Q2 2021 Coursera Inc Earnings Call
Enterprise and degrees.
Institutions, including business and governments are using coursera to launch on large scale reskilling efforts and individual learners are coming to the platform to upskill for high demand digital rules and.
In particular, we continued to see strong interest in our growing portfolio of professional certificates, which are redefining the opportunity people have to get fast growing digital jobs.
These credentials created by some of the greatest global brands, including Google IBM, Facebook and others allow Lerner with no college degree or prior industry experience to develop the skills required for an entry level digital job fully on line in less than a year.
But a career pathway isn't the only option.
In addition to these career pathways.
Collaboration with universities to offer degree pathways that enable learners, who finished professional certificates to earn academic credit towards a college degree if they want to continue with their education.
This kind of institutional collaboration among universities industry and governments enabled by Coursera has 3 sided platform make higher education more flexible and affordable.
And we believe greater flexibility accessibility and job relevance is the future of higher education and adult learning.
As we look to the future of learning and work in a world reshaped by the pandemic.
Technology continues to emerge as the primary driver of both cause and effect.
Acknowledges accelerating change and transformation around the world, destroying jobs, and creating new demands for knowledge and skills.
And it is also the means by which society is adapting to this accelerated change.
Online learning has the potential to enable anyone anywhere to access a new world of educational opportunity.
And remote work has the potential to enable anyone anywhere taxes job opportunities if only they have the knowledge and skills required to perform them.
I'd like to take a few minutes to discuss in more detail the fundamental forces we see at play.
First our world is accelerating driven by technology and globalization.
This force of technology, especially the Internet cloud computing and AI.
10 years to transform industry after industry.
Over the last year, we've been fast forwarded to a new normal of online learning digital skills digital jobs and remote work.
The pandemic is ushering in a new world of remote work, which is fundamentally changing not only how companies work.
It also who they can hire as employees.
Pandemic has amplified the criticality of technology and digital tools and the way that we all work.
By separating work from place the pandemic and remote work has opened new opportunities for companies to build more diverse distributed workforces.
We believe that companies that harness the potential and the power of a truly global talent pool, not just those fortunate enough to live near the corporate office as well.
Gain access to greater talent at lower cost than most companies who do not.
And we believe that because of remote work individuals who harnessed the power of online learning to acquire in demand knowledge and skills will be rewarded with a growing selection of job opportunities as more remote jobs become available around the world.
We believe technology is both lowering the cost and increasing the benefit to education.
In this sense technology is increasing the return on investment of education on a global scale.
This leads me to a second trend as the world becomes more digital jobs that are repeatable and predictable are being automated by technology.
Recently, a mckinsey global business Executive survey found that 67% of employers have accelerated automation and AI deployments during the pandemic.
And the jobs most at risk of being automated like freight movers retail clerks and waiters are typically held by lower skilled workers, making lower wages.
These are also the jobs that have been most impacted by COVID-19.
Leading to businesses and governments around the world looking to Upskill people, so that they have the knowledge skills and credentials to enter digital jobs.
In June Coursera published our 2021 global skills reported withdraws on the performance data on millions of learners on the Coursera platform to benchmark skills proficiencies across business technology and data science domains for over 100 countries.
And these insights provides us with a glimpse into what our post pandemic world might look like.
First.
Then accreted a complex economic landscape that threatens to leave millions of workers unprepared for the digital future.
In the report there was a stark contrast between the hardest hit sectors, such as tourism retail and construction and positive job growth in industries like technology and finance.
These shifts in the economy are expected to persist, implying a difficult uphill climb for displaced workers.
But on a positive note our research shows that the top skills needed for entry level jobs of the future are more accessible than commonly thought.
Our data suggests that these digital skills are attainable and can be learned in as little as 35% to 70 hours not years of online learning.
But the impact did not stop at low skilled roles. Our data also show that the pace of change is requiring every person and every job to keep learning throughout their life to stay relevant as the organizations evolve and business model to adapt to a changing economy.
This is particularly important for learners that pursue careers and fast moving domains like technology and data science.
