Thinkific Labs Inc. — Management Reports 2021

Nov 8, 2021

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

As used in this management's discussion and analysis ("MD&A"), unless the context indicates or requires otherwise, all references to the "Company", "Thinkific", "we", "us" or "our" refer to Thinkific Labs Inc. together with our subsidiary, on a consolidated basis as constituted on September 30, 2021.

This MD&A, dated November 8, 2021, for the three and nine months ended September 30, 2021, should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements and the accompanying notes for the three and nine months ended September 30, 2021 (the "interim financial statements"), as well as with our audited annual consolidated financial statements and the notes related thereto for the year ended December 31, 2020 (the "annual financial statements"). The financial information presented in this MD&A is derived from the Company's interim financial statements, which has been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements, including International Accounting Standard 34 - Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB"). The Company's functional currency is the U.S. dollar and all amounts are reported in U.S. dollars unless otherwise noted. References to "CAD" refer to Canadian dollars. Certain amounts presented in this MD&A may not recalculate due to rounding.

This MD&A, the interim financial statements, the annual financial statements, and related press releases have been filed in Canada on SEDAR at www.sedar.com. Additional information relating to the Company is also available in our final long form prospectus ("Final Long Form Prospectus"), filed with SEDAR on April 22, 2021.

On April 23, 2021, and in connection with the closing of the Company's initial public offering (the "IPO") on April 27, 2021, the Company effected a 4-for-1 split of each of its outstanding multiple voting shares of the Company (the "Multiple Voting Shares") and subordinate voting shares of the Company (the "Subordinate Voting Shares") (the "Share Split"). All share and per share data presented in the interim financial statements and this MD&A have been retroactively adjusted to reflect the Share Split, unless otherwise noted. Refer to "Outstanding share information" within this MD&A for additional detail.

Forward-looking information

This MD&A contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information may relate to our financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information.

In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "outlook", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or, "will", "occur" or "be achieved", and similar words or the negative of these terms and similar terminology. In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances.

This forward-looking information includes, but is not limited to, statements regarding industry trends; potential growth of our industry; the impact of COVID-19 on our operations and industry; our growth rates and growth strategies; addressable markets for our solutions; the achievement of advances in and expansion of our offered platform service (the "Platform" in the Final Long Form Prospectus); the development and success of new products, features, and services, including Thinkific Payments and Thinkific Communities; expectations regarding our revenue, Adjusted EBITDA and the revenue generation potential of our Platform and other products; our business plans and strategies; and our competitive position in our industry. This forward-looking information is based on our opinions, estimates and assumptions that, while considered by the Company to be appropriate and reasonable as of the date of this MD&A, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to:

• • the Company's ability to execute on its growth strategies;
• • the impact of changing conditions in the global e-learning market;
• • increasing competition in the global e-learning market in which the Company operates;
• • fluctuations in currency exchange rates and volatility in financial markets;
• • changes in the attitudes, financial condition and demand of our target market;
• • developments and changes in applicable laws and regulations; and
• • such other factors discussed in greater detail under the "Risk Factors" section of our Final Long Form Prospectus.

If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information provided herein. The opinions, estimates or assumptions referred to above and described in greater detail in "Summary of Factors Affecting our Performance" and in the "Risk Factors" section of our Final Long Form Prospectus, which is available under our profile on SEDAR at www.sedar.com, should be considered carefully by prospective investors.

Although we have attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other risk factors not presently known to us or that we presently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place undue reliance on forward-looking information, which speaks only as of the date made. The forward-looking information contained in this MD&A represents our expectations as of the date specified herein, and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.

OVERVIEW

We believe any business can use education as a tool for growth. Our mission is to make it simple for entrepreneurs and established businesses – our "Creators" - to scale and generate revenue by teaching what they know.

Thinkific offers a cloud-based, multi-tenant platform that enables business-building. Our Platform provides our Creators with the functionality needed to launch, grow, and diversify their businesses by creating and selling online courses and other learning products composed of customized courses, communities, membership sites, and other experiences that our Creators can create, sell and deliver using the Platform (collectively, "Learning Products"). We make it simple for our Creators to build and deliver Learning Products for their audiences under their own brands, with no specialized technical expertise required. Our Platform enables our Creators to build, market, sell and deliver their products with enterprise-grade functionality and extensibility for growth.

Our Creators identify as entrepreneurs, business owners, consultants, authors, speakers, coaches, professionals, trainers, and social media influencers as well as larger businesses. Our Creators span nearly every industry vertical and are located in more than 165 countries around the world. The majority of our Creators were already in business or earning an income with their expertise when they joined our Platform, and many are adding an education component to their business for the first time with our Platform.

Thinkific was founded to solve problems for entrepreneurs and businesses seeking to use online education for growth. As a complete business solution for our Creators, our Platform provides both the ecommerce and management functionality they need. Additionally, the Learning Products they create on our Platform serve as the end product that our Creators are selling. By focusing on creating business success for our Creators, Thinkific acts as a partner in supporting their ongoing growth. We do this with features and tools built around four core functions:

• First, we make it easy for anyone to create and deliver the customized Learning Products that they envision. Courses, communities, and memberships represent a selection of our Learning Products.
• Second, we help our Creators market and sell with full e-commerce functionality. This includes customized websites and landing pages, checkout pages, payment processing and flexible pricing models tailored for selling online courses and other Learning Products.
• Third, the Thinkific App Store and our Partner network enable our Creators to both integrate with their existing business systems and tools, as well as expand their businesses with point solutions that serve diverse use cases.
• Fourth, our business management and scaling suite adds the back-office tools and workflows required for our Creators to administer websites, to manage content and Students, and to monitor reporting and analytics, with enterprise-grade performance, security, and scalability. This ensures our Creators are able to join our Platform and grow to nearly any size.

