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 will be deemed to consent to the recording, transfer and use of the same. If you disclose further information on other person in today's meeting, you will be deemed to represent and warrant to Computershare and the company that you first obtain all required consent for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. It is now my pleasure to turn today's meeting over to Fraser Hall, Chairman of the Board. The floor is yours.

Hello, and welcome to the Annual General Meeting of the Shareholders of Thinkific Labs, Inc. Please note that today's meeting is being recorded. If you participate in today's meeting, disclose personal information. Sorry, I should jump in to my portion. Thank you, Valerie. I'd like to welcome you all to the 2023 Annual General Meeting of Shareholders of Thinkific Labs, Inc. I'm President of Chair of the Board of Directors and joining me are other members of the Board of Directors. They are Greg Smith, Thinkific CEO; Melanie Kalemba; Steve Krenzer, who is the company's President, Katie May and Brandon Nussey. Non-director participants include Corinne Hua, CFO; and Ed Ma, KC, VP, General Counsel and Corporate Secretary. The company is holding the meeting in a virtual format. There will be a brief management presentation after the AGM is concluded. Shareholders are allowed of the opportunity to participate and vote at the meeting through Computershare's online meeting platform. During the meeting, we'll have a question-and-answer session. You can submit your questions or comments at any time by clicking the Q&A icon. However, to be sure you have your time to submit your questions, you may simply write that question or score, so that we know a question is coming because it may take you longer to type. Voting on 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 will appear to show that 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 of the poll closes will be recorded. Totals in favor or against or held, as the case may be, for each resolution item will be tallied by the scrutineer once the 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've not already voted by proxy, unless you wish to change your vote -- sorry, and you have already voted by proxy, unless you wish to change your vote, you do not need to vote again. Those who intend to have registered as guests are not able to move motions, submit questions, vote or take any other action. Once the polls close, your vote will be automatically be submitted and the resolution will reflect closed on the virtual meeting site. For efficiency, we'll be opening polls on the matters that will be voted on at the beginning of the meeting once quorum is established and will close the polls after the last matter is dealt with. Questions or objections in respect of a motion can be submitted by any registered shareholder or duly appointed proxy holder using an instant message service of the online interface. Please note there will 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 Q&A icon on the online interface. Again, if you feel you do not have enough time, please indicate that you have a question using the Q&A icon and we'll pause until you have had the opportunity to ask your question. So expect the meeting in accordance with the articles of the company, I'll move motions and no motion needs to be seconded. I now ask the 2023 Annual General Meeting of the shareholders of Thinkific come to order. Unless there's an objection, I'll preside as Chair of this meeting, and I will ask Ed Ma, KC, VP, General Counsel and Corporate Secretary of the company to act as Secretary of Meeting. In addition, unless there is an objection, I'll appoint Teresa Kwan of Computershare Investor Services 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 May 11, 2023, the record date for the meeting. Additional copies of these materials can be accessed through today's virtual meeting platform by clicking on the documents tab on your screen. Unless there is objection, I will dispense with reading of the notice of meeting. The quorum for the transaction of business of the meeting is 2 persons who are or who represent by proxy shareholders who, in aggregate, hold at least 25% of the issued securities entitled to be voted at the meeting. The scrutineer's report shows a quorum of shareholders of the company to be present. Accordingly, I declare that the required quorum of shareholders is present and the meeting is duly properly constituted for the transaction business. I direct that the confirmation of mailing of notice of meeting received by Computershare Investor Services Inc. and the scrutineers' complete report on attendance be annexed to the minutes of the meeting. I declare the polls now open. The last Annual General Meeting of the company was held on June 8, 2022. The minutes of that meeting are filed in the company's minute book and are available for inspection. Unless there is any objection, I will dispense with the reading of the minutes of 2022 Annual General Meeting. We'll 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, 2022, scheduled with the auditor's report with shareholders thereon -- to the shareholders thereon. Copies of such documents have been mailed to the shareholders who requested such statements and are available on SEDAR. Copies of these materials can be accessed through today's virtual meeting platform by clicking on the dockings tab on your 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 item 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. I now call a motion to set the number of directors at 9 for the ensuing year. Are there any questions on this motion? There are no questions. I will now ask shareholders and proxy holders present to vote by ballot, saying the number of directors if you have not already done so. We'll now pause for a moment 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 on to the next item of business. The next item of business is the election of directors. The management information circular contains the names of 6 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 appointment of their successors; they are Brandon Fraser Hall, it's myself, Melanie Kalemba, Steve Krenzer, Katie May, Brandon Nussey and Greg Smith. 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 will now ask shareholders and proxy holders present to vote by ballot on the election of directors if you have not already done so. We'll now pause for a moment 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 will now move to the next item of business. We'll 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 the auditor's remuneration. Are there any questions on this motion? There are no questions. I will now ask shareholders and proxy holders present to vote by ballot on the appointment and remuneration of the auditor, if you have not already done so. We'll now pause for a moment while votes are recorded on this motion. [Voting]