And these disciplines the median half life of a skill or the number of years. It takes for skilled to reach half of its value in the labor market is about 7 years shorter than the half life of a scale outside of these domains and finally, our global skills report just points to a growing divide between countries for.
For example high skilled countries skill proficiency on Coursera is associated with superior performance on the global innovation Index.
Higher Labor force participation.
We reduced concentration of wealth and increased economic output.
During the pandemic Coursera offered our global work force recovery initiative to help governments stabilize their workforce and boost their economies resilience through job relevant training.
And we expect this need to continue in the coming years with governments undertaking large re skilling initiatives.
In many ways dependent on it has accelerated trends that have been at play for decades.
And we believe this moment presents a unique opportunity to build a more inclusive modern and scalable education system, which brings me to my third dynamic at play here.
And that is the digital transformation of higher education.
Higher education, 1 of the largest industries in the world at 2 trillion dollars.
Has seen relatively little innovation.
We believe the world needs high quality education can be more accessible and the need for this kind of change has never been more urgent traditional college degrees are not affordable to many people.
They are episodic structure doesn't meet the need to continue that lifelong learning.
We do not provide the flexibility previously desired, but not required by working professionals, who do not want to quit their job or relocate to get a college degree.
As our Q2 results demonstrate the Coursera platform is playing an increasingly important role in enabling the digital transformation of higher education.
And unlike other platforms, we are an enabler not a disruptor.
We work directly with leading universities businesses and governments to equip them with the technology scale and insights they required to better serve the needs of learners.
Let me share some updates on the progress that we've been making to expand and enhance the value of the coursera platform.
Of course, there are platform centered on 3 primary advantages.
The leading educator partners that are attracted to coursera by our global reach.
Second the quality and breadth of the content and credentials that they've created.
And third the technology and data that powers this global platform.
First educate our partners.
Our expanding ecosystem of educate our partners who are attracted to coursera for large growing learner base and global reach continues to expand.
We now have 87 million total registered learners on the platform with the vast majority coming from outside of North America.
And these learners are served by a growing list of more than 200 University and industry partners.
As I shared on the last call, we announced 10, New University partners in conjunction with our core share conference held in April.
We're also collaborating with a number of new industry partners in recent weeks, including Intuit Info SEC 10 and.
And Blue Prism.
For industry partners. The development of these high quality branded courses and credentials is becoming a business imperative.
Coursera is scale and reach allows them to build a global community of developers and users critical to growing their ecosystems.
In addition, it also allows them to specifically address the growing job displacement that their technology automation on platforms had been creating in the pursuit of economic progress and efficiency.
And with their job focused credentials and career pathways, our industry partners are increasingly becoming part of the solution.
To develop in demand skills that prepare learners for career changes and career advancement.
This brings me to our second strategic advantage.
Our broad catalog of World class content and credentials created by these educator partners.
Our stackable system, a branded high quality premium content enables us to attract learners at low cost and serve them at a range of price points learners.
Learners come to Coursera for our freemium content and bite sized learning, including hands on projects and short courses, enabling us to grow our top of funnel and attract registrants at low cost.
As these learners look to progress in their careers by earning more valuable credentials, we aim to maximize lifetime value with the premium credentials from our partners, including specializations professional certificates and fully accredited bachelors and masters degrees.
And our catalog of World class content and credentials continues to grow.
In the past 2 months, we announced a number of new certificates from our University and industry partners, including <unk>.
For certificate programs and the high demand fields of business strategy marketing and product management from our New University partner, The Indian Institute of management, because you could weave.
We've also added new entry level professional certificates, including the bookkeeping professional certificate from Intuit and a marketing analysts professional certificate from Facebook.
For degrees, we announced a global Masters in English language teaching leadership from pumps State University in Russia.
In addition to the 5 degree programs announced at Coursera Conference in April brings our total portfolio to 31 degree programs 19 of which are outside the United States.
Now onto our third major advantage, which is our platform.
This world class content is delivered on a system of technology and data that underpins the coursera learning platform.
We continue to enhance the experience of our learners institutions and educate our partners as well as the scalability of our model.
