During the first quarter of 2022, Thinkific Labs posted 42 percent revenue growth and a much higher net loss compared to the same period in 2021, in the company’s first results since laying off 20 percent of its staff in an effort to cut costs.
According to Vancouver-based Thinkific’s Q1 financial results, which were announced yesterday evening following market close, the company generated $11.8 million USD in revenue and a net loss of $12 million—a sharp increase relative to the mere $1 million the company lost during Q1 last year.
“Our methodical approach to restructuring ensures that we have the appropriate cost structure.”
Thinkific attributed this leap in its net loss to an increase in growth strategy-related expenditures, which have been focused on sales and marketing and research and development (R&D), as well as costs associated with its recent restructuring. Thinkific co-founder and CEO Greg Smith claimed these moves have increased the company’s efficiency and “enhanced alignment of [its] resources on growth.”
Thinkific laid off 100 members of its then 499-person team shortly before the end of Q1. In an interview with BetaKit at the time, Smith said the move was designed to cut costs amid what has become a difficult and unpredictable capital-raising environment.
Founded in 2012, Thinkific provides software designed to help entrepreneurs and businesses launch, grow, and diversify their businesses by creating and selling online courses and other learning products through its platform.
Since market close yesterday, Thinkific, which trades on the TSX as ‘THNC,’ has seen its share price fall five percent from $2.60 to $2.47 at time of publication.
Thinkific made its TSX debut in April 2021 amid a boom for Canadian tech initial public offerings, raising more than $160 million CAD in gross proceeds. However, this group has produced dismal returns so far, as most companies in this cohort continue to trade far below their issue price.
Valuations of publicly-traded tech firms have dropped significantly amid rising inflation, interest rates, and Russia-Ukraine-related tensions, which has made it more difficult for unprofitable, high-growth firms to access financing.
Following Thinkific’s mixed 2021 financial performance, amid the current fundraising environment, Thinkific opted to conduct layoffs to preserve cash. These cuts affected Thinkific employees in general, administrative, and customer support functions, and resulted in “a reduced management layer.” They also included “targeted reductions” in R&D and sales and marketing.
Thinkific’s Q1 2022 revenue growth was driven by strong average revenue per unit (ARPU) growth, and a rise in the company’s total paying customers. The latter was fuelled by a combination of new customers, Thinkific moving existing customers to higher paid plans, and greater adoption of Thinkific Payments.
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At the same time, Thinkific’s gross margin decreased year-over-year (YoY), coming in at 73 percent compared to 80 percent during the first quarter of 2021. Thinkific chalked this decline up to a rise in customer support costs and more use of Thinkific Payments.
In Q1 2022, Thinkific met the top end of the revenue expectations it laid out following its Q4 2021 earnings, while also delivering a lower than expected adjusted EBITDA loss of $9.3 million.
“With the restructuring that was announced in late March, we expect that the first quarter will be the peak of adjusted EBITDA loss for Thinkific,” said Thinkific CFO Corinne Hua. “Our methodical approach to restructuring ensures that we have the appropriate cost structure for our business.”
Thinkific expects to see continued revenue growth during Q2, with revenue of between $12.4 to $12.6 for YoY growth of 36 to 38 percent, and a lower adjusted EBITDA loss in the neighbourhood of $7.7 million to $8.3 million.
Feature image courtesy Thinkific.