Voting on all matters have now closed. We'll 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 business as set out in the notice of meeting has now been dealt with as there is no further business, I now declare that the meeting is terminated. And I now turn the floor over to Greg Smith for a brief management presentation. Thank you.

Okay. Good afternoon, everyone, or good morning, depending on where you are. Thanks for attending. Thinkific AGM. It's my pleasure to be here and give you an update on where the company is at and why we're excited about our future. Just before I start my remarks, please refer to the disclaimer in the presentation on our website pertaining to our use of non-IFRS measures, industry metrics and forward-looking statements in today's presentation. At Thinkific, we continue to execute against our strategy, and we remain focused on helping Creator educators succeed. And when they succeed, so do we. Our platform gives Creators everything they need to build market and sell their products and to run their business seamlessly with Thinkific while providing a platform that can scale to support them as they grow. And this ensures Creators are able to start with Thinkific and grow to nearly any size. The value we deliver falls into 4 major needs. There is the ability for them to create learning products quickly, e-commerce options so they can monetize their knowledge, the ability to deliver their learning products and of course, engage with their students and customers and robust data and analytics and tools to help them manage their business. Our market opportunity is enormous, with the Creator economy as a whole, estimated at $250 billion today and growing. And within this large market, we're very focused on the Creator educator segment estimated at over 20 million content Creators in small businesses that form part of our available market. One great example is our customer, the Market Gardener. They're passionate about the simple act of growing healthy food for communities. In 2017, the Market Gardener used Thinkific to create a course to teach other farmers how to expand and grow their businesses. Since then,, they've educated more than 6,000 farmers around the world, collectively feeding hundreds of thousands of people, better food through the passion and power of sharing knowledge as a tool for business growth. The business has grown far beyond the level of economic success that they could have achieved through farming alone, earning millions in revenue to date. And we have tens of thousands of Creators that are all creating impact in their own way and earning income while doing it. Turning to our business performance. In 2022, we continue to grow our business. At the same time, we knew we had to reduce our cost structure, an initiative we began in late March of 2022 with a focus on our path to profitability. We did this while not losing sight of support on our key growth initiatives that help our customers succeed. Our annual revenue grew 35% to $51.5 million, and we achieved this by growing ARPU, our average revenue per user and our total paying customers. Our net loss for the year was $36.4 million. Our adjusted EBITDA loss came in at $26.4 million, which was an increase from $19.5 million in 2021. Our loss grew in 2022 relative to 2021, but based on the cost structure reductions that began in the first quarter of 2022, we saw our adjusted EBITDA loss continuously improve throughout the year. We closed the year with USD 94 million in cash and no debt. Last month, we reported our first quarter of 2023, and we were pleased with our performance and continue to see progress in our key performance indicators. We delivered revenue of $14.1 million, which is above the top end of our guidance range, and adjusted EBITDA was better than what we guided to coming in at a loss of $3.1 million. Other notable results included total paying customers, which were 34,000; the second consecutive quarter of customer growth. ARPU, average revenue per user, grew to $139 per month in the first quarter, up 16% year-over-year. We also reached an all-time high in GMV or gross merchandise volume of $113 million, and our Thinkific payment business continued to perform well and more on that in a few minutes. We also made significant progress in our goal of exiting the year, that's this year, at a profitable adjusted EBITDA run rate. Our adjusted EBITDA loss in Q1 was $3.1 million, a 67% improvement year-over-year or less than 1/3 of a loss in the same quarter in '22. Our cash and cash equivalents balance on March 31 was $89 million with no debt. We believe the strength of our balance sheet, in combination with our declining cash requirements for operating needs, is an asset that provides us the stability and the flexibility to execute on our long-term strategy. We have clear priorities for this year, and we're firmly focused on achieving them. We are helping more Creators to both start earning and then scale their business by selling more. We're driving ARPU growth in our business through additional features like branded mobile. We're going to achieve adjusted EBITDA profitability run rate exiting 2023, and we are relentlessly focused on continuing innovation to support our Creators, and this includes working with AI to empower more Creators as well as our recent launch of our mobile apps for Creators. Thinkific is also delivering for customers at the higher end of our market, bringing the power of education as a growth tool to businesses. That's where Thinkific Plus comes in. And we see more and more larger Creators and businesses moving to Thinkific Plus for the service and features it supports. Blisspot is a prime example of an organization that has harnessed the immense capabilities of Plus to build and scale an incredible well-being platform, the Australian SaaS company, which