For learners, we recently expanded the availability of Coursera plus as a monthly subscription operating unlimited access to more than 3000 courses in all of our guidance projects for 1 all inclusive accessible price per month.
We see early evidence that coursera, plus improving retention of paid learners.
Additionally, we are investing to localize the learner experience in fast growing economies like India, including payments pricing partnerships and content discovery.
These localization efforts appear to be improving conversion rates in our consumer segment.
For institutions, we launched 3 academies earlier this year.
The data and analytics Academy the cloud in at Academy, and the software Engineering Academy.
These academies offer companies a skills first approach to enterprise learning books.
Focusing first on the critical roles that need scaling than specifying the skills and proficiency levels needed for those roles and then finally linking the skills to content that teaches those skills at the appropriate proficiency level.
We believe our broad catalog and our skills graph that connects roles to skills content mix.
Mixed academies and skill set a differentiated offering.
And they appear to be resonating in the marketplace with more than 70 enterprise customers using them in Q2.
Now for educators, we're making it easier to bring their content to coursera.
In June we announced general availability of our new learning content ingestion solution.
This feature allows educators to more quickly and seamlessly migrate large amounts of online content.
On a learning management system in Coursera and currently supports content ingestion from Ed ex canvas blackboard moodle and others.
Individually our ecosystem of partners World class content and technology are important strategic advantages.
But the real power is the way that these assets are reinforced by and leveraged across our single unified platform.
There's a flywheel effect as they're growing selection of content and credentials attracts more individuals or institutions, which in turn motivates our educated partners to create more content on the platform.
This growing content technology and data allow us to better meet the needs of learners educators and institutions.
That in turn fuels, our business, increasing scale, reducing our acquisition costs and ultimately maximizing the lifetime value of learners on coursera.
We believe the transformation of higher education is only in the early innings.
So before I turn it over to Ken for a closer look at our financials. Let me remind you of some of the key priorities, we're focused on to drive long term sustainable growth.
First we continue to invest in our enterprise sales force using a land and expand strategy to acquire new customers, while growing our relationships with existing customers.
In Q2, we increased the total number of paid enterprise customers to 584.
100, <unk>, 9% increase over the prior year that included customers from all of our institutional categories.
Large customers like go on in the U K and Pwc pro edge in the U S expanded programs with Coursera for business integrating coursera into their digital upscaling enterprise products and others like Pernod Ricard, a leading beverage company based in France are using coursera to upskill their technology talent and cutting edge did.
It'll schools skills.
Additionally, with Coursera for government, we launched large scale nation and statewide reskilling programs, including the government of Barbados National transformation initiatives.
The U S, Tennessee Department of Labor and workforce development and an.
<unk> partnership with the Commonwealth of learning, serving 54 member Nations.
And finally, we're seeing strong adoption of Coursera for campus with leading public and private universities around the globe.
In 1 example, the Morocco Ministry of Education approved a coursera for campus deal covering 13, leading universities and Morocco, reaching 80000 students across the country, starting with University day us onto the Casa Blanca.
Next we are only in the beginning stages of our degree business and looking forward to growing the number of students in our current programs, while increasing the number of degree programs offered on our platform.
The expansion of our program catalog includes the types of degrees offered bachelors and masters, a greater variety of subject matters as well as programs from more regions.
And finally, we will continue to scale the coursera platform <unk>.
Investing in growing our registered learner base, increasing our network of educate our partners and our content and credentials and expanding our reach into more countries and 4 more learners around the world.
And now I'd like to turn it over to Ken.
Ken.
Thanks, Jeff and good afternoon, everyone. We.
We are pleased to report strong results in our June quarter.
Q2, we generated total revenue of $102.1 million, which was up 38% from a year ago on consistent strength across all 3 of our business segments.
This growth was on top of the 61% year over year growth delivered in the year ago quarter, which was our first full quarter impact from the COVID-19 pandemic. So we grew quite well over a tough comp.
As Jeff mentioned.
We've witnessed a global trend of learners educators and institutions looking to coursera to provide the job relevant skills required to compete in a post pandemic digital economy.
And given our broad catalog of world class branded content and credentials were able to meet their needs whatever the stages of their learning journey.