Together, these core functions combine to make the Thinkific Platform a core business operating system for many of our Creators, encompassing not just e-commerce but the entire back office and the end products themselves.

Thinkific makes it possible for any business to use education as a tool for growth by offering:

• End-to-end platform. We offer a comprehensive, end-to-end platform that enables our Creators to successfully market, monetize, and deliver their digital content, and build their brands. Our Platform is built for entrepreneurs and established businesses and is designed to be easy for anyone to use, with enterprise-grade functionality for future growth, making it suitable for Creators of nearly any size. Additionally, the customizability of our horizontal Platform allows creators in any vertical to succeed.
• Easy user experience. We make it easy not just to build courses and other Learning Products, but to manage and improve them. Quizzes, presentations, surveys, assignments, and other interactive components can be easily created, and modified within our Platform. Content can all be repositioned within courses with our drag and drop course builder. None of these functions require specialized technical skills and day-to-day updates and improvements can be accomplished in minutes. Our bulk importer makes it easy for our Creators to create or add to courses by simply dragging and dropping in all their content at once with the course curriculum then being built out automatically.
• Creator support. One of our core values is to be "fanatical about customer success". Many of our employees have created their own learning products on our Platform and spend time interacting with and helping other Creators directly. Our support team is dedicated to assisting our Creators along their journey and our customer education team provides a suite of online training courses and other resources to help businesses launch and grow on Thinkific. In addition, we have a broad network of Partners to help fill knowledge gaps and to create niche functionality for our Creators.
• Control. Our Creators use our Platform to create and deliver Learning Products on their own websites with full control over their brand and Student experience. Our Creators own and control their

own content and teaching intellectual property, the direct relationship with their Students, and the data and analytics on their business. This allows our Creators to showcase their uniqueness, differentiate themselves from competitors and build customer loyalty and word of mouth referrals.

• Dependable technology. Our Platform is built to enterprise-grade standards and functionality, ensuring security, reliability, and speed as our Creators' businesses rapidly scale. Creators of all sizes can trust Thinkific to deliver a consistent experience for themselves and their Students so that they can focus their time on what matters - creating quality content, engaging with their Students, and growing their business.
• Connected and integrated platform. Thinkific's open Platform enables integration with a wide range of applications that support our Creators to better operate their businesses, including analytics, email, and marketing plugins. Additionally, our open Platform enables Partners to create applications on the Thinkific Platform to provide value-added functionality for the specific needs of our Creators.

Impact of COVID-19 on our operations

Beginning in the first quarter of 2020 and continuing into 2021, we experienced significant growth in revenue, Paying Customers and Gross Merchandise Volume as the COVID-19 pandemic accelerated the adoption of our Platform. This is due to evolving behaviours stemming from the pandemic whereby small and medium sized businesses ("SMBs") are augmenting traditional selling models with online and digital products and services.

There continues to be uncertainty regarding the duration and magnitude of the COVID-19 pandemic and the ability to control resurgences worldwide. Any future impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including, but not limited to: the severity, duration and spread of the COVID-19 pandemic, actions taken by government authorities, mitigation steps, and the availability and widespread use of effective vaccines, all of which are uncertain and cannot be predicted.

We firmly believe that the underlying market forces that were accelerated during the pandemic continue and demand for entrepreneurs and established business to scale and grow their revenue by teaching what they know is large and growing.

HIGHLIGHTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021

We refer the reader to the section entitled "Key Performance Indicators" below for the definitions of some of the items discussed herein and, when applicable, to the section entitled "Non-IFRS Measures and Reconciliation of Non-IFRS Measures" for reconciliations of non-IFRS measures with the most directly comparable IFRS measure.

			Three months endedSeptember 30,
	2021	2020	% Change
Paying Customers	30.7 thousand	21.4 thousand	43 %
Average Revenue Per User ("ARPU")$	110	$103	7 %
Annual Recurring Revenue ("ARR")$	41.0 million	$26.3 million	56 %
Gross Merchandise Volume ("GMV")$	100.5 million	$80.0 million	26 %
Revenue$	9.9 million	$6.0 million	65 %
Gross margin	76 %	79 %	(3) %
Adjusted EBITDA$	(6.3) million	$(23) thousand	nm
Net loss$	(10.7) million	$(0.1) million	nm

The following are the highlights for the three months ended September 30, 2021:

• Paying Customers grew by 43% to 30.7 thousand compared to the third quarter of 2020. Growth was driven by the strength of the Thinkific platform and user experience, growing brand awareness, and increasing popularity of online learning.
• • ARPU increased by 7% to $110 per month, compared to the third quarter of 2020, driven by a stronger mix of higher tier customers looking to access enhanced features and functionalities, including both upgrades from existing customers and new customers signing up for higher tier plans.
• ARR grew by 56% to $41.0 million year-over-year, benefiting from ARPU and Paying Customers growth.
• • GMV expanded by 26% to $100.5 million year-over-year due to the success of our Creators in monetizing their learning products.
• Revenue was $9.9 million, an increase of 65% compared to the third quarter of 2020, due to a combination of new customer acquisitions and stronger mix of higher tier Plus customers.
• Gross margin was 76% compared with 79% the third quarter of 2020, primarily due to an increase in employee-related costs to support customer growth.
• Adjusted EBITDA loss was $6.3 million and net loss was $10.7 million, compared with $23 thousand and $0.1 million respectively, driven by increased investments across all areas of the business, as the Company scales to support business growth, build the Thinkific brand, and invest in research and development.

