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

Good afternoon. My name is Ina, and I will be your conference operator today. I would like to welcome everyone to Thinkific's Fourth Quarter and Full Year Fiscal 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 5, 2025. I would now like to turn the conference call over to Mr. Joo Hun Kim, Head of Investor Relations.

Thank you, and good afternoon, everyone. Welcome to Thinkific's fourth quarter and full year fiscal 2024 results earnings call. Joining me today are Greg Smith, CEO and Co-Founder of Thinkific; and Corinne Hua, CFO. After the prepared remarks, we will open up the call to questions. During the call today, we will discuss our business outlook and make forward-looking statements that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. These comments are based on our predictions and expectations as of today. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our regulatory filings that were filed earlier today. Our commentary today will include adjusted financial measures, which are non-IFRS measures. They should be considered as a supplement to and not a substitute for IFRS measures. Reconciliations between the two can be found in our regulatory documents, which are available on our website. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Such key performance indicators may be calculated in a different manner to similar key performance indicators used by other companies. I should also note, we have a slide deck that supports our remarks available to download on the webcast interface or on our website. And finally, all dollar amounts discussed today are in U.S. dollars, unless otherwise indicated. I will now turn the call over to Greg Smith, CEO and Co-Founder of Thinkific.

Thanks, Joo Hun. Welcome, everyone, to Thinkific's Q4 and full fiscal year 2024 earnings call. Thinkific's unwavering commitment to customer success continues to drive both innovation and solid financial performance. 2024 was pivotal for Thinkific as the company transitioned from cost cutting to a strategy focused on profitable growth. We accelerated investment in the business, which enabled us to scale Plus and expand the penetration of Thinkific Commerce into our customer base. We stabilized our top line growth rate and generated strong cash flow from operations. The level of innovation at Thinkific is strong and includes significant investments in AI implementation to accelerate value to our customers and to their students. The exceptional value we provide to our customers was evidenced as we earned a place in G2's 2025 Best Software Awards recognized among the world's top software companies for education and customer service software. Looking ahead to 2025, we acknowledge there is still significant work to be done, and we face some near-term headwinds. However, with a strengthened senior management team and a much improved strategy, I have strong confidence in our ability to execute our mission to help our customers grow their businesses. And as they succeed, we'll see Thinkific grow alongside them. Over the past quarters, we've been building our senior leadership team with a specific goal of delivering efficient growth. To that end, senior management has developed and is now executing a more focused strategy, one that really leans into our strengths and takes a more focused view of the customers that we can serve best. I believe we've identified an excellent opportunity to fundamentally change for the better, and we are in the midst of that change now. As we move to take advantage of this opportunity as quickly as possible, it will mean some near-term impact on results. In a moment, I'll give you a high-level view of the changes we're making, but let me start with some context on how we got here. In the back half of 2024, we completed a comprehensive study of our market. This involves surveying thousands of customers, potential customers and included competitors' customers. We combined the results of this research with an analysis of our market, competitors and our own business and data to develop our strategy for the years ahead. During this process, we identified some significant opportunities for us to differentiate in the market and open a path to further growth by prioritizing a segment of customers that we are best situated to serve and they're best able to succeed on Thinkific. We also identified some mistakes we were making, specifically putting too much effort and energy into attracting segments of customers that were less likely to succeed on Thinkific. This mistake is reflected in our GMV and some of our growth measures, particularly in our self-serve business. However, the exceptional growth in Thinkific Commerce and Plus is an indicator of a bigger opportunity for us, specifically focusing on these higher GMV and more likely to succeed customers. We'll still be serving experts, entrepreneurs, academies and small businesses, but with a real focus on those that have the characteristics we've identified as an ideal fit for Thinkific, those that we can serve best and deliver great results to. This is a significantly sized segment of our TAM, representing those that are most likely to value Thinkific's specific strengths. They are also most likely to succeed, stay longer and have higher ARPU, representing a total addressable market north of $25 billion. And within that, we've identified significantly underserved segments. As we look forward, we will dedicate our efforts to these customers. This narrowing of our customer focus allows us to really double down on our strengths and get much better return on our investments. It allows us to better focus our product investments to meet their needs and our marketing to attract them. On the R&D side, we'll be focusing our road map on ensuring we are a unique and premium offering for these customers. They have unmet needs that will allow us to differentiate. Additionally, the work we put in -- we've already put in, in evolving our AI platform will allow us to better serve this segment of the market. And I see significant opportunities for us to innovate with AI that will be particularly attractive and unique for these customers. For go-to-market, we've already started to evolve our messaging to better attract and retain this customer segment. We already have a healthy number of these customers using Thinkific today. And with this focused effort to serve them, we believe we'll make them happier, more loyal and more importantly, more successful in their own businesses as we innovate for their needs. While this transition upmarket is already in motion, it will take some time, and so we expect some impact on short-term GMV and ARR as part of this transition. We'll be making this move as rapidly as possible. I will elaborate more on this plan and the impact we expect it to have on growing revenue shortly, but first, a little about Q4. While solid overall, we came in at the low end of our guidance for Q4. As highlighted, much of this is tied closely to the mistakes we've made, and we expect to improve significantly with our new focus. Foreign exchange did have a large impact on net ARR growth. Plus bookings were consistent with prior quarters, but back-end loaded, which delayed revenue recognition into Q1. We observed a slowdown in GMV and GPV growth, which affects our commerce revenue. GMV is a metric that we have little influence over in the short term, but with our