Please note that for the remainder of the call I will discuss key operational metrics as well as non-GAAP financial metrics, excluding pro forma adjustments unless otherwise noted.
These non-GAAP adjustments remove only stock based compensation and related payroll tax nothing else.
Gross profit was $61.8 million up 60% from a year ago and 66% of revenue that is gross margin and that gross margin percentage was approximately 810 basis points higher than the year ago quarter.
As a reminder, there are 2 components of our cost of services. The first is our content costs, which various based on the revenue mix amongst our 3 businesses as well as the content margin rate within each segment.
For example, our higher margin enterprise. Some degree segment accounted for 39% of overall revenue mix in Q2 compared to 32% in the prior year period.
This long term mix shift is key to our structurally expanding margins over time.
Additionally, we see changes in the segment content margin rates, which continued to be a positive variance in the second quarter, particularly for our consumer business.
Our consumer segment content margin rate increased from 54% in the prior year.
66% this quarter as learners consumed a larger proportion of content with lower than average content cost.
The second component of our cost of services as our non content costs margins for which were roughly flat on a year over year basis at 9.6% of total revenue.
Before moving to operating expenses I would like to remind you from our last call that we expected a large stock based compensation charge associated with restricted stock units for which amortization began with the completion of our IPO. This is typical for companies that make the IPO on rsum desk.
<unk> trigger which has been now common practice due to employee tax considerations.
As previously mentioned the non-GAAP income statement measures that follow exclude stock based compensation and related payroll tax, but I didn't want to gloss over that GAAP expense.
Total operating expense was $68.2 million or 67% of revenue compared to 66% in Q2 of last year.
Sales and marketing expense represented 32% of total revenue slightly down from our prior 33%. We continue to expect our overall sales and marketing expense in 2021 to represent a similar percentage of total revenue as in full year 2020.
Research and development expense was 22% of revenue in line with the year ago period, we expect our overall R&D expense in 2021 to represent a similar percentage of revenue as this quarter.
General and administrative expenses was 13% of revenue versus 11% in the prior year, given incremental costs associated with being a public company. We expect <unk> expense as a percentage of revenue to continue throughout 2021.
Net loss was $6.9 million or 6.8% of revenue and our adjusted EBITDA loss was $2.9 million or 2.8% of revenue.
It was a very strong quarter for EBITDA margin, but importantly, I want to remind you of our consistent messaging on this metric and how we are managing the business.
On a brief time as a public company and consistent with our operating framework before the IPO, we plan to deliver annual EBITDA margin improvement over the long term.
As you'll hear shortly and our outlook discussion, we continue to see 2021 as an investment year and our forward EBITDA guidance reflects this focus we.
We intend to invest our strong performance this quarter over the remainder of the year to 1 paved the way for future growth initiatives and to secure leadership and our large and rapidly evolving markets.
This includes growing our learner based on customer base, expanding our partnerships on content offerings and delivering new innovation on our platform.
We believe that deepening our competitive moats and further defining our leadership position utilizing the strategic advantages Jeff articulated is the right answer for the benefit of all our constituents.
That overarching comment made do we plan on demonstrates scale and increased leverage over time once again targeting ongoing improving EBITDA margins on an annual basis.
Free cash flow was a use of $8.5 million compared to $8.3 million provided a year ago.
Turning to the balance sheet.
We ended Q2 in a strong cash position as of June 30th weighed over $800 million of unrestricted cash cash equivalents in marketable securities with no debt.
And combined with the strong performance from the business. This allows us to invest confidently in our future.
Now, let me get into more detail on each of the business segments, starting with consumer.
Consumer revenue was $62 million up 23% from the prior year in particular, we saw strong demand from our career oriented professional certificates targeted at entry level digital jobs and as Jeff highlighted earlier, we continue to expand on these offerings with new and existing.
<unk> industry partners building, a wider portfolio of products aimed at the global re skilling opportunity. Additionally, we're seeing increased adoption of Coursera plus following the general availability of our monthly payment option for the subscription offering.
Segment gross profit was $40.7 million or 66% of consumer revenue as we benefited from a lower content cost rate during the quarter.