is known to many as the Netflix of Wellbeing sells access to its platform to small and midsized companies who are able to provide their customers with an exceptional array of resources to support their mental, physical and emotional health. Thinkific Payments continues to perform well with the penetration rate exceeding 26% in GPV, that's the amount of payments processed on Thinkific payments of $29 million. We also announced the key milestone in early May, processing over $100 million in payments volume. As we bring on more Creators and these Creators find success on our platform, we expect the number to grow at an accelerated rate. Thinkific Payments was launched in November 2021 and the growth we have seen here has exceeded our expectations. We built it to improve the payment experience for our Creators, simplifying the administration they face as well as helping them sell more. We will continue to focus on building features that deliver on that goal, including continuing our strong and successful relationship with Stripe, a leading payment platform. For example, we announced that Thinkific is one of the world's first platforms -- first companies in the world to integrate Stripe apps. This increases the tools available to Creators that help them reduce admin and maximize time spent on building remarkable businesses. One of the most important things for new Creators is to see success quickly and be provided support in launching their online learning business. We continue to build tools and programs to support this. One program is the accelerator program that supports new Creators through the first steps of their journey, building a course and creating and growing their audience. As you are well aware, artificial intelligence or AI is becoming pervasive. AI represents immediate and exceptional value to Creators and the entire Creator economy. And Thinkific is committed to leveraging this technology to empower our customers and accelerate their success. One of Creators biggest challenges is the time and motivation to develop products and take them to market. AI has the ability to accelerate this experience dramatically, which could not only help Creator educators build and scale their businesses faster, but also widens the scope of who can be a successful Creator educator. Once a Creator gets up and running, we want to ensure they have the tools to sell more. This includes features like order bumps or performance checkout. For example, order bumps allows, do you want fries with that at checkout where people can add on additional products when they're purchasing the first one. Upcoming products that will help customers sell high ticket education by providing payment options include buy now, pay later, currently in beta. It's a credit option that significantly reduces the administration required to offer student payment plans and makes it easier to sell and to purchase higher-priced courses and education products. As I mentioned earlier, innovation is key to supporting our Creators and ensuring we have the tools they need to help their business. A prime example is Thinkific Communities. We introduced this in Q3 last year. It's a stand-alone digital learning product that is now on par with courses and can be created or offered independently or in combination with courses. Thinkific Communities also creates an alternative starting point for Creators who can now start with the community instead of a course. It's an approach that's been building momentum as it enables Creators to monetize their audience faster. With communities, we see Creators launching faster, selling and earning more and having a bigger impact. In mid-April, we announced 2 mobile offerings that allow Creators to reach their audience anywhere, anytime. Thinkific Mobile is a dedicated app that makes course content, communities more easily accessible to students on the device they use the most, their phone. This app, available on both the iOS and Android platforms under the Thinkific brand, allows our Creators and their students to leverage the power of a mobile app and is available for customers today. For Creators who want a customized app under their own brand, our branded mobile offering is a solution that provides customers with just that, their own customizable app for their own online courses and communities. The reception so far has been strong, and we have a waiting list for Creators who want our customized branded mobile solution. We look forward to sharing with you some of the innovative ways our Creator educators adapt their mobile offering to reflect the mobile learning environment. And none of this would be possible without our amazing people. They're an extremely engaged and high-performing team that has an inclusive and value-focused mindset, the relentless focus on supporting our Creators succeed in supporting the company is incredibly valuable and very much valued. Before we close, I want to share with you another story, Ellie Diop. Ellie Diop is a business and strategy coach and author and a speaker. She has an incredible back story of how she kicked off her business using just her stimulus check back in 2020 to buy a new phone and some good lighting. She started off on another platform, but quickly switched to Thinkific as she wanted a platform that better supported her scaling business and had a superior student experience for her customers. Ellie loves that she was able to create a representation of her brand without technical skills. She now runs a 7-figure business and has a team of over 12 people. Ellie really embodies what Thinkific is all about and what we're striving for every day, supporting the success of our Creators. In closing, thank you for joining us today and for your interest and investment in Thinkific. At this time, I'll open up the platform for questions from any shareholders.