improved customer focus, we expect to see long-term improvements here. We've been open and transparent about the challenges we face here, and I reiterate that we know what the problems are. And while there's much to be done, we're on a path that I'm confident will deliver strong results in the future. At the same time, we've seen strong growth in penetration rates, GPV as a percentage of GMV at 52%, indicating the strength in our Thinkific Commerce innovations and its attractiveness to customers. The combination of our strength in Plus and Commerce ties very closely to our path forward, and we'll be doubling down in these areas. We continue to grow profitably. In addition to Amanda and Ryan, we've added experienced execution-focused talent, and I'm confident we have the team to deliver on our more focused strategy. We've made significant improvements in activation, which is the process of onboarding new customers and ensuring that they get value from Thinkific. The combination of user experience design improvements and innovations with AI-enabled onboarding have seen positive results in the early stages of our customer journey. We have begun specifically targeting higher GMV customers and the success we've had with this group validates our market research and our new direction. In September, we signed Scott Galloway's company, Section. Scott Galloway is a marketing professor at NYU, who reaches millions with his podcast, newsletter and YouTube broadcast. His company, Section, delivers AI education to teams and individuals to improve efficiency, productivity and creativity. Section joined Thinkific to increase their distribution through our unique partnership with Spotify. This quarter, we added Keith Ferrazzi, recognized global thought leader in executive leadership and change management. He and his team transformed Fortune 500 executive teams to help them achieve unprecedented results through high-performance teams. He's the #1 New York Times best-selling author of 5 books and is often featured in many leading publications like the Wall Street Journal, Forbes and Fortune. Keith joined Thinkific to release the Chorus based on his latest book, Never Lead Alone. We also signed Charles Conn, who is the Chairman of Patagonia, Co-Founder of Monograph Capital, former CEO of the Rhodes Trust, and author of Bulletproof Problem Solving and The imperfectionist. Charles joined Thinkific to scale the online chorus version of Bulletproof Problem Solving, and our high-growth customer team is partnering with him on his transition to our platform. We're looking at ways to accelerate growth in Plus from its already high level of growth. On subscription revenue alone, Plus customers start at an average pricing tier that's 20x higher than a typical self-serve customer. There is an opportunity here with renewed investment to both attract more new customers to Plus and also see more upgrades from within our base. One example this quarter is a multibillion-dollar software company that is in the security and identity space that was a self-serve customer. Realizing they needed a secure enterprise-grade platform along with an upgrade path to deliver higher quality, personalized service so they could turn it into a profit center, we were able to successfully upgrade them to Plus. We are also looking to better identify customers in our sales funnel that would be better off starting with Plus rather than trying out self-serve and upgrading at a later date. We've launched an outbound channel for Plus. Here, we are targeting businesses in verticals where Plus is already enjoying significant levels of success. Historically, all of our Plus leads have come inbound, and this addition opens a new growth opportunity. One area of differentiation from our peers that drives a lot of our success, especially in Plus is Commerce. Specifically, the fact that its core to Thinkific's offering and built into everything we do. We are leaning into this strength as we think it has several untapped vectors for growth. We have discussed in the past how Thinkific Commerce users see transaction sizes that are 31% larger than customers who don't take advantage of Thinkific Commerce. There's a real opportunity here for more of our Plus customers to take advantage of this and switch to Thinkific Commerce to increase their sales. We're expanding our commerce offering internationally, bringing North American features like our sales tax solution to the EU and U.K. with multicurrency options in the pipeline. This spring, we'll be rolling out more functionality required by larger customers, especially those in Plus. Last quarter, we started with ACH, which will soon be followed by custom invoicing and improvements to group orders. Currently, most of our transactional revenue comes from self-serve customers. However, Plus customers represent a significant avenue for revenue growth. By eliminating the barriers Plus customers face in adopting Thinkific Commerce as their complete commerce solution, we can tap into this and capitalize on this significant opportunity, all the while driving increased revenue for our customers. Corinne will go into more detail on this opportunity for growth in both GMV and GPV. While it will take time to roll out the required functionality and get our Plus customers on to Thinkific Commerce, this impact can be transformative. Finally, we want to better monetize our R&D efforts by packaging them to be more results oriented, specifically to drive more revenue for our customers while ensuring we attract and retain the customers that we are best suited to serve well. We're developing a product road map that has a well-structured strategic framework to assist our customers in growing their businesses. This contrasts with the more tactical features-based planning approach that was used while we were cutting costs. Here, I'm going to be more circumspect on the details we reveal, but we intend to integrate impactful products into the platform, features that are often sold as stand-alone offerings by other vendors. We're actively identifying additional product opportunities. And in each case, we'll carefully weigh the time required for internal development versus acquisition. We're open to small tuck-in acquisitions if we believe it's a strategic fit and can significantly accelerate our product road map. Additionally, the foundation we've laid with AI opens the door to some exciting innovation that we expect to release later this year. In summary, we are following a much more focused strategy that leans into our strengths. First and foremost, a much clearer view of which customers we can serve best informs all of our strategy. This allows us to better position ourselves with a unique and valuable solution to meet their specific and often unmet needs. Our go-to-market will evolve to be much more focused on attracting this type of customer. While the core of what Thinkific is remains the same, this is a profound change in how we execute and serve our customers and should deliver significant benefits to our best customers while driving improved results for Thinkific. Over the past few quarters, we've assembled a highly capable team and developed a focused strategy to better serve a large and untapped market. I have conviction that our focused strategy and strong execution will transform this company, resulting in significant long-term growth and enhanced shareholder value. With that, I'll turn it over to Corinne.

