Okay, thanks everyone, for joining us on the second day of our, this 44th running of this, growth conference that we hold every year in Boston. Love to have you joining us. My name is Rob Young. I'm one of the Canadian Technology Analysts with Canaccord Genuity, and I'm your moderator. The session is a fireside conversation with Thinkific, which I always find is a hard company to describe, and so I'm gonna ask you to help me out a little bit here. But it's a cloud software provider of e-learning tools for creators, but also increasingly, small, medium business, and enterprise. It's an end-to-end tool, and so I think of it as a system of record for building, marketing, and then monetizing online courses, and now communities.
Beside me is Greg Smith, who's one of the co-founders and now the CEO, and in the front row, we have Juhun Kim, who's running IR. So I'd encourage you to try and catch them in the halls in between meetings. I'm sure they'd love to take your questions for deeper conversation. I'm gonna hand it over to Greg for some introductory comments to correct my description of the business, and maybe give us a sense of the quarter you just reported, and then we'll get into some questions. I've got lots of questions prepared, but I'd love to get some from the audience, and so I'll give you time to jump in, but by all means, just jump in if you have a question. I'll be monitoring, and if I see your hand raised, I'll, I'll call on you. I'll pass it to Greg.
Thanks, Rob, and good description. Lots of new faces, so I could probably just do a primer on.
Yeah
Where we came from, which involves going back to the beginning to give you just a setup of what we're up to. It'll only take a couple of minutes, but we actually got started as a company, Thinkific, in 2012. But if I go all the way back to 2005, I was going to law school. I was teaching and tutoring the LSAT, the Law School Admissions Test, and saw an opportunity to take it online, originally with an online course. We went looking for some kind of software solution to help us do this. We wanted to. What we were looking for is the ability to take, transform my knowledge into an online course, a digital product, sell it for revenue, which meant we cared about conversion rates, we cared about marketing, we cared about the learning experience of delivering this to customers.
Being a small business getting started, we cared about, you know, doing this in a way where we could kind of own and control the relationship with the customers, the data, the revenue, and ownership over the content. We did look at LMS, learning management systems. They were quite different in that they were more built for enterprise, typically focused on training stakeholders inside an institution, so students in a school or employees in a company. We didn't want to do that. We looked at marketplaces like Coursera, MasterClass, Udemy. Those weren't around at the time, but they're similar marketplace offerings. But that meant we would have to give up our content into someone else's website, into someone else's business, where they controlled the customer relationship, the data, and the revenue. Didn't want to do that.
We ended up, without anything else out there like this, building our own solution, where we could take our own content and course, put it on our own site and sell it, generate revenue, and have total control over the building our own course business. That was back in 2005, 2006. That course did well, but fast-forward to 2012, we had people seeing what we were doing there, reaching out and saying: "We want you to do this for us." So that was the impetus behind starting Thinkific of, how do we solve this same problem that we had, but for lots of others, where each of our customers now get their own website, their own courses, or other digital products, under their own brand.
They have full control over revenue and pricing and customer relationships, and we're the software engine that powers that all behind the scenes. Since those early days, we've evolved in a few key ways. We've moved from just courses as a product that our customers offer to all sorts of digital products, so anything where people are packaging up knowledge and selling it for revenue, so courses, online communities that they can charge for access to, coaching, live events, anything where they're bringing people together to learn, we help them package that up and sell it all under their own brand. Another way we've evolved is a full suite of commerce features, where we process the payments for them, collect and remit taxes, help them with upsells and, and other offers. That's created a new revenue line for us.
And then the third way that Rob alluded to was, seeing an opportunity in larger customers. So from very early days, we originally built it for people like myself, the individual course creator or coach, trainer, author, expert, and increasingly, people starting on social media. But we've seen an increasing demand from mid-sized companies who wanna package up their knowledge as an additional revenue stream or deliver it to customers, and so we've started to tap into that market as well at a higher price point. So those are a few ways we've evolved towards today. And so that ties into the most recent quarter, where we're seeing really accelerating growth from our commerce business, which is where we process the revenue our customers are earning.
We've crossed over $2 billion in total revenue processed for our customers now, and that's growing. And then also another big revenue driver for us is this larger customer, higher price point, which we call Thinkific Plus, which is helping bring in some of these larger customers for us. So those are two big growth drivers, and so looking ahead to Q3 and Q4, we see our revenue growth accelerating, as we go into the back half of the year.
Okay, so I'll just carry on right at the end of that great start. Let's dig into Thinkific Plus, 'cause it's one of the more exciting parts of the business. Could you talk about the use cases that some of these larger enterprise are using or they're looking to solve with Thinkific?