KEY PERFORMANCE INDICATORS

We use the following key performance indicators to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our key performance indicators are not measures calculated in accordance with IFRS and may be calculated in a manner different than similar key performance indicators used by other companies.

Paying Customers

"Paying Customers" is the count of unique Thinkific subscribers on paid plans as of period end, excluding all trial and free customers, and including both monthly and annual subscribers. Paying Customers represents a key indicator into the current and future strength of our business. We believe that the growth in our Paying Customers base reflects our value proposition and positions us for future growth.

As at September 30, 2021 and September 30, 2020, Paying Customers was 30.7 thousand and 21.4 thousand, respectively, representing an increase of 43%.

Average Revenue Per User

"Average Revenue Per User" or "ARPU" is the average monthly Revenue per Paying Customer in the quarter. ARPU is calculated by taking the average Revenue for each month in the quarter (calculated in accordance with IFRS) and dividing this by the average number of Paying Customers for the same quarter. When stated as an annual number, the ARPU calculation utilizes the average Paying Customer and average monthly Revenue from the last quarter of the year. ARPU growth primarily results from an increasing mix of (i) new Paying Customers choosing to subscribe to our highest tier plans, (ii) existing Paying Customers moving upwards in our plan tiers in order to access enhanced features and functionalities, and (iii) incremental variable pricing based on usage for Paying Customers experiencing high levels of success with their Learning Products.

For the three months ended September 30, 2021 and September 30, 2020, ARPU was $110 and $103, respectively, representing an increase of 7%.

Annual Recurring Revenue

"Annual Recurring Revenue" or "ARR" is twelve times the monthly value of all current Paying Customer subscriptions at the end of the period, with the number of Paying Customers multiplied by the average monthly subscription plan fee in effect on the last day of that period. ARR is used by management of the Company as a directional indicator of revenue going forward, assuming Paying Customers maintain their subscription plan the following month. ARR allows management to have a consolidated measure that accounts for our different subscription plan levels and term lengths. We further analyze the factors that make up ARR and track trends in customer behaviour with regard to the number of Creators (defined as customers on any plan, including free or trial) on each plan level, along with any movement of Creators between plan levels.

As at September 30, 2021 and September 30, 2020, ARR was $41.0 million and $26.3 million, respectively, representing an increase of 56%.

Gross Merchandise Volume

"Gross Merchandise Volume" or "GMV" is the total dollar value of all transactions of course sales, membership subscriptions, or other products or services by our Creators, facilitated through our Platform during the period, net of refunds. GMV does not include transactions for course sales, membership subscriptions, or other products or services processed by application programming interfaces or certain apps where we do not record the transaction value. As such, we estimate the total dollar value of all transactions of course sales, membership subscriptions, or other products or services, facilitated through our Platform to be greater than our recorded GMV, based on transaction value that is not processed or recorded by our Platform, but through other applications that are integrated to our Platform or processed directly by our Creators. We believe GMV is an indicator of the success of our Creators in monetizing their learning products, and membership sites and strengths of our Platform. GMV may fluctuate quarterto-quarter as a result of consumer behaviour and seasonal programs. GMV does not represent revenue earned by us.

For the three months ended September 30, 2021 and September 30, 2020 GMV was $100.5 million and $80.0 million, respectively, representing an increase of 26%.

NON-IFRS MEASURES AND RECONCILIATION OF NON-IFRS MEASURES

The information presented within this MD&A includes "Adjusted EBITDA", which is not a recognized measure under IFRS, does not have a standardized meaning prescribed by IFRS, and is therefore unlikely to be comparable to similar measures presented by other companies. Rather, this measure is provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, it should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.

Adjusted EBITDA

Management believes that Adjusted EBITDA is a useful measure of operating performance and our ability to generate cash-based earnings, as it provides a more relevant picture of operating results by excluding the effects of financing and investing activities, which removes the effects of interest, depreciation and amortization expenses as non-cash items and other one-time or non-recurring expenses that are not reflective of our underlying business.

The Company defines Adjusted EBITDA as net income (loss) excluding taxes, interest, depreciation and amortization (or EBITDA), as adjusted for stock-based compensation, foreign exchange loss (gain), net finance (income) expense, and transaction-related expenses. Adjusted EBITDA does not have a standardized meaning under IFRS and is not a measure of operating income, operating performance or liquidity presented in accordance with IFRS and is subject to important limitations.

