, who use us in building their businesses, changing their lives, hiring and growing their businesses, but also that ability for them to go and share their knowledge, passion expertise with the world and have a positive impact on others. And one of the really interesting things there, I think, is the that democratization of that ability to share in that because we service tens of thousands of creators and anyone to come on and take their knowledge and passion and share it with the world, it allows people to bring their own background or culture or diverse interest to how they're sharing a particular subject. And what it means is there isn't one way or one way to teach or one way to learn or one person to learn from in any given subject. So there's some amazing impact we see there in addition to the businesses that we're seeing built. And then for me, I'm just inspired every day to get up and work with the amazing team we have and very excited about that.

We have another question, Greg. How do you think about growth and profitability in light of the changing market dynamics that we're seeing?

Yes, I think that's a great question and obviously, top of mind for a lot of investors in particular and companies as well. We continue to be a growth company, and our primary focus is on growing the business to capitalize on this massive market opportunity. But we're also very conscious of spend and want to grow efficiently. And I think you saw that in some of the moves we made earlier this year and us making them even earlier than the majority of companies out there, who are now taking a hard look at spend. And I think we're better positioned from a cost structure perspective following that workforce reduction and in tuned to the changes in pace of the capital markets, we're not building our business on the basis of pace in the capital markets, and we're but we are building a path to achieve profitability in the future. And in the near term, we value growth over profit because we think taking advantage of this huge market opportunity is really why people invested in us. And it's the best path for us, but that's not to say we're not being very efficient with our spend and building that path to profitability. And I think our balance sheet is strong enough to support the position we've taken and how we're moving forward in that.

Thanks, Greg. We have another question, and that question is how do we differentiate from other similar platforms?

Yes. Great question as well. I appreciate that. And so when you look at competitors in the space, I sort of like to look at it as a concentric -- series of concentric circles depending on how close they are to us, right? And so when you go broad, which some people will compare us to marketplaces like Udemy, Coursera Masterclass, we're quite different than them and really don't actually see them as competitors or bump up against them when it comes to acquiring customers, but it's good to differentiate that. So the big difference there when you look at the marketplaces is they have one website, one brand and they sell their courses, and their primary -- their customer really is the end consumer of the learning content. And the big difference for us is we give our creators the ability for them to build their own brands, their own website. So we host tens of thousands of sites, each one with their own brand, courses, and education on it. We give full control to the creators to build their own look and feel and content control their data, control their pricing and have a direct relationship with the consumers of their knowledge, products and learning experiences. So that's at one level. Then if you go into another circle, you have even the, say, the YouTubes, Instagrams, TikToks, paid memberships that we're seeing happen there which I think is a great validation of our market, and we actually strongly encourage our creators to use those as a way to kick start their business, its content generation, its audience generation, and it works in great synergy, and it's actually been helpful at growing the success of our creators by using those platforms. The big difference there, obviously, too, is that with our creators, they're not subject to the algorithm of search and when they show up in those platforms, but they get to their own business again on their own brand. So some big differences there and not really so much in the direct competitive environment. When you get down to our more direct competitive environment, actually a step closer, you've got the learning management systems, which is something that Matt and I looked at early on when we were starting to build the first course. And really, the difference is there is they're built for a different use case in a different kind of customer, largely for the larger corporate enterprise or school, university, educating stakeholders within the institution, again, where commerce and branding is not a primary focus for those systems. They also tend to be more expensive and difficult to set up and manage. When you get to our closest competitors, really some of the ways that we differentiate deeply is in, one being a truly open platform with open APIs, App Store, and that really allows creators as they scale to go and build on top of Thinkific customize it, or just connect it to all the other tools in their business from their accounting and tax software to say, their e-mail or marketing automation, which is really helpful for them as they grow, but we give them everything they need to build their business right on Thinkific, but then as they want to connect it, they're able to do that. And so they don't run into limitations with us as they scale. That ties in as well to part of our differentiation, which is we truly are seen as one -- as a platform that people can scale on both from the infrastructure we've built, some of the security features we have and then the support we give for scaling customers. So it's really easy for people to start a business, but then they know that as they scale where they're to properly support them. And then we tend to have a deeper focus on learning and learning experiences and so going deeper on creating amazing learning experiences as opposed to some of our direct competitors, which are more about just build a business online or generate internet money. So there's a number of ways there at the high level, and then if you go deeper down into feature sets, obviously, there's much deeper levels of differentiation that sort of mirror some of those strategic choices we've made.

Thank you, Greg. I can advise that there are no further questions on the floor.

Thanks, Ed. Okay. Thank you, everyone, for attending. Really appreciate the questions and you showing up and taking an interest in Thinkific. On behalf of the company, our Board of Directors and our whole team here, I'd like to thank you for attending our inaugural AGM as a public company. Thank you.

This concludes the meeting. You may now disconnect. .