Thanks, Greg. Good afternoon, everyone. I'm pleased with the ongoing transformation of Thinkific. In 2024, we transitioned to a strategy of profitable growth, generating $7 million in operating cash flow versus a loss of $5.4 million in the prior year and experienced success in some key areas of growth, Thinkific Plus and Commerce specifically. During the call, I'll review our Q4 financials and provide some key highlights from the full 2024 year. I'll also provide some additional color on commerce revenue, the impact of GMV and the opportunity in Plus and end with guidance for Q1 of '25. For the fourth quarter, revenue was $17.6 million, up 13% from the prior year, driven by continued strength in Thinkific Plus and Thinkific Commerce revenue. Revenue was at the low end of guidance as Plus bookings were more back-end loaded than expected, pushing revenue into Q1. And we experienced some headwinds from slowing growth of GMV, which impacted commerce revenue. GMV came in at $115 million. While GMV showed a seasonal increase from the prior quarter, it was flat from the prior year. Revenue for the full year was $67 million, also up 13% year-over-year. Commerce revenue of $3.1 million was up 73% year-over-year. We continue to see increased adoption by our customers and saw particular strength in the U.K. and Europe this quarter following the release of our sales tax solution in those regions. Penetration broke through the halfway mark and grew to 52%, up 500 basis points from 47% in Q3. As a reminder, penetration is measured as GPV as a percentage of GMV. For the year, commerce revenue of $10.2 million was up 77%, largely due to the increased adoption of Thinkific Commerce by our customers. While commerce revenue growth was strong, GMV growth came in below where we had expected. Q4 GMV of $115 million was up 3% quarter-over-quarter, but flat year-over-year. For the full year, GMV of $459 million was also up 3%. GMV growth is a function of a few factors, including the level of success our customers are having on our platform, our ability to attract new customers who monetize on our platform and our ability to move through product innovation, transactions that are currently processed off platform on to Thinkific Commerce. As Greg discussed earlier, we have placed too much emphasis on attracting customers less likely to succeed on Thinkific and this is impacting GMV growth. That said, I'm confident that our more focused strategy that leans into Thinkific strength up market, where we expect to attract higher GMV customers will return us back to solid growth. This, combined with product innovation to bring off-platform transactions on to Thinkific Commerce are the opportunities we are focused on in 2025. ARR of $58.4 million was up 6% year-over-year and $0.4 million sequentially. This net ARR add in the quarter was negatively impacted by foreign exchange rate fluctuations. ARR would have been $58.7 million, up $0.7 million at constant currency to Q3's FX rates in these regions. We have exchange exposure in revenue to the pound and euro as we charge in those local currencies. While foreign exchange impact on revenue this quarter was small, should rates continue where they are at, the impact will have an effect on revenue going forward. Our guidance is currently including a 40-basis point impact over the full year of 2025. We expect this exposure is worth the risk as it removes friction for customers when they are containing their local currency, making our offering more attractive in these regions. Foreign exchange fluctuations impact ARR more than revenue due to the way each is translated. As a result, currency movements towards the end of the quarter can have a greater impact on ARR than on revenue. ARPU grew 11% to $167 per month as we continue to execute on growing Plus and Commerce revenue. Now on to revenue by customer group. Self-serve revenue, whose customers are primarily entrepreneurs and experts saw revenue growth to $13.3 million, up 9% year-over-year. For the full year 2024, self-service revenue was $51.2 million, also up 9% year-over-year. The growth in the quarter and the full year was a result of strong commerce revenue growth stemming from the strong increase in the adoption of Thinkific Commerce. Over the past 12 months, we have been behind on plan on self-serve subscription revenue growth as more recent cohorts of customers have not been as successful as in the past. We are addressing this by narrowing our focus on more sophisticated customers, along with continued efforts to improve the activation flow to get them up and running faster. These more sophisticated customers earn higher GMV, which will also drive higher commerce revenue. This transition will take time to materialize, but we are confident in our ability to find success as we narrow our focus on the