Thank you, Greg. We have several questions for you and the rest of the team. The first question is -- what return is the company currently earning on its idle cash? Is the board worried that by purchasing Thinkific's own stock will not be able to generate return higher than the interest earned on the idle cash balances?

Right. Janet, can you repeat that? And I think on the return piece, Corinne, if you are there and could jump in. I don't know if that's something that we share in our financial statements, but it sounded like there was maybe an assumption there that we were purchasing our own stock or maybe you can clarify that piece of the question?

Sure. So the first part of the question is what -- why don't you deal with the first part? Company currently earning on its idle cash?

I'm happy to take that question. So we disclosed the interest income that we earn on a quarterly basis on the financials. And so that's the best place for today and we've got a regular and up-to-date portfolio that we manage our cash with and earn a healthy market rate.

Thank you, Corinne. I think the second question is speaking to the Board and whether it's worried about purchasing Thinkific's own stock and whether it will be able to generate a higher return by doing so than the interest earns. I do not know if the person who has actually asked this question, you can clarify that of course. So we can circle back to that answer. I don't think at this point, it's not clear.

Generally on the topic, I can kind of -- generally... I could probably speak generally to the topic and she'll probably cover whatever the question is. There is -- so we are not currently purchasing Thinkific stock with our cash and have no immediate plans to do that. So just I think if that clarifies if there was some confusion for anyone there in reading that question even that we are currently repurchasing stock, that's not something we're currently doing. But we're always looking further to make the right decision for the capital that we have. And I think our balance sheet right now, as we highlighted earlier today, is a huge asset for Thinkific, it opens up a lot of doors for us, especially as we cross that line into profitable run rate shortly. So excited for us to continue to explore ways to expand that for high returns for growth in the business.

Thank you, Greg. And last question we have, is since the company expects to be free cash flow positive in the very near future, does it make sense to retain so much cash?

So a similar topic. And I think, yes. Corinne, do you want it? Or do you want me to jump in?

I am looking at it. Go ahead.

I was just going to say, I think the cash for us right now is a huge asset. We're really focused on crossing that line into profitability. And so -- but as we're getting near and near to that, we're definitely exploring how do we best leverage this asset. And so nothing to share at this point in terms of exactly what we're doing with it. But just I think aware for people that we plan to be very responsible. We see it as a strong asset, and we don't want to put ourselves back into a burn position where we're just burning cash. So we'll be quite responsible in terms of growing it, but use that as an asset to amass further growth for the company. And just looking at the overall size of our market and opportunity in front of us, I think going forward, it's probably best invested in looking for ways to continue to tap into more of the market and grow the company.

Thank you. The next question is with respect to speaking to the confidence in the future of the company. So specifically, Greg, if you can speak to what provides specific confidence in the future?