Yeah. So it's the use case really is, it's all about educating their customers. So as opposed to students or employees, they're educating their customers, and it tends to either be in exchange for a new revenue line and/or free customer education to go alongside their existing product or service. So that, what that could look like is a software company training people how to use their software or actually selling courses related to the industry they're in. Or a recent one, heavy machinery, training people around farming and use of heavy machinery.
And they're actually generating significant revenue from doing that, but also providing it to customers as a way to increase loyalty and adoption of more of their products. So across lots of different industries, people are now bringing education in as a new way of reaching customers, generating loyalty and retention with customers, but also as a revenue line.
Right. So, I mean, that's the key thing for me, is that it's, it's an enabler of, of revenue for those customers that are using it. So it's not like a learning management system that there's a lot of people think of as tied to employee training or onboarding or et cetera. Like, you're actually... In fact, across all of your business, you're tied to revenue. You're driving your customers' revenue as opposed to helping train people or developing content.
Exactly, yes.
In the last quarter, you suggested that there was a high level of bookings at the end of the quarter which benefited the end of the quarter, so ARR, but maybe not necessarily revenue. And said that the pipeline was actually very healthy, particularly at the very top of the pipeline. So maybe you could just talk about the near-term, mid-term future for Plus and what's going on there.
Yeah. So it's been exciting what we're seeing in Plus. We have on the Plus side, so overall, go-to-market for our business, it's a lot of inbound leads that come organically through search engine optimization and other marketing channels. Paid ads come to our website, and then either through self-selection or we use data enrichment and other tools to identify our, the higher value customers. That small group goes to talk to our sales team, so that, that typically is our Plus customer, that at that higher price point. They close, typically, from lead to close, it's sub-30 days, so it's a very quick sales cycle and a really quick implementation cycle, typically about 30-45 days to get them up and running on the platform.
So that's one reason why they're choosing us. What we've seen recently is with some increased investment and dedication to marketing specifically to that group, we've seen an acceleration of that pipeline, which is exciting, and now we're doubling down on the sales team. So we're adding 50% to the sales team there right now, which should see some accelerated growth on the Plus side. So pretty exciting there.
Yeah. You caught two of my next two questions in there. The first is the investment in the go-to-market. It feels as though the go-to-market motion for all of these Plus customers will be completely different than the existing. So it's almost like developing an entirely different sales force go-to-market. Maybe talk about that. Is it that extensive, or can you leverage some of the existing assets and sales?
Yeah, it's a bit of both. There's a lot of overlap. So the overall lead generation and brand and bringing customers in for the same core use case is all the same kind of or very similar go-to-market. Obviously, we have different campaigns and segmentation for different customer types and use cases or personas. But it's really the same ideal customer profile, where it's a business, small, medium, where they have knowledge, and they want to generate revenue from that.
Once they get in, then the larger ones definitely are segmented into a different flow, which is where they speak to a salesperson, sign a multi-year contract. They do tend to care about slightly different things like SOC 2 and SCORM and some other features we have there, and that's where it is a bit differentiated. And of course, then we have commission sales team, whereas on the other side of the smaller customers, their price point is typically $99 a month, whereas on Plus, it's $2,000 a month on average, and it can go up from there, obviously. But at the $99 level, it's, it's very self-serve. So they kind of set themselves up. They might talk to a support via email, but they're not getting on with a salesperson.
Okay. And the development of the Plus business, am I right in thinking that it's largely been a reaction to demand coming to you, and, not necessarily, scrambling, but certainly dealing with a higher level of demand than this, than your offering was able to, to deal with? And so you've been building go-to-market, you've been adding some of these functions, like SCORM, like SOC 2 to open up the opportunity. Maybe talk about the demand and how you've been able to address it.
Yeah.
Am I correct in that assumption?
Yeah, it's a lot of inbound demand based on our existing marketing, but there's certainly opportunity, and we're starting to get more intentional and build out more dedicated marketing functions to go after this exciting opportunity for us. And then, on the feature set, you're right, some of these things have opened up new pipeline for us. SCORM is a good example.
SCORM is just a set of standards for transferring learning content from one learning system to another, and using it within that, and so it's typically a tick box on an RFP. It's something we were probably years behind in developing, but we have it now, and it's really accelerated the pipeline because for a lot of people, it's an absolute requirement for selecting a learning system. So now that we have it, it's reopened a bunch of leads that were in our pipeline that, you know, just couldn't adopt us because of it, but also it's bringing in new leads.
Okay. And then, how long have, If I go back in time, when did you start building the quota sales force to address these Plus customers, and where are they in the development? How long does it take a salesperson to become effective? Where are you in that development of this, the go-to-market on the sales side?