The following table reconciles Adjusted EBITDA to net loss for the periods indicated:

		Three months endedSeptember 30,
	2021$	2020$	2021$	2020$
		(In thousands of U.S. dollars)
Net loss and comprehensive loss	(10,675)	(112)	(16,974)	(918)
Stock-based compensation	1,248	183	2,653	388
Depreciation	146	135	430	343
Foreign exchange loss (gain)	3,135	(238)	3,191	(218)
Finance (income) expense	(111)	9	(151)	17
Transaction-related costs (1)	—	—	115	—
Adjusted EBITDA	(6,258)	(23)	(10,735)	(387)

(1) Represents costs related to our IPO, and consists of professional, legal, consulting, and accounting fees that are non-recurring, would otherwise not have been incurred, and are not indicative of continuing operations.

Foreign exchange impact on Adjusted EBITDA

As most of our operating expenses are incurred in Canadian dollars, Adjusted EBITDA is significantly impacted by CAD:USD foreign exchange rates during the period. Using the comparative period's average CAD:USD foreign exchanges rates, Adjusted EBITDA for the three and nine months ended September 30, 2021 would have amounted to $(5,685) and $(8,809) respectively.

The average CAD:USD foreign exchange rates for the three and nine months ended September 30, 2021 were 1.2601:1 and 1.2516:1, respectively (three and nine months ended September 30, 2020 - 1.3316:1 and 1.3539:1, respectively).

OUTLOOK

Thinkific's business performance accelerated materially over the last two years, partly due to the industry's rapid evolution and driven by changes in demographics, working ideologies, and technology. We believe we are just getting started, and continue to invest in our product, our people, and our platform, with the long-term in mind, and remain optimistic about our long-term sustained growth.

Thinkific anticipates revenue and Adjusted EBITDA for the fourth quarter and 2021 to be in the range of:

• Revenue of $10.5 $10.7 million, representing year-over-year growth of 45% 48%, bringing the full year revenue to approximately $37.9 million, representing growth of approximately 80%.
• Adjusted EBITDA loss in the range of $7.8 million to $8.4 million, bringing the Adjusted EBITDA loss for 2021 to approximately $18.8 million.

Actual results may differ materially from Thinkific's financial outlook as a result of, among other things, the factors described under "Forward-looking information".

SUMMARY OF FACTORS AFFECTING OUR PERFORMANCE

We believe that the growth and future success of our business depends on many factors, including those described below. While each of these factors presents significant opportunities for our business, they also pose important challenges, some of which are discussed below and in the "Risk Factors" section of our Final Long Form Prospectus, filed on April 22, 2021, which can be found on SEDAR at www.sedar.com.

Growth with new and existing customers

We generate revenues primarily through the sale of subscriptions to our Platform. Our future success depends, in part, on our ability to increase the adoption of our Platform by our existing customers and future customers. Our ability to grow our business also depends in part on our ability to persuade customers to expand their use of our Platform. Further, to continue to grow our business, it is important that our customers do not downgrade or cancel their subscription plans and that we expand our relationships with our existing customers.

Management of growth

The scalability and flexibility of our Platform depends on the functionality of our technology and network infrastructure and its ability to handle increased traffic and demand. The growth in the number of customers using our Platform and the number of orders processed through our Platform has increased the amount of data and requests that we process. As our business grows, we will need to devote additional resources to improving our operational infrastructure and continuing to enhance its scalability in order to maintain the performance of our Platform to the satisfaction of our customers.

New and developing markets

We operate in new and developing markets that may not develop as we expect and are prone to greater market uncertainty. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including increasing and unforeseen expenses as we continue to grow our business. Our future success will depend in part upon our ability to continue to expand into new geographic regions, and we will face risks entering markets in which we have limited or no experience, which have additional complexity, and in which we do not have any brand recognition.

Changes in the market and evolving customer needs

Our success has been based on our ability to identify and anticipate the needs of our Creators and design and maintain a Platform that provides them with the tools they need to operate their businesses. Our ability to attract new Creators, retain revenue from existing Creators, and increase revenue to both new and existing Creators will depend in large part on our ability to continue to improve and enhance the functionality, performance, reliability, design, security, and scalability of our Platform. Our continued success will depend upon our ability to keep pace with technological and marketplace change and to introduce, on a timely and cost-effective basis, new and enhanced services that satisfy changing customer requirements and achieve market acceptance.

Strategic relationships with third parties

We anticipate that the growth of our business will continue to depend on third-party relationships, including relationships with our app developers, theme designers, referral sources, resellers, payment processors and other Partners. In addition to growing our third-party Partner ecosystem, we intend to pursue additional relationships with other third-parties, such as technology and content providers and implementation consultants.

Economic conditions and resulting consumer spending trends

A majority of customers that use our Platform are SMBs and entrepreneurs, and many of our customers are in the entrepreneurial stage of their development. Our performance is subject to worldwide economic conditions and their impact on levels of spending by SMBs and entrepreneurs and their Students.