In addition to its financial contribution our consumer business is a strategic asset serving as a top of funnel source for our enterprise and degree segments and we added another 5 million new registered learners during the quarter for a total base of $87 million as of June 30.
Next is enterprise.
Enterprise revenue was $28.2 million up 69% from a year ago on a combination of strong renewals and growth in new customers.
All 3 of our enterprise customer categories business governments and campuses saw strong growth.
The total number of paid enterprise customers increased to 584 up 109% from a year ago.
And our net retention rate for paid enterprise customers was 114%.
Segment gross profit was $19 million or 67% of enterprise revenue, which was slightly lower on a percentage basis from the prior year period due to a large mix of indirect customers utilizing the coursera platform in Q2, a year ago.
And lastly, our degrees segment.
Degrees revenue was $11.9 million up 78% on scaling of prior cohorts and newly launched programs. Our total number of degree students reached 14630 of 81% from a year ago.
Segment gross margin was 100% of degrees revenue students pay tuition directly to the University and the University paid us a fee based on the tuition amount. So there is no content cost attributable to the degree segment.
Now onto our financial outlook as a reminder, we have fairly good visibility into revenue on a quarterly basis in both our enterprise and degrees segments. So significant variance to expectations is most likely to occur in our consumer segment. Additionally.
Additionally, the consumer segment is where we can experience seasonality for example last year, we saw a lower in Q4 following a strong Q3.
For the upcoming third quarter, we're expecting revenue to be in the range of $105 million to $109 million. This represents a growth rate of 29% compared to last year and the midpoint of the range versus Q3 of 2020.
For adjusted EBITDA, we're expecting a loss in the range of 7.5 to $10.5 million, which translates to an adjusted EBIT margin of negative 8.4% at the midpoint.
For full year 2021, we anticipate revenue to be in the range of $402 million to $410 million representing.
Approximately 38% growth compared to last year at the midpoint of the range.
As Jeff discussed earlier this reflects the sustained structural demand, we're seeing for online learning as businesses governments and individuals seek the skills required to compete in today's economy and for adjusted EBITDA, We're expecting a loss of $38 million to $44 million or an adjusted EBITA margin.
<unk> of negative 10, 1% at the midpoint.
This outlook for full year 2021 reflects ongoing investments in personnel related costs sales and marketing product development and general and administrative costs associated with being a public company.
As a reminder, we do not optimize performance for any single quarter, and we will strategically invest for the long term sustainability of our business. In 2020. This included substantial investments in our fourth quarter.
We manage our business on an annual cadence for expenses and adjusted EBITDA and as I said earlier, we intend to demonstrate scale and leverage over time as our business growth.
Before Jeff closing comments I wanted to leave you with 3 important reminders about our long term framework.
First our freemium model global scale and singular unified platform allows us to attract new registered learners at low acquisition cost that support our high margin businesses.
Second we expect to have clearer forward visibility on our top line in the years ahead as our mix of revenue evolves, particularly our degrees business, which naturally and predictably builds over time.
Third and finally in addition to our rapid growth, we expect ongoing structural gross margin expansion over the long term driven by revenue mix shift and are scaling platform.
We see an enormous opportunity ahead of us.
The impact of the pandemic was not temporary it has accelerated the pace of change and automation, while amplifying the importance of digital skills and tools. This is a permanent acceleration in shift requiring people to regularly enhanced our human capital through lifelong learning.
With our unique assets and scalable platform model, we are well positioned to capture this growth while addressing the global need for high quality education and collaboration with our partners.
And with that I'll turn it back to Jeff.
Thanks, Ken.
As a public benefit corporation, we have a legal duty to balance shareholder needs with the needs of society more broadly.
And at Coursera, we embrace this responsibility wholeheartedly.
So before we open the call for questions I wanted to share 1 of the most encouraging insights coming out of our Coursera global skills report.
The dual impact of depend on make in automation have disproportionately impacted women.
Globally women are more affected by job losses in men and the total employment law for women stand at 5% in 2020 versus 3.9% from men.
And in the U S.
Despite and exited the women from the labor market amidst the pandemic.