Yeah, Plus, as a whole, is about three years in now. And in terms of adding new sales member, we are about three to four months to ramp from hire to quota-carrying or full quota salesperson. So it's pretty quick, especially 'cause the turnaround cycle on deals is quite fast, like 30 days to close means we can ramp salespeople pretty quickly. And they're not super technical, enterprise-level sales, where you're having to navigate a complex organization. There's typically only two or three stakeholders, and with that fast sales cycle and still relatively low price point, there's a lot of room for price expansion within our industry, in that our next closest competitors are typically double the price point at least. So, there's a lot of opportunity for us to continue to expand there.
A heavier deployment and a more complicated integration seems as though your product can be stood up a lot quicker than some of the larger competitors as well.
Yeah, yeah, typically they'll see 6-month implementation or more with a competitor. With us, we can do it in 30 to 45 days, and part of that is just our roots are in self-serve, where we're designed as something that an individual can get up and running in a day. So when we were even working with a larger customer, we can still move them pretty quickly.
All right. And then, as you said, three years in, are you seeing expansions? Or I, I assume it's still at this point, it's the growth is dominated by new logo wins and new business. But how is the expansion side?
There is expansion opportunity. You're right, most of our growth right now is new logo wins, but there is opportunity for us to do more of the expansion. Typically, at the one, two-year mark after a customer's been on, that's where we have a team that's dedicated as account managers to work with them ongoing, and they're also responsible for expansion revenue. So we are seeing significant expansion at, you know, the close of year one and close of year two, but because the business is so early, a lot of our current growth is just rapid new logo additions. But, you know, fast-forward one year, two year, we'll see a lot more of them continue to expand in their revenue. They're baking that in now, where there's automatic expansion at year one and year two now into the contracts.
I think, you'd said that your target or your, your hope was to keep growth north of 30%. You thought you could do that, and I think that's partly based on what you see in the pipeline. Is that still the target?
Yeah, we'll see it sort of fluctuate 28%-32% over the next year, I think, but healthy within that range. Yeah.
That's great.
Yeah.
And then the next big-
For that part of the business. Yeah.
Right. Yeah, yeah.
Yeah.
And then, the next piece would be the commerce segment. I think of it as the payments business. You said the GPV or the gross payment volume has been growing. It's been growing, you know, far beyond your expectations. Maybe if you could talk about w here you thought it would be, even going back to the IPO. I know that the targets that you set for yourself and Thinkific, you've wildly beat them. Maybe you can talk about that and what drove that, you know, overperformance.
Yeah, so we, looking at GPV or gross payments volume, I think one of the key things is that when we were at the IPO, and we were just looking to create a payments business, our closest things we had to compare to were things like Shopify, where it's really focused on retail and physical goods. But there are some fundamental differences in payment processing from us, from a lot of other people who do it, especially around physical goods. The biggest one is the margin of our customers. So if you're selling a T-shirt, you've got the cost of the shirt right there, that's usually 50%.
You've got returns, shipping, some, you know, inventory, all of the logistics, so a lot of marginal cost. With our customers, because it's all digital goods, there's minimal marginal cost, so their margins tend to be quite high. So their acceptance of payment processing fees and even higher take rates of us, and you can see it in our take rates currently at 4.7%, with lots of room to grow from there. There's a lot more appetite for us to have. On a pure payment processing, it's still commoditized, and we're still very competitive. Yeah, we still offer the same rates as everyone else.
But it's all the value add that we offer of things like buy now, pay later, tax collection and remission, order bumps, and some of these other things that help our customers sell more, and we can show in the data they sell more. And so when they're sitting at 70% margin on a net, on a product, it, you know, for them to give us 5% or even 10% take rate is not a huge problem. So I think that's partly why we're seeing the bigger revenue lift in terms of the take rate.
Then in terms of adoption, for a lot of customers, we're pretty central to their business, and it's, you know, unlike retail, where they often have brick-and-mortar, and they've already got a pre-negotiated arrangement, you know, we're usually their primary piece of software. They're running the whole business, so it's a lot easier for us to integrate payments and have it just be a no-brainer, they accept it. We see that in new signups to Thinkific, it's about 80% are adopting our payment engine right out of the gate.
When they don't accept it, is there a reason why? Is that mostly Plus customers that already have existing payment, or is there something else that drives that other 20%?
Sometimes it is the Plus thing of, you know, there's another... We haven't been pushing it as hard in Plus. We're just about to start doing that, so that should shift that. But the bigger thing is just geography, if we haven't been able to support them for some logistical or geographical reason, that's the biggest reason why we're not seeing someone adopt. So that's, we're in the process of fixing that, with adding more EU coverage.