right customers. Thinkific Plus revenue was $4.3 million, up 27% in Q4. For the full year, Plus revenue of $15.7 million was up 29% year-over-year. We are pleased with the execution in Plus, which had consistent new bookings but was back-end loaded and delayed recognition into Q1. The Plus sales team had been ramping nicely and our outbound channel represents a significant opportunity for us. Our strong close rates, short sales cycles of around 30 days and our increasing ability to close multiyear deals gives us confidence in the continued growth of Plus customers upmarket. Along with better identifying new opportunities in our sales funnel, I believe we'll be able to maintain the current growth rate in Plus into 2025. I'd also like to elaborate on Greg's commentary about commerce revenue potential in Plus as it's an important point. At present, the vast majority of our commerce revenue is from self-serve customers. The primary impediment to getting Plus customers to on Thinkific Commerce is that companies have more sophisticated product needs, including the ability to process and manage more complex group orders, which they conduct of the Thinkific platform. We have been developing functionality to more effectively address their needs. In the upcoming months, we'll be launching 2 highly anticipated products that we believe will significantly enhance our Commerce offering, custom invoicing and an enhanced group order feature. By meeting the more sophisticated requirements Plus customers require of Thinkific Commerce, we believe this has the potential to significantly grow our GMV and in turn, commerce revenue. This is possible when we combine the impact of adding new Plus customers to Commerce and bringing off-platform sales into Thinkific Commerce. It will take time to market and onboard these customers once these features are released. But given the low penetration in our existing Plus base and our strong growth in attracting new Plus customers, we believe this could be a significant vector of growth and should help us accelerate growth in Plus beyond current levels. Moving on to the P&L. Q4 gross margin at 75% was consistent with prior quarters and all of 2024. Subscription gross margin was also reasonably consistent at 83% for the quarter versus 82% for 2024 and 80% in 2023. Commerce's gross margin was 39% in Q4 versus 38% for the full year and 35% for 2023. Improvements in subscription gross margin are primarily a result of improved operational efficiency within our support costs and hosting, while Commerce gross margin has improved as we continue to add higher functionality into Thinkific Commerce. Total operating expenses were $13.6 million, in line with last quarter. For the full year, total expenses were $53 million, down from the $58 million in 2023. As a reminder, Thinkific hedges operating expenses to reduce the impact of foreign exchange movements on our operating results. As a result, there will be little FX impact on operating expenses in the near term. Adjusted EBITDA and cash flow from operations in Q4 were $900,000 and $1.3 million, respectively, and $2.9 million and $7 million for the full year. This contrasts with the adjusted EBITDA loss and cash usage of $3 million and $5.4 million in 2023, respectively. I'm very proud of Thinkific's ability to move quickly from getting to profitability to being in a position to invest in and deliver on key strategic growth initiatives while still generating a significant amount of cash flow from operations. Moving to the balance sheet. Cash and cash equivalents as of December 31, '24, was $49.5 million, roughly flat with the prior quarter. During the quarter, we bought back 193,200 shares with a Canadian total cost of $546,000 at an average Canadian price of $2.83. For the year, we repurchased and canceled approximately 14.4 million shares for a total of CAD 53 million through a combination of our stock buyback and our special issuer bid that we concluded in June. We believe that at current prices, share repurchases represent a compelling opportunity to enhance shareholder value. And now ending with a few comments on the guidance. For Q1 of 2025, the company expects revenue of $17.5 million to $17.8 million, which represents a 10% to 12% growth rate compared to the first quarter of 2024. The guidance reflects continued strength in Plus and continued increases in the adoption of Thinkific Commerce. We are modeling a 40-basis point impact from foreign exchange in the year and continued softness in GMV as we work through the issues outlined earlier. While we plan to continue to invest in the company, we are committed to profitable growth and believe that we could execute on this focused strategy by reprioritizing existing resources and driving organizational efficiency. We are now happy to take your questions.