There was also a sign of hope.
Our data showed that women are now pursuing online education on coursera at a higher rate than pre pandemic.
Share of overall Coursera course enrollments in the U S from women increased from 42% in 2018 in 2019% to 55% in 2020.
And the share of stem course enrollments for women often the foundation for digital jobs grew.
Grew from 35% to 47% within the same timeframe.
I believe we're seeing the benefits of a foundational shift and adult education with learners using the flexibility provided by the pandemic and the self guidance pace of online learning to Reskill and upskill individual jobs that provide greater career opportunities resilience and future advancements.
Coursera was founded with the goal of helping to serve humanity and to move humanity forward and it is stories like these that inspire our team members to work so hard every day and attract leading universities and companies to join us in this mission.
And with that let's get to Q&A.
Could you please introduce the first question. Thanks.
Thank you at this time I would like to remind everyone in order to ask a question press time and day number 1 on your telephone keypad again that has started on the number 1 on your telephone keypad phosphate at the moment to compile the Q&A roster.
Our first question coming from the line of Stephen Sheldon with William Blair. Your line is open.
Hey, Thanks for taking my questions on a really impressive results here.
1 on 1 of the financial metrics that really stands out this quarter is the gross margin in our consumer segment. I believe this was the first time, it surpassed 60% and blew past that level. So.
Talk to us on but how should we think about the factors driving that between the source of content being consumed without assume a benefit from more corporate versus university content being utilized and the impact of the subscription plans just any detail there and the potential sustainability of consumer gross margin at this level.
Think about the next few years great. Thanks, Steven Yes. This is Jeff. So yes, we definitely saw from strong performance in consumer, especially with the segment margin there and as cash.
Ken said.
Basically a lower content cost on some of the content and that content, mostly on the professional certificates from industry partners has had a disproportional uptick as people some people calling on fee the great resignation and there are a lot of people thinking about switching careers and thinking about how do I get myself into a new digital <unk>.
Turns out that a lot of the content that our industry partners have been putting on.
Really relevant to those jobs.
Career Switchers, who maybe you don't have a college degree and often the industry partners for various reasons on this.
Sided that the content cost would be a little bit lower so it's mostly a mix shift associated with the educator partners on.
In terms of the persistence.
It's really kind of hard to say.
It depends on how many people are coming consuming the content from which educate a part of the content created.
At this point when we think about our planning internally, we are not going to build in the persistent effect on this margin expansion that we see in consumer.
But at the same time.
The factors that have driven Q2, continuing to persist in terms of people looking for this kind of content and consuming this content. The way. They have been there is no reason it should not persist but were not kind of counting on its pretty early days.
And frankly.
This was not something that we were anticipating in Q1. So we will just sort of see how this plays out.
Got it makes sense.
It seems that you have more flexibility to strategically reinvest on the original plan.
Strong traction we're seeing across them so.
Curious if you can give any more detail about where you might be ramping investments more than you would assume Gwen when you last provided guidance.
Yes.
This is Mike on a story as the CEO. It's just you really want to be thinking about first where the growth opportunities second what is the confidence magnitude.
And.
On the immediacy of any potential growth that you get from an expenditure and then whether it's recurring or not because obviously recurring is it cost us on that.
Hard to adjust so I do think we have a lot of growth opportunities generally speaking and we typically look at things at a 3 year kind of perspective on a 3 year perspective things are changing that much. So we are mostly going to be investing right along the lines on what we've talked about really investing in our enterprise sales force.
And product improvements investing in helping to re partners come on board and all of that kind of stuff. So I don't think that you should expect any major difference in where we allocate the money we might do it at a slightly quicker pace.
But again, we want to make sure that we don't outpace the growth that we're seeing on the top line and so we're we're going to kind of take a quarter by quarter, but as Ken said try to hit some targets on an annual basis from both revenue growth and expanded adjusted EBITDA margin, but no substantial differences in the way that we're planning to allocate our growth investments.
Great. Thank you and congrats on the results. Thanks, Steve I appreciate it.
Thank you Steve.
Our next question coming from the line of Tom <unk> with Citi. Your line is open.