All right. Oh, so it's geographic expansion is probably the biggest factor there.
Yeah.
Cause I believe, by default a new customer would be, the default is to take Thinkific Payments. Like, how many of those default customers in North America wouldn't take the Thinkific payment option? I would, is it-
Yeah.
I would think it's fairly low.
It is quite low, yeah, 10%-20%, and it might be that, you know, we're still, we're still giving them the choice, right? And so what we wanna do is make it so that everyone still wants to use us, and it's not forced so hard that they, you know, it's us and our payments or something else completely. So we're leaving that flexibility open. And, the person running this now at Thinkific used to have a team of 5,000 at Shopify and ran this all at Shopify. So really excited, and he's bringing a lot of those learnings in, which we're seeing drive a lot of the success as well.
Right. And one of the things recently, you changed the pricing to add a surcharge on for third-party payments, which would be similar to Shopify. Shopify had already, had always charged for third-party. Why did you make that change?
Yeah. So payments got started about 2.5 years ago, and for most of that history, it's been building out the feature set and just letting customers adopt if they want, creating the carrots and reasons for them to adopt it, but not aggressively pushing it. And then just in January, we kind of kicked off a much more.
Because we'd hit sort of feature parity and some additional functionality so that we were and we saw in our data that when people switched to our commerce offering, they actually made more money, we started pushing it more heavily. And then just as of July 3rd, we launched a fee. So if you're using other payment solutions, there will be a fee on top of that, which further increases the likelihood that people switch over. But we wanted to make sure that our solution was better before putting a fee in place.
Right.
Stripe is our partner on processing the payments, and they helped encourage us to... They've sent developers to our office, executives we're back and forth with, you know, in their office all the time, and they're really encouraging us to do this to help move people over to it because they are the underlying infrastructure and processing our payments as well.
Now, it strikes me as though you actually receive quite a bit of support from Stripe-
Yeah
Given the size of Thinkific. Why are they so interested in helping you? Is it because the take rates are high, or is there some other thing that they see in Thinkific that's a great opportunity?
I think there's a few things. One is this is sort of their new business model. They're trying to move more into supporting the platforms like us, as opposed to all the individual merchants, or individual customers. And so by going through us, they get access to tens of thousands instead of one. Our volume is quite large, like $ billions in process, which for Stripe is nothing. I think their GDP is more than, you know, many countries combined right now. But, there is something in our DNA as a company that is quite strong as partnership, at partnerships.
When I look at our core competencies, one of the standouts is just our ability to do great partnerships, so we've just developed some really good relationships with Stripe. You know, have had relationships with CEO and CRO and CFO, and, and I think we have a willingness to kind of work with them from an engineering perspective to adopt their new ideas, which is great for us because we often get to be the first to launch things that they're bringing out, which can be big revenue drivers for both of us. So I just think that it's just a really healthy partnership.
Yeah. Now, another great partnership you've announced recently is Spotify. I know there's not much you can talk about there. Maybe can you give us the latest in, you know, how that partnership has developed over time?
Yeah. So another great example in that Spotify went out to market, talked to all of our competitors and others out in the space, and chose to work with us, and so we're their kind of first, partner, or kind of premier primary partner in this offering, where you can build courses on Thinkific and then publish them and launch them into Spotify via an API connection we've built with Spotify. That means they'll be sold through the Spotify app, currently only in the U.K. So if you're on your phone, you won't see it here unless you're based in the U.K. But, so now our customers are able to generate revenue selling to the 40 million odd Spotify users in the U.K. The intention, obviously, would be to roll that out globally, but we're testing in the U.K. first.
So the nice thing there is really we give something we've never been able to offer our customers, but we want to do more and more of, which is, historically, you would build your products on Thinkific. We'd give you tools for selling, but you take care of getting your own customers under your own brand. Now, we're adding this ability where we can actually go get you customers through the likes of partnerships with Spotify, and I think there's more we can do on that front.
The other thing is that gives us the opportunity to share in the revenue. So with Spotify, we take 10% of the course sales, which is something we've never been able to do before, because we're generating that sale for them. But it's a win-win because Spotify takes a share of the revenue, we do, and obviously, the customer is getting revenue they wouldn't otherwise earn and getting massive brand and revenue exposure as well.
Apple.
We're seeing good engagement on that. Apple as well, yes. They always get their cut if it goes through Apple. Yeah. Although I think we're actually shifting now, where it may not be, so.