REVIEW OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

The following table outlines our condensed interim consolidated statements of loss and comprehensive loss for the periods indicated:

		Three months endedSeptember 30,	Nine months endedSeptember 30,
	2021$	2020$	2021$	2020$
	(In thousands of U.S. dollars, except share and per share	information)
Revenue	9,916	6,001	27,347	13,846
Cost of revenue	2,333	1,232	6,150	2,946
Gross profit	7,582	4,769	21,197	10,900
Operating expenses
Sales and marketing	5,848	2,377	13,506	5,217
Research and development	5,551	1,749	12,652	4,229
General and administrative	3,835	985	8,974	2,573
Total operating expenses	15,234	5,110	35,131	12,019
Loss from operations	(7,651)	(341)	(13,934)	(1,119)
Other (expenses) income	(3,024)	229	(3,040)	201
Net loss and comprehensive loss	(10,675)	(112)	(16,974)	(918)
Loss per share - basic and diluted	$(0.14) $	0.00 $	(0.28) $	(0.02)
Weighted average number of common sharesoutstanding - basic and diluted	76,920,523	40,072,028	61,018,857	42,018,128

Revenue

We generate subscription revenues from Paying Customers accessing our cloud-based Platform. Subscription revenues are driven primarily by the number of Paying Customers and the level of subscription plan. Subscription agreements are primarily monthly or annual, with monthly agreements representing the majority of all agreements. All Paying Customer agreements automatically renew unless cancelled by our Paying Customers. We offer Paying Customers a 30-day money back guarantee whereby customers are permitted to receive a full refund within 30 days from initiation of the contract.

Subscription revenue is recognized evenly over the life of a contract, commencing on the in-service date and terminating on the end date of the agreement. Where Paying Customers elect to pay their full contract upfront, we record deferred revenue on our consolidated statement of financial position and recognize revenue rateably over the term of the contract.

	Three months endedSeptember 30,						Nine months endedSeptember 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
	(In thousands of U.S. dollars, except percentages)
Revenue	9,916	6,001	3,915		65 % 27,347	13,846	13,501	98 %

For the three and nine months ended September 30, 2021, revenue was $9.9 million and $27.3 million, respectively, representing an increase of 65% and 98%, respectively, compared to the same periods in the prior year. This increase was primarily due to revenue from new Paying Customers, as well as subscription plan upgrades of existing Paying Customers.

The increase in the number of new Paying Customers, which rose from 21.4 thousand as at September 30, 2020 to 30.7 thousand as at September 30, 2021 represents the majority of total revenue growth. The remainder of the increase is a result of growing ARPU, which rose from $103 for the three months ended September 30, 2020 to $110 for the three months ended September 30, 2021 as a result of existing Paying Customers subscribing to higher tier plans.

Cost of revenue

Cost of revenue consists primarily of support services, third party infrastructure and hosting costs, payment processing fees and software costs.

		Three months ended		Nine months ended	September 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Cost of revenue	2,333	1,232	1,102	89 %	6,150	2,946	3,204	109 %
Percentage of revenue	24 %	21 %		3 %	22 %	21 %		1 %

For the three and nine months ended September 30, 2021, cost of revenue was $2.3 million and $6.2 million, respectively, representing an increase of 89% and 109%, respectively, compared to the same periods in the prior year. This increase was due to higher costs associated with supporting a greater number of Creators utilizing our Platform, including an increase in support costs, hosting fees and payment processing fees. Employee-related support costs are driven from an increase in headcount related to our customer growth, along with expansion of our support offerings.

Gross profit

		Three months ended	Nine months endedSeptember 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Gross profit	7,582	4,769	2,813	59 %	21,197	10,900	10,297	94 %
Percentage of revenue	76 %	79 %		(3) %	78 %	79 %		(1) %

For the three and nine months ended September 30, 2021, gross profit was $7.6 million and $21.2 million, respectively, representing an increase of 59% and 94%, respectively, compared to the same periods in the prior year. As a percentage of revenue, gross profit decreased by 3% during the three months ended September 30, 2021, compared to the same period in the prior year. This decrease was primarily due to an increase in employee-related costs to support our customer growth.

Operating expenses

Sales and marketing

Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation, as well as expenses for performance marketing and lead generation, brand marketing, customer education, sponsorship activities, and software subscriptions. These expenses also include corporate overhead allocations.

		Three months ended		Nine months endedSeptember 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Sales and marketing	5,848	2,377	3,471	146 %	13,506	5,217	8,288	159 %
Percentage of revenue	59 %	40 %		19 %	49 %	38 %		11 %

For the three and nine months ended September 30, 2021, sales and marketing expenses were $5.8 million and $13.5 million, respectively, representing an increase of 146% and 159%, respectively, compared to the same periods in the prior year.

These increases were primarily due to the Company's continued focus on brand awareness to increase the number of Creators we serve, and the corresponding growth in subscription revenue. This drove an increase in employee-related compensation costs as a result of increased headcount to support our sales and marketing efforts and grow our customer base. We also incurred additional costs related to other growth-focused investments, specifically advertising, promotional costs, and commissions to our affiliates.

Research and development

Research and development expenses consist primarily of personnel-related expenses for product management, product development and product design, contractor fees, software subscriptions, as well as corporate overhead allocations. Personnel-related expenses include salaries and benefits as well as stock-based compensation.

		Three months endedSeptember 30,						Nine months endedSeptember 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Research and development	5,551	1,749	3,802	217 %	12,652	4,229	8,423	199 %
Percentage of revenue	56 %	29 %		27 %	46 %	31 %		15 %

For the three and nine months ended September 30, 2021, research and development expenses were $5.6 million and $12.7 million, respectively, representing an increase of 217% and 199%, respectively, compared to the same periods in the prior year.

These increases were primarily due to additional employee-related compensation costs as a result of increased headcount, continued investments in the development of our Platform to enhance our Creators' experience and connectivity, and the development of new product features, including Thinkific Payments and Thinkific Communities.