[Operator Instructions] Your first question comes from the line of Max Ingram from Canaccord Genuity.

It's Max on for Rob. My first question is on Plus. If I recall correctly, last quarter, you have begun seeing contributions from headcount additions. So I just wanted to get your thoughts on how you're feeling about the sales force. Are you looking to increase investment there and whether the current sales team you think is adequate to hit that 30% target moving forward?

Matt, it's Corinne here. Thanks for the question. We have been quite pleased with the ramping of our existing team and continue to add to the team as we go forward. Part of continuing to achieve the results we're looking for will mean that we'll be adding to the team, but we're doing so cautiously and really letting the metrics that we're seeing in terms of leads that are coming in, the size of our pipeline, our ability to continue to maintain reasonably strong close rates as part of what drives us and when we should add more to the team. And so we're not doing it overly aggressively. We're doing it in a really financially healthy way. The key for us is continuing to find that efficiency from our sales and marketing investment to see strong revenue results.

Okay. That's helpful. And then you mentioned the pipeline. Maybe you could give a bit of color on the pipeline and if you're seeing larger deals coming through.

If I look at the larger deals compared to self-serve, we do see a 20x increase in the subscription revenue alone. What we do get quite excited about is the opportunity to see larger deals coming in. And so we've got different tiers in which customers can come in at different prices and then expand as they find success. And that's been quite healthy. We actually saw a bit of an increase from Q3 into Q4 in terms of the average deal price, but still kind of around that $2,000 a month mark, but seeing a nice increase as we continue to find the right fit customers for our business.

Okay. Just one quick one, if I can sneak it in, is the penetration this quarter was 52% on Commerce. Should we still be thinking about 68% penetration by the end of fiscal '25?

That is the target that we've been chasing, and we're on track for that. But we do have a lot of work to do this year to make that possible. The key for us is going to be product releases that drive customers that have really specific needs, many of which are our Plus customers. And so a big part of our focus is achieving just that of really delivering what our customers need to find success and feel confident moving over to Thinkific Commerce. So yes, we are on track for that, but we've got work to do.

And your next question comes from the line of Todd Coupland from CIBC.

I just wanted to have you reiterate your expectations for the new product impact. So I guess, is the takeaway that you'll release that sometime in the coming quarters and then later this year, you are anticipating an acceleration in Plus growth. Is that the messaging?

So reiterate new product impact is in -- was there a specific or just general investment in product and R&D?

No, I'm interested in when are you thinking you have an inflection point on Plus growth.

Okay. Yes. So I think the big thing like specifically on product, there's definitely some investments we're making there specifically for our Plus and larger customers. So that should help with the retention, acquisition, and growth within that customer base. There are also some areas where we're investing in Commerce for more sophisticated commerce-related needs and where the opportunity lies there, I think, is in getting more of our Plus customers over on to Thinkific Commerce to improve their overall sales. Right now, most of our commerce revenue comes through our self-serve customers using it. And so by rolling out some more sophisticated commerce features there through product advancements that should bring more Plus customers into Commerce, thereby increasing overall Plus revenue and commerce revenue for that customer group. In terms of what we're thinking in terms of inflection point. I think for at least the rest of this year, we're still very happy with the 30% plus or minus a couple of points growth rate in Plus. I don't yet want to give guidance as to exactly when we could start to see that accelerate. But with the addition of more product investment there, more team investment there, and more Commerce investment there, that is the hope that we do have an inflection. I don't yet have a date when we'd be confident in seeing that inflect. But the 30% is still a great growth rate for us there, and we're quite happy with that as well.

And then just in terms of self-serve, if you're deemphasizing that customer base, is the messaging that subscription revenue could face some churn of those types of customers so that growth actually decel as we go through '25? Just talk about the impact of that.

Thanks, Todd. I should be clear on this. It's not so much that we are downgrading self-serve or not focused on self-serve. There is a significant healthy portion of revenue and customer base within self-serve that are exactly the kind of customers we want to be helping and serving. A lot of them will choose eventually to upgrade to Plus, but many of them will stay within self-grade. So it's not self-serve as a whole within -- that is less of our focus. There's still excellent customers in there, even smaller companies or smaller businesses or entrepreneurs and subject matter experts that are still excellent for us there. It's really as we look at revenue as a whole, even to some extent in Plus, but mostly in self-serve, where there's a chunk of our revenue, a chunk of our customer base that is just much less likely to succeed. And that's the group that it's -- we're going to continue to support the ones that are on the platform, of course, that becomes maybe more of a cash cow. And so yes, we would expect over time to see some decline in that segment because we're really not going to be focused on it. We're also not going to seek to attract that segment anymore. We're going to be really focused on attracting and growing the other segment. I don't see a decline in overall revenue at this point from doing this. Still looking ahead, we're still seeing increases in revenue and subscription revenue overall, but really focusing on this customer group that's going to be much more impactful for us, much more likely to succeed. And then, as that comes around, starting to see GMV grow again as well. Does that cover it?