It's completely Separate on Spotify, so a person could interact through Spotify as opposed to having a subscription arrangement with you on Thinkific, or do the two have to be. Does the person have to be a subscriber in Thinkific to use the.
Yes. So to get onto Spotify and sell courses, you have to come through Thinkific and have your subscription. They do have a couple of other partners, but in terms of, like, new course creators, they're coming through us, subscribing to Thinkific, publishing over to Spotify.
It's very interesting.
Yeah. So it's great acquisition channel for us as well, especially for... And we've partnered up with them to go and acquire top podcasters, top YouTubers, others in the space that are, have big followings to do this.
We're starting to run out of time, so if there's a question from the audience, jump in. There's a few things I wanted to touch on. The Leap, I want to make sure you have a chance to talk about that because you've just opened it up to monetize and you've had some incredible user growth there. So I was hoping you could give us a sense of what The Leap is and why it's seeing such strong user growth?
Yeah. So The Leap is. It was, about a year and a half ago now, we were looking at if we were to disrupt Thinkific from the garage, what would that look like with AI, being a huge, opportunity in our space? I mean, what AI does so well is take one form of content and then create others and modifications and, and derivatives of it, and that's absolutely perfect for learning because we can ingest the content our customers have, whether it's their YouTube channel, their podcast, their book manuscript, any of this stuff, and we can help them produce other forms of content for learning or even bots that can interact with their students and customers. So AI is perfect for our space, so we've started using it heavily in our core product but also in The Leap.
We spun up The Leap with a team of five people, and really quickly, they've built a product that's similar to Thinkific, but modified to really fit a huge growing part of our TAM. It's focused on people who are social-first creators, so they're building their audiences on TikTok, Instagram, YouTube, et cetera. They've got knowledge, passion, and expertise, and they wanna start generating revenue from those audiences.
And we've seen really big growth in this group of people. It's also very mobile-focused and with a heavy push on AI to help leverage what they already have to go and create products for them. So it's much faster for people to get started on it, a lot easier to use, definitely lower kind of feature set and price point. But yeah, we've seen it grow really quickly, and since we launched the beta to 30,000 free users, and now just recently launched paid plans. So.
Nice.
That's still early days. We'll see how it goes.
You don't give us an unpaid user number, bu I mean, The Leap numbers would be not far off of the core business numbers. Like, it has grown at a crazy pace.
Yeah, and I would attribute it to, one, the market up... So it's still part of our overall TAM but it's the fastest growing, really exciting part of it. It is typically smaller customers, but it's really an exciting part, and they do tend to many of them do grow into bigger customers. A good example would be Kat Norton, or you can find her on social, @missexcel. She started just on TikTok doing dances around Excel, and now she's doing $millions in sales on Thinkific, has a partnership with Microsoft.
But it's going after these kind of people where the opportunity lies here. So The Leap is growing because the, that market of people is growing rapidly, but also with the AI, the simplicity of design, and ease of use that we've created there, it's just that much faster. The biggest hurdle for a core Thinkific customer getting up and running is often building out their product, which, if you come with content ready, we can do that in an afternoon, but if you have to build your own content from scratch, it can take a month, or more, depending on motivation. Whereas on the Leap, they can often get it up and running in an hour or an afternoon and be up and running quickly. So that's why we're seeing a lot of rapid adoption there. We're starting to bring those learnings into Thinkific, too.
All right, and then maybe last question before we wrap up, unless there's a question from the audience. The self-serve component of the business, this last quarter, there was a drop in paid users and ARR. As we close off, maybe you just give a sense of you know, what was the driver? Why that's temporary, you argued why it's temporary and you know, what the future looks like in the near term, medium term for, you know, the growth in, the core business.
For context, we're at about 35,000 paying customers there. We lost about 200 in the last quarter. That was really one month of self-inflicted wounds, where we made some unfortunate timing decisions around a lot of marketing campaigns, a pricing change, and a free trial change that all just coalesced into kind of a perfect storm month, where we lost customers. We won't see that happen again. I feel like we'll stabilize that in the back half of the year. The other piece, there's a.
That's a one-time thing, but there also is a, an underlying issue that we're trying to resolve, which I think we've identified it, now we know what to do, so it's a matter of when, not if, we figure that out, which is just accelerating the overall adoption and activation of new customers coming in.
We have a huge pipeline of customers coming in, and we're just not doing as good a job of activating them and getting up and running. We're doing an amazing job on The Leap, where it's triple the activation rate. Bringing that into our core product, we should see that accelerate sort of going into Q4, Q1 next year.
All right. So with that, we'll end this session, let the next one get going. Thanks, everyone, for joining us to the conference, and we'll see you around the halls.
Thanks, Rob. Thank you.