Yes. There are so many factors here that I think are quite positive for us right now. First and foremost, we've got an exceptional team. And we've definitely made a lot of change through our team over the last couple of years, and we're in a great place right now with some exceptional people doing some really exciting things. Internally, there's a lot of innovation and excitement going around partially around AI and unlocking that. We were lucky that we had a lot of talent inside the company that understood this well even in advance of the launch of chatGPT. Additionally, when we look outside the company, we just see significant growth continuing and the Creator economy growing interest there. And within that, the things we offer, really digital learning products is still a very small segment, but growing. And what we're seeing is, more and more, there's a movement of Creators and businesses to really diversify their revenue and also to own their own platform and audience rather than relying on one of the existing large platforms like, say, a YouTube or a TikTok, we see more and more movement within the Creator economy. People wanting to own their audience, own their platform, own their brand on something like Thinkific and leaning more into diversifying revenue beyond things like ads and brand sponsorships into digital products. And so that's really an exciting trend for us. And then, of course, just AI as a tool to unlock even more. Historically, we've always seen the biggest challenge our customers face is getting something up and built and running and then taking it to market, and there is so much that AI can unlock for them. And as I've shared earlier, I think the 2 levers that really unlocks is, it makes it faster and easier for people to get to success and it unlocks the door for so many more people to be able to jump into this market and see success in it. So we're pretty excited to leverage that for our customers. And then the end result of all of that is we're in a growing market with more people with it becoming more and more accessible to more people, trends within the market, leading people to what we offer. And when that happens, then we have successful customers, we've built a business model that ties their success to ours. So as they grow, we grow. So all of that combined gives me a lot of confidence in the future.

Thank you, Greg. We have 2 more questions. One is we've received a couple of questions with respect to the stock price performance over the past. And the lot of question because there have been a couple of questions is the company's view on the stock price performance and whether the company is deploying it.

Sure. Happy to speak to that. So I think it goes without saying we're not happy with where the share price is with the performance over the last couple of years in terms of share price. I don't believe it reflects the underlying value of Thinkific. There's definitely some factors beyond our control, like general investor sentiment around tech and small cap in the market. I think if you compare our share price to other technology companies, you'll see similar trends over the last couple of years. But there are things within our control, and that's how we manage and drive our business. I think we very, very quickly saw some of the turning of the economy there and move quickly to change our cost structure and make fast decisions to move in that direction. So hopefully, that builds confidence in the investment community in terms of the kind of decisions and how quickly we make them. And we've outlined a path to continue to grow that we believe is the right one and growing responsibly. So I'm confident that as we have a very strong balance sheet, which puts us in a good position, certainly given the state of the world these days. We have a lot of opportunity in terms of market size and technology we can unlock. And if we continue to invest in our strategy, I'm confident that over the mid and long term, we'll continue to grow this company in a very healthy way. And I think, over time, market will see that and that will unlock further value in our share price.

And the last question I have is around the new mobile app and what Thinkific believes is the opportunity for that new product?

Yes. So the -- there's 2 mobile apps that are highlighted, there's the Thinkific Mobile app, which is available to all customers. And so that's under the Thinkific brand. And then -- and that's exciting because I think it's something that our customers have wanted for a long time. So we're excited to get that out there. I think that makes us more competitive in the space. It means there's more value for customers, allows them to be more successful by just using that and deliver more value to their customers. And then the real opportunity for us as well is this branded mobile app. And that really fits in line with our promise, brand promises to our customers of putting their brand in front and center. And so we really want to give our customers the ability to have their brand in front and center in the mobile experience. And so technology has now evolved to a place where we're able to do that. And so we were excited to be able to offer this for customers to have their own branded experience. I think this gets them out in the app stores in front of customers where they are consuming a lot of content. And if combined with our communities offering, it really allows for continued engagement with their customers. So for example, if you're running a community and you have that live on someone's phone with updates on the phone, that pulls your students or your customers back into that community experience. So that's just one of the ways I think it adds a lot of value to our customers. And the end result of this is it should allow them to keep their customers more engaged and continue to sell to them and sell more to them. And again, as hopefully, I say this too often, but as they are more successful, so are we more successful and our business model is really set up to tie our success to their's. And so seeing this branded mobile offering in the wait list that is growing for it and the excitement of customers around it. It's looking good for that offering, both to the success of our customers and continued success for Thinkific.

Thank you, Greg. We have no further questions at this time. So I think we can hand the call back to Valerie.

Thank you. This concludes the meeting. You may now disconnect.