Yes, that's good.

Your next question comes from the line of Gavin Fairweather from Cormark.

Maybe just on the more focused strategy and the thought process. You discussed doing [Technical Difficulty] last year that helped from the shift. Maybe you can provide a bit more detail on what you saw out of that study and maybe just kind of touching [Technical Difficulty] kind of the go-forward focused cohort versus the cohort, which is [Technical Difficulty] kind of earlier stage in their journey.

Happy to. And this is something we're very excited about. And so a few things we saw is we looked externally, we looked at market and competitors. We looked at potential customers of the industry and then -- and those were who were in the sort of selection process. And we looked at existing customers of us and other products. And within our customer base, what we saw is really a significant chunk of our revenue that's very healthy, and customers who are very healthy, getting a lot of value out of the product. And so we looked for some of the traits and things there, and we found them consistent with the group external that were future potential customers and a significant part of the market opportunity. And we looked at where their needs were and what they were looking for most in platforms and really identified that in a lot of ways, some of their needs are unmet or underserved. And so there's a real opportunity to lean in there. And definitely, this is a group that tends to be a little bit larger, a little bit more sophisticated or a little bit more likely to -- or significantly more likely to succeed. And really, their needs match up closely with a lot of the things we've done and a lot of the things we have planned. And so there is a shift now for us to just focus exclusively on this group and really to attract and support them in achieving success on the platform. The nice thing is I do see an opportunity in the market where many competing products have zigged where we are going to zag. And so we're already making that shift now. As I said, I think there is some short-term headwinds in making this change because it is a change, but the long-term view of it is really exciting for us to be able to lean into this group. And I think one of the big takeaways is it's an opportunity for us to be far more unique and differentiated than we've been in the past.

And it sounds like you've already started down the path of kind of targeting these larger, more successful or more likely to succeed -- I guess I'm curious, are you -- the spending that you were doing on the earlier stage customers moving that over to target these customers likely to succeed? Or is there perhaps, as we move through '25, a positive margin?

Yes. Sorry, I didn't catch the last bit about margin.

Is there a positive margin shift from this change in strategy to move [Technical Difficulty]

Yes. And Corinne, maybe you can add some on the margins. I'll try and speak to this as best I can. We are shifting the spend. It's not a shut off completely in shift. So there is still some of this group that is being attracted and some of it is going to continue to come in just because of our search engine optimization and organic traffic that comes in for free. So we won't see a complete elimination of this group coming to us, and we're -- and because we have a self-serve product that they can sign up on their own, we're still happy to have them use it. But yes, we are making much more of a hard shift in our areas of investment in terms of who we're trying to attract here to go after this group. There is potentially some opportunities for us to reduce areas of spend here and be more efficient with our overall sales and go-to-market here. So we're looking at ways to do that as well and making this shift.

Okay. And then just lastly for me on Spotify. Can you provide any detail in terms of how the pilot is going in the U.K. and how kind of conversations are going in terms of potential spend?

Yes. Relationship continues to go well. We're still working with them quite well, and they seem to be continuing to expand the program. They seem quite committed to it. And we've heard them, I believe they spoke on their earnings call about it being a $1 trillion or $2 trillion opportunity overall in terms of education, which is obviously exciting to have a backup, another larger company seeing that opportunity the way we see it. So it's -- I don't have a material impact for you yet because we are still trialing it, but hopeful that, that moves into something more material in the midterm, but I don't have a date yet.

And your next question comes from the line of Richard Tse from National Bank.

Yes. So it's sort of along the lines of Gavin's question. I'm just trying to understand, in terms of the sort of best-fit, most potential customer, can you maybe help us understand like the attributes that qualify for that?

I've been intentionally circumspect about the specific attributes because we are still in the midst of making the transition from our brand and messaging and go-to-market, and I don't want to hand that out to anyone else who's listening to the call or could be in a competitive situation because we see it as a really unique and exciting opportunity. And so until we've gotten that, I won't really delve into specific attributes. So I've kind of gone as far as I can in terms of they are larger, tend to be more sophisticated, have a different set of needs that we've seen. They're still living and breathing within our existing customer base. So it is very much doubling down on where we see the healthiest revenue and the most success within our platform and the people who are looking for what we have and what we can -- but also identifying some unmet needs that we can serve for them. I apologize for not being really specific about it. We definitely have really specific data built up on them internally, and we'll be very closely targeting them in the future. So if that helps or if there's maybe a bit more color in the area I can provide, I'll do my best.