Prior to the Company's IPO in the second quarter of 2021, research and development expenses were reduced by the Canadian federal Scientific Research and Experimental Development Program tax incentives ("SR&ED"). As a newly public company, we are no longer able to reduce our research and development expenses through refundable SR&ED tax credits, resulting in a further increase to our research and development expenses for the three and nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, refundable SR&ED tax credits reduced research and development expenses by $0.2 million and $0.6 million, respectively.

General and administrative

General and administrative expenses consist of employee-related expenses for our finance and accounting, legal, people, operations and data teams. These expenses also include non-personnel costs such as outside legal, accounting and other professional fees, software subscriptions, certain tax and insurance-related expenses, as well as corporate overhead allocations.

		Three months ended	Nine months endedSeptember 30,
	2021$	2020ChangeChange2021$$%$						Change%
				(In thousands of U.S. dollars, except percentages)
General and administrative	3,835	985	2,850	289 %	8,974	2,573	6,401	249 %
Percentage of revenue	39 %	16 %		23 %	33 %	19 %		14 %

For the three and nine months ended September 30, 2021, general and administrative expenses were $3.8 million and $9.0 million, respectively, representing an increase of 289% and 249%, respectively, compared to the same periods in the prior year.

These increases were primarily due to an increase in employee-related compensation costs to support the Company's growth, as well as consulting and professional fees, public company costs, software costs, and office and general and administrative costs due to significant expansion of operations.

Other income (expenses)

Other income (expenses) primarily consists of foreign exchange gains and losses which occur on foreigndenominated currency transactions and on the translation of monetary assets and liabilities denominated in foreign currencies, as well as finance income and expenses.

		Three months ended		Nine months ended	September 30,
	2021$	2020$	Change$	Change%	2021$	2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Other income (expenses)	(3,024)	229		(3,253) (1421) % (3,040)		201		(3,241) (1612) %
Percentage of revenue	(30) %	4 %		(34) %	(11) %	1 %		(12) %

For the three and nine months ended September 30, 2021, other income (expenses) were $(3,024) thousand and $(3,040) thousand, respectively, representing an increase in expenses of 1421% and 1612%, respectively, compared to the same periods in the prior year.

These decreases were primarily due to unrealized foreign exchange losses which occur on translation of the Company's Canadian dollar denominated cash balance. As at September 30, 2021, the Company's Canadian dollar denominated cash balance was $118.6 million (December 31, 2020 - $1.3 million).This increase in Canadian dollar denominated cash is primarily due to net proceeds received from the Company's IPO in the second quarter of 2021.

KEY BALANCE SHEET INFORMATION

	September 30,2021$	December 31,2020$	Change$	Change%
		(In thousands of U.S. dollars, except percentages)
Cash and cash equivalents	132,587	9,066	123,521	1362 %
Total assets	139,330	12,936	126,394	977 %
Total liabilities	9,613	7,627	1,986	26 %

Total assets

Total assets increased $126.4 million, or 977%, during the nine months ended September 30, 2021, primarily due to an increase of $123.5 million in cash and cash equivalents during the period, which relates to net proceeds received in connection with the Company's IPO during the second quarter of 2021. Additionally, an increase of $2.7 million in prepaid expenses, primarily relating to director and officer insurance premiums and software subscription costs, also contributed to this increase in total assets during the period.

Total liabilities

Total liabilities increased $2.0 million, or 26%, during the nine months ended September 30, 2021, primarily due to an increase of $0.9 million in accounts payable and accrued liabilities and $1.5 million in deferred revenue during the period. The increase in deferred revenue is resulting from the increase in the Company's revenue during the period, and an increase in the number of Paying Customers choosing longer term subscriptions. This was partially offset by a decrease of $0.4 million in the Company's lease liabilities during the period.

SELECTED QUARTERLY INFORMATION

The following table sets forth selected unaudited quarterly statements of operations for the Company for the preceding eight quarters. The information for each of these quarters has been prepared on the same basis as the annual financial statements. This data should be read in conjunction with our audited financial statements and related notes. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.

				Three months ended
	Sept 30,2021$	June 30,2021$	March 31,2021$	Dec 31,2020$	Sept 30,2020$	June 30,2020$	Mar 31,2020$	Dec 31,2019$
			(In thousands of U.S. dollars, except share and per share information)
Revenues	9,916	9,128	8,303	7,224	6,001	4,547	3,298	2,942
Cost of revenues	2,333	2,148	1,669	1,507	1,232	1,029	686	628
Gross profit	7,582	6,980	6,634	5,717	4,769	3,518	2,612	2,314
Operating expenses
Sales and marketing	5,848	4,559	3,099	2,281	2,377	1,691	1,149	955
Research and development	5,551	4,566	2,535	2,116	1,749	1,408	1,072	788
General and administrative	3,835	3,160	1,978	1,674	985	924	664	799
Total operating expenses	15,234	12,285	7,613	6,070	5,110	4,023	2,885	2,542
Operating loss	(7,651)	(5,305)	(978)	(353)	(341)	(505)	(273)	(228)
Other income (expenses)	(3,024)	(9)	(7)	(22)	229	119	(147)	27
Net loss andcomprehensive loss	(10,675)	(5,313)	(986)	(375)	(112)	(386)	(419)	(200)
(Loss) income per share -basic and diluted	$(0.14) $	(0.08) $	(0.02) $	(0.01) $	0.00 $	(0.01) $	(0.01) $	0.00
Weighted average commonshares outstanding -basic and diluted	76,920,523 66,253,439 39,471,076 39,471,076 40,072,028 43,163,588 42,840,156 50,056,328

Revenues

Quarterly revenues increased sequentially for all periods presented, primarily due to an increase in the number of new Paying Customers using our Platform, as well as increases in ARPU related to subscription plan upgrades from existing Paying Customers.