Oh.
Good evening net from here from Citi. Thanks, very much for taking my question on.
Maybe just some.
On the consumer price I mean, obviously, a fabulous number.
Year on year on sequentially I'm, just wondering whether alongside the professional.
Can you highlight whether there was any sort of nicely impacting international from ongoing lockdowns that Mike sort of.
Given us this temporary benefit.
Consumers are allowed to get stuck on.
Yes.
Correct.
That was the first question I've got a follow up if that's okay. Thank you yeah. So.
So on that 1 Tom if you look at where the traffic is coming from and you look at the conversion rates and you. Therefore look at some of the revenue coming in it does not seem to be disproportionately associated with other countries going through successive waves of lockdown and even as the U S and now looking at our success the way, but I mean.
Delta variants.
Obviously, a bit different than the variance on the strength of our out earlier.
We think that it is literally an international thing than it is kind of a digital job re skilling thing plus a part of it too is a growing portfolio on the east.
Size of these professional certificate portfolio a year ago was I don't know maybe 2 or 3 it's now I think it's 14 and we continue to get lots of interest from other industry partners wanting to build these entry level on ramps to new digital careers, but I would say, it's not not really attributed to.
<unk>.
That's very clear on that on the.
The second question that you would make to that please.
I mean, historically you've talked about.
Roughly 1% maybe from you guys.
<unk> tightened learners, becoming paying users in any particular period.
Adjusted whether this is.
The Super normal growth is a function of the number of paying users starting off with just the amount paid by users going up if that makes sense.
Is the Delta.
I think a number of non <unk>.
Hang on.
Alright.
Would love to kind of level.
It's a combination I mean as we as we grow this portfolio I think there's something to meet more people need IBM has the cyber security analyst profession.
Professional certificate into it just put out a bookkeeping professional certificate sales.
Sales force has put out a sales operations specialist certificates are growing if you will a growing number of career opportunities that you can scale for on the Coursera platform I think that's appealing to a wider audience, we have been seeing a bit more sort of higher conversion rates than historically into these so theres a little bit of a conversion.
Bumped that we're seeing and as Ken mentioned on the Coursera plus some of our retention numbers on looking pretty good too. So it's a combination of factor and Ken.
Would you add anything to that answer.
Non.
No nothing that that was quite thorough.
It's not a price increase I will tell you that it's not that people are paying a higher price for what they're consuming.
It's not a price increase and it is not a surge in international it is it's better conversion as you stated.
Well listen thank you very much from congratulations on pretty.
Really appreciate the extra time zone.
Yeah.
Yeah.
We have our next question coming from the line of Rishi Hilary on R&D.
<unk> Your line is open.
Alright. Thanks, Hello, This is Richard Deloria from RBC.
Let me go.
Impressive results.
Put up.
1 of the first maybe ask going buying back from the government opportunity that you highlighted some of our on deals that you had both domestically and internationally, but longer term how should we thinking about the opportunity.
On governmental, especially federal and state and local here and given kind of an accelerated.
Migration and adoption of digital transformation efforts with those and then I've got a follow up.
Yes.
I think that reaching its kind of interesting I think that our content catalog 2 years ago 3 years ago. When we sold into Costar from government. It didn't have a lot of these entry level professional certificates and don't require a college degree I mean, it was mostly like advanced machine learning and much more advanced topics.
Data science computer science et cetera, So I do think in the last 24 months.
Relevance and attractiveness of the content to governments looking to get people employed a new careers has gone up and Thats..1 of the factors I think another thing that in the U S. But this is also true internationally.
Government training programs has historically not been online and.
I think it was largely the pandemic a lot like universities, who had to close their campus and were forced to go online I think governments, obviously could not do face to face training. They were forced to go online and so I think theres a little bit of a confluence of government, saying, Hey, you know what we can get more scale at lower cost. If we do this online, which we now try to because we were forced to.
The relevance of the content is pretty high because these are digital jobs and we're learning digital skills and you can do that on a digital platform.
But I'd say that we're still on the early stages of adoption and so a lot of governments tried. This during 2021 and we did our workforce recovery initiative was a