Yes. No, fair enough. I appreciate that. Maybe you can sort of help us with this. Is the go-to-market motion different and sort of the cost to acquire these best-fit customers different?

Not a massively different go-to-market and that we're not -- we still have opportunities to use the same channels. It's really just with different messaging but also to reach them in different places. So there will be adjustments for sure to some of the channels we use. In terms of cost to acquire, it's not significantly different. In fact, what we should see is improving sales efficiency over time as we're acquiring them, but they're much more likely to both adopt or end up with a higher ARPU, average revenue per user, and stay longer, which those 2 combined will really have a positive impact on the overall efficiency go forward. That's going to take a bit of time to see that shift because it is somewhat offset today by this smaller subset of revenue that has lower retention and so overshadow some of it in terms of this group, which is also a big reason why we're making this shift. And the more we make the shift, the more we'll see the healthier metrics we see from this healthier group of customers for us.

Okay. And just the last one for me. As you sort of look ahead, like what does the role of partnerships sort of play in your strategy? Is it going to become increasing importance here? Are you trying to expand that partnership network? I think you sort of touched on it last quarter with one of your big customers, but I'm just trying to understand how that's going to play out going forward.

Yes. I think you're spot on, there's more and more opportunity for partnership here. We are exploring more partnerships. We've got a little more talent internally working on this. And so Spotify is obviously one partnership that we're hopeful will bear great fruit as we move forward. But there's others in terms of specifically around integration partners. The nice thing is with a more laser-focused customer that we're going after, we're much clearer on where we're going to spend our R&D dollars as well. And so there's areas where we can more -- we can integrate rather than build it ourselves because it's not core to the needs, but it is definitely something that our ideal customers are using. And so it actually becomes not just an R&D integration, but a potential sales partnership and acquisition channel. So we're already starting to build up some of these and have had actually some success with some co-selling with some of these integration partners.

And your next question comes from the line of Stephen Machielsen from BMO Capital Markets.

I just want to dig in a bit more into the change in the customer targeting. When can we expect to see these changes start to bear fruit? And what does that look like? Like do we see a pickup in growth in self-serve customers? Or is it kind of split between self-serve and Plus customers?

Yes, the intent -- so we're working on it now, and we should start to see more outward-facing things over the course of the next 3 to 4 months. And then from there, see some of the results start to shift. The intent is that in the near-term, it has a positive impact on subscription revenue and then the longer term is a positive impact on the overall Commerce and GMV because as these customers come in, GMV does tend to be a lagging metric of customer success and growth in their sales on the platform. So step 1 is really attracting the right type of customers and seeing that improve both subscription, but also average revenue per user because they do tend to pay more, upgrade more as they stay with the platform and succeed more and then in the longer term, that improvement on the GMV front. But as I mentioned throughout the initial remarks, there is some near-term headwinds that we need to get through here in making this transition because it is a change. And so we'll see a few bumps over the next quarter or 2.

Okay. That's understandable. And just on the GMV piece. So as you delve into the successful versus less successful cohorts. I know in the past, you've talked about customers that use your platform and don't monetize on it. Do the more successful ones tend to focus more on monetizable? In other words, should GMV kind of accelerate in a similar way to revenue as this program starts to bear fruit?

Yes. And it does tend to be a bit more lagging. But yes, that is the intent. This group does tend to monetize. There is a segment of them that are either monetizing off-platform, so we don't see them in GMV, and there's a good chunk of that. And there's an opportunity to actually bring that into our -- back on platform and into our GMV. But when we look at the enrollments they're getting, that's really a core focus of identifying at least on a lagging metric basis when we look at the volume of enrollments and the recurring sales that they're getting, that's how we're seeing that we're usually attracting the right type of person here.

Okay. That actually ties into my final question, which is you have that chart in the graph that shows total GMV and then total on and off platform. And it looks like off-platform GMV would have declined quite a bit in Q4. Do you have any theories what's behind that? Is that kind of related to this shift in targeting that you'll be undertaking?