Cost of revenue

Quarterly costs of revenues increased sequentially for all periods presented, primarily due to an increase in costs associated with supporting and hosting a greater number of Creators utilizing our Platform.

Gross profit

Quarterly gross profit increased sequentially for all periods presented, primarily due to an increase in new Paying Customers and ARPU growth.

Operating expenses

Quarterly operating expenses increased sequentially for all periods presented, primarily due to an increase in personnel-related expenses as a result of increased headcount, as well as other related expenses to support the growth of our business and related infrastructure.

LIQUIDITY, CAPITAL RESOURCES, AND FINANCING

Overview

The general objectives of our capital management strategy reside with the preservation of our capacity to continue operating, in providing benefits to our stakeholders, and in providing an adequate return on investment to our shareholders by selling our services at a price commensurate with the level of operating risk assumed by us.

We determine the total amount of capital required consistent with risk levels. This capital structure is adjusted on a timely basis depending on changes in the economic environment and in the risks of the underlying assets. We are not subject to any externally imposed capital requirements.

Initial public offering

On April 27, 2021, the Company completed an IPO on the TSX and issued 12,310,000 Subordinate Voting Shares for a total gross consideration of $129.0 million (CAD $160.0 million). On May 5, 2021, the underwriters fully exercised an over-allotment option to purchase an additional 1,846,500 Subordinate Voting Shares for a total gross consideration of $19.6 million (CAD $24.0 million). Total share issuance costs relating to the IPO and over-allotment option amounted to $9.9 million (CAD $12.2 million). Net proceeds relating to the IPO and over-allotment option amounted to $138.7 million (CAD $171.8 million).

The Company's use of proceeds from the IPO has not changed from the disclosure set forth in the "Use of Proceeds" section of the Long Form Prospectus dated April 22, 2021.

Credit facility

The Company has a loan agreement with a Canadian chartered bank for a revolving demand facility (the "Facility") that allows the Company to borrow up to CAD $2.3 million. The Facility is secured by, among other things, the assets of the Company. The interest rate on the Facility is equal to the bank's prime rate plus 1.5%. As at September 30, 2021, no amounts have been drawn under the Facility.

Working capital

Our primary sources of cash flows are revenue from operations and equity capital raises. Our approach to managing working capital is to ensure, to the extent possible, that we always have sufficient liquidity to meet our liabilities as they become due. We do so by monitoring cash flow and performing budget-toactual analysis on a regular basis.

Working capital as at September 30, 2021 was $128.4 million (December 31, 2020 - $4.6 million). Excluding our deferred revenue of $6.3 million, working capital as at September 30, 2021 was $134.6 million (December 31, 2020 - $9.4 million).

Given our existing cash and the Facility as at September 30, 2021, we believe there is sufficient liquidity to meet our current and short-term financial obligations.

Cash flows

The following table presents the net cash flows from (used in) operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020:

	Nine months endedSeptember 30,
	2021$	2020$
	(In thousands of U.S. dollars)
Cash and cash equivalents	132,587	7,761
Net cash from (used in):
Operating activities	(11,301)	1,727
Investing activities	(357)	(297)
Financing activities	138,378	2,682
Effect of foreign exchange on cash and cash equivalents	(3,199)	(43)
Net increase in cash and cash equivalents	123,521	4,069

Cash flows from (used in) operating activities

Cash flows from (used in) operating activities were $(11.3) million for the nine months ended September 30, 2021, compared to $1.7 million for the same period in the prior year. The increase in cash outflows of $13.0 million primarily relates to a $16.1 million increase to net loss during the period, as well as a $2.5 million decrease due to changes in working capital. This was partially offset by a $5.6 million increase in non-cash expenses, including depreciation, stock-based compensation, foreign exchange, and finance and other expenses.

Cash flows used in investing activities

Cash flows used in investing activities were $(0.4) million for the nine months ended September 30, 2021, which is consistent with $(0.3) million for the same period in the prior year.

Cash flows from financing activities

Cash flows from financing activities were $138.4 million for the nine months ended September 30, 2021, compared to $2.7 million for the same period in the prior year. The increase in cash inflows of $135.7 million was primarily due to net proceeds of $138.7 million received in connection with the Company's IPO, partially offset by a $3.0 decrease in proceeds received from 2020 private share issuances.

