Thinkific CEO Greg Smith. Thinkific is one of the first fast-growing Canadian tech startups to resort to severe belt-tightening after a collapse in valuations across the sector.ReillyLievers-info@jerkwithacamera.c/Handout
Shares in Thinkific Labs Inc. THNC-T soared Wednesday after the money-losing Vancouver software company announced a 20-per-cent job cut aimed at preserving cash.
“When you grow as fast as we have, you develop some natural inefficiencies,” chief executive officer Greg Smith said in an interview. “We saw an opportunity to significantly become more efficient in one move. It’s regrettable and I wish we didn’t have to do it and it’s very difficult on the team. … This is about being more conscious of cost and spending.”
Thinkific stock closed Wednesday at $3.52 a share, up 18.1 per cent.
Mr. Smith said severance-related costs related to the 100-person job cut would amount to US$3-million in the first quarter but translate into US$10-million in annual savings. That won’t get Thinkific to profitability this year but “it reduces our [cash burn] and paints a path to profitability with the cash we have on hand,” he said.
Thinkific has US$110-million cash on its balance sheet. It used $18.3-million in cash to fund operations last year, posting a net loss of US$26.4-million on revenue of US$38.1-million
Thinkific is one of the first fast-growing Canadian tech startups to resort to severe belt-tightening after a collapse in valuations across the sector in response to rising inflation and interest rates and geopolitical tensions stemming from Russia’s invasion of Ukraine. The information reported this week that Philadelphia-based e-commerce delivery company Gopuff would also lay off hundreds of employees in a drive to cut US$40-million in costs.
The drop in valuations has shut the initial public offering window and is expected to reduce valuations for private financings, weighing on fast-growing unprofitable tech companies that have relied on a financing to fund operations. “I don’t know when the financing [window] will reopen,” Mr. Smith said.
He added Thinkific wanted to ensure “we have cash on hand to be where we need to be. … This was about making a difficult choice now to avoid any possibility of a more difficult choice in the future. You may see more companies taking a hard look at cash balances now given that financing seems to be all but closed.”
National Bank Financial analyst Richard Tse agreed: “I think the party line for most growth tech companies is that they’re in growth mode so they will continue to spend to execute their strategy. That was fine when the market was ascribing more value to revenue growth. But … the market sentiment had shifted and I think companies are going to be valued on a balance of revenue growth and operating efficiency. Those companies that recognize that will likely make similar moves to Thinkific.”
Thinkific is the second alumnus of last year’s record crop of Canadian technology IPOs to announce a shakeup after the collapse of its stock price. Last Friday, Winnipeg agriculture technology supplier Farmers Edge Inc. announced the departure of CEO Wade Barnes after a string of poor quarterly reports.
Both were early darlings of 2021′s IPO boom in Canada, in which 16 tech companies listed on the Toronto Stock Exchange. Thinkific, which provides a platform for entrepreneurs and businesses to create and run online courses, faced brisk investor demand when it went public at $13 a share last April.
It was riding a stretch of torrid growth early in the pandemic in which revenue more than doubled to US$21-million in 2020 from 2019 levels as course creators and their customers flocked online. The company’s market capitalization initially exceeded $1-billion as its stock vaulted to nearly $20 a share.
But its stock fell below the issue price last October and kept sliding as early pandemic winners lost their lustre and the threat of rising interest rates hit tech valuations broadly; all but one of the tech companies that went public on the Toronto Stock Exchange has traded below its issue price.
Thinkific stock faced more pressure last month when the company said it would rejig its sales and marketing strategy. Mr. Smith said this restructuring will position Thinkific to return to revenue growth of 60 per cent next year; analysts expect it to be 40 per cent in 2021. “We’re still a growth company, and we’re still investing in growth drivers,” he said.
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Sean Silcoff