That number, total customer sales there is a bit of an estimate for us. So we do -- we look at the enrollments that are happening where we don't have sales data. So that fluctuates -- the fluctuations in that are tied really closely to GMV because it's -- GMV is one of the factors that goes into calculating that out. So it really moves fairly closely with overall GMV, then tied to what we see in terms of just overall activity and enrollments in people who are not processing through us and then use that to sort of get an estimate of the sales. So yes, I think that will move as well because the ideal customers for us are going to fall into -- more and more into the GMV, GPV and then total customer sales bucket. The intent over time, though, is to start to move more and more of that total customer sales bucket into the GMV and then the GP or ideally just straight into the GPV bucket. And to translate all of those acronyms, sorry for using so many, really, what it means is over time, we want to attract more customers who do more volume of sales in general. And then wherever they're doing those sales, if it's off-platform to start to move it as much as possible into our Commerce engine, which, one, we've seen increases their sales by 31% on average; and two, generates additional revenue streams for us without any cost to the customer. So they're making more money, paying us the same amount, and we're generating more revenue from it. So that's the ideal scenario if we can start to increase the pie overall there.

And your next question comes from the line of Martin Toner from ATB Capital Markets.

I see that there is room in your guidance for sequential declines in revenue. Like what kind of conditions do you think would create that outcome?

Martin, Corinne here. Probably first thing to keep in mind is that we've taken a more conservative approach to our guidance -- excuse me, -- there's a lot of uncertainty that we're seeing in the macro market that's also driving this foreign exchange being one of those things, general GMV growth. And so that is probably having some impact on what we're looking at. We have been more conservative but are aiming to do the best to be at the top of this guidance range or even above. And we have a good sense of where we're at already March 5th, for the quarter is 2/3 of the way through. But there is some uncertainty, so we have been conservative, and we know what we need to do to make sure we hit the top end of this guidance range.

With less focus on self-serve, I'm guessing there's going to be a shift in OpEx towards the customer that you want to focus on. What kind of marketing efficiency improvements do you think are possible and over what time frame?

Yes. I mean I want to be clear, too, it's not specifically a shift from self-serve to Plus, although we are investing more in Plus, both on the R&D side and just seeing a lot of opportunity for growth. And -- but from an ideal customer, the type we're looking for, there's still plenty of them that live within our self-serve and we'll continue to live there. So there's still a huge segment of revenue and customers there that are highly successful that we want to continue to serve and support at that level. And then in terms of sales efficiency, I think the big place that it comes is in that you're going to see -- what we will see is improvements in overall retention and ARPU, which means that the revenue we're getting from the dollars we're spending should improve on an efficiency basis. I don't have a precise level of improvement there, but we should see over time, if this works, which we're quite confident it will, and we're seeing some early signs of it. As we get through the early bumps and into this working, we should see improvements in the overall efficiency that are significant there.

How should we think about Plus lead times for new Plus customers?

Our sales cycle tends to be quite short. And so as we've said many times, it's around that 30-day mark. In terms of the customer launching and getting active on our platform. That's also often as fast as 30 days. On average, it's a little bit more than that. However, sometimes it does take time for them to get their monetizing engine going. And so as Greg mentioned, the GMV can be lagging from that. But more often than that, we're pretty fast on getting a customer launched on our platform and our launch team that provides those services for our Plus customers is instrumental to that and do a great job.

Last one for me. How much of a benefit is having a lot of your OpEx in C dollar terms?

Sorry I missed that. A lot of OpEx in?

A lot of your OpEx is denominated in C dollars, right? Just wondering how much of a benefit that's going to be like, I don't know, say, like over the next the run rate right now.

Yes, we do hedge a lot of that, but I'll let Corinne speak more specifically to it.

Sure. In the near-term, because of hedging, like Greg mentioned, we won't see much impact from foreign exchange in terms of like benefits right now given what the dollar is because most of our payroll is in Canadian dollars. But over the long-term, we continue to see benefits. Of course, we can't predict where exchange rates will go. But the benefit of hedging these costs is we don't have that noise in our OpEx. And so we are much more readily able to forecast where our OpEx or our adjusted EBITDA is going to land. And so that's the benefit of it. It does mean we don't get as much benefit when the Canadian dollar is as low as it is right now. But over time, the benefits outweigh that cost.

And that ends our question-and-answer session. I will now hand the call back to Mr. Greg Smith for any closing remarks.

Thank you. I appreciate everyone's questions. I think we've shared the key messages here and really confident in the strategy and the plan we have got go forward. I know we've got a few bumps in the near-term as we make this transition, but it is looking very good for us in terms of going after this new customer type and what that means for our business. And then I encourage you to look back at our progress so far when we look at 2023, we really had a focus there of getting to breakeven, and we moved mountains to achieve that ahead of schedule. '24 started out with an intention to shift to growth, but we realized really quickly that what we needed to do was make some significant improvements across our teams, particularly our senior team. We've made those additions and built an exceptional team now and then set about the other thing we realized we needed to do to get back to growth was build a new strategy where we could see a clear line of sight to improving growth as opposed to continuing to do the same thing. So we've done that now. And so as we look into 2025, we're already here, that's when we're executing on that strategy with that new team to go and achieve better growth rates. Thank you, everyone.

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.