CONTRACTUAL OBLIGATIONS

The following are the remaining contractual maturities of financial liabilities as at September 30, 2021. The amounts are gross and undiscounted and include contractual interest payments:

	Liabilities due by period
	< 1 year$	2 - 3 years$	4 - 5 years$	Total$
	(In thousands of U.S. dollars)
Accounts payable and accrued liabilities	2,367	—	—	2,367
Operating lease obligations	534	437	68	1,039
Software commitments	1,721	2,849	220	4,790
	4,623	3,286	289	8,197

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

RELATED PARTY TRANSACTIONS

Parties related to the Company include shareholders Greg Smith, Matthew Smith, the Rhino Group Permitted Holders (which consists of Vancouver Founder Fund Limited Partnership, VFF II Limited Partnership, Rhino Co-Invest 1 Limited Partnership, Vancouver Founder Fund (VCC) Inc, Rhino Co-Invest 2 Limited Partnership, and any other affiliated fund) (the "Principal Shareholders"), Alpha Score Seminars Inc., an entity co-owned by Greg Smith and Matthew Smith, and key management personnel of the Company. Key management personnel includes members of the Company's senior management and the Board of Directors.

Key management personnel compensation for the three and nine months ended September 30, 2021 and 2020 was as follows:

		Three months endedSeptember 30,		Nine months endedSeptember 30,
	2021$	2020$	2021$	2020$
		(In thousands of U.S. dollars)
Salaries and benefits	363	217	965	572
Share-based payments	123	71	327	151
	487	288	1,292	723

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

Credit and concentration risk

Financial instruments that potentially subject us to a significant concentration of credit risk consist primarily of cash and cash equivalents and trade and other receivables. We limit our exposure to credit risk by placing our cash and cash equivalents with high credit quality financial institutions.

Due to the Company's large customer base, there is no particular concentration of credit risk related to our trade receivables. Moreover, trade receivable balances are managed and analyzed on an ongoing basis to ensure allowances for doubtful accounts are established and maintained at an appropriate amount. The maximum exposure to credit risk at the reporting date is the carrying value of trade receivables. We do not hold any collateral as security.

Foreign currency exchange risk

We are exposed to foreign currency exchange risk primarily due to our holdings of Canadian dollar denominated cash and cash equivalents, trade and other receivables, investment tax credits receivable, and accounts payable and accrued liabilities. The majority of trade and other receivables are denominated in U.S. dollars.

The net carrying value of these Canadian dollar denominated balances as at September 30, 2021 was as follows:

	September 30,2021$	December 31,2020$
		(In thousands of U.S. dollars)
Cash and cash equivalents	118,571	1,250
Trade and other receivables	78	—
Investment tax credits receivable	400	915
Accounts payable and accrued liabilities	(267)	(900)
	118,782	1,266

We limit our exposure to realized foreign currency exchange risk by holding Canadian denominated cash sufficient to cover Canadian expenditures, thereby creating a natural hedge. We have not entered into any arrangements to hedge our exposure to currency risk.

Based on working capital held at September 30, 2021, a 10% strengthening in the Canadian dollar against the U.S. dollar, with all other variables held constant, would result in an increase in foreign exchange loss of approximately $15.1 million recorded against net (loss) income (December 31, 2020 - $0.2 million). The sensitivity associated with a 10% weakening of the Canadian dollar against the U.S. dollar would be equal and opposite.

OUTSTANDING SHARE INFORMATION

As at November 8, 2021, the Company had 20,251,983 Subordinate Voting Shares and 56,993,752 Multiple Voting Shares outstanding, for a total of 77,245,735 common shares outstanding.

ADVISORIES

Critical accounting policies and estimates

The preparation of financial statements in accordance with IFRS requires the Company to make significant judgments, estimates and assumptions that impact the Company's balance sheet and operating results. A summary of Thinkific's significant accounting policies, estimates and assumptions can be found in Note 3 of the annual financial statements.

Revenue recognition

Our primary source of revenue is subscriptions to our cloud-based Platform. Subscriptions to the cloudbased Platform may include promises to transfer cloud services and professional services. A performance obligation is a commitment in a contract with a Paying Customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.

Recoverability of deferred tax assets and current and deferred income taxes and tax credits

In assessing deferred income tax assets, we consider whether it is probable that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the years in which those temporary differences become deductible.

Management's judgment is required to determine the amount of deferred income tax assets that can be recognized, based upon the likely timing and the level of future taxable income together with future tax planning strategies.

Share-based payments

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the related instruments at the date at which they are granted. Estimating fair value for sharebased payments requires determining the most appropriate valuation model for a grant, which depends on the terms and conditions of the grant. This also requires making assumptions and determining the most appropriate inputs to the valuation model including the expected life of the share-based payment, volatility and dividend yield.

Recently issued accounting standards not yet adopted

From time to time, new accounting pronouncements are issued by the IASB or other standards-setting bodies and are adopted as of the specified effective date. No new accounting pronouncements are expected to materially impact the Company as at September 30, 2021.

Controls and procedures

The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have designed or caused to be designed under their supervision, disclosure controls and procedures which provide reasonable assurance that material information regarding the Company is accumulated and communicated to the Company's management, including its CEO and CFO, in a timely manner.

In addition, the CEO and CFO have designed or caused to be designed under their supervision internal controls over financial reporting ("ICFR") to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements, as well as an evaluation on whether or not there were changes to its ICFR during the period ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect the Company's ICFR. No such changes were identified through their evaluation.

The CEO and CFO have been advised that the control framework used to design the Company's ICFR is recognized by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company is now subject to the certification and disclosure requirements provided for under National Instrument 52-109. As a result, new internal controls were designed and implemented, including new processes to meet the disclosure requirements under the new standard.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluations of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures and our internal controls over financial reporting are effective in providing reasonable, not absolute, assurance that the objectives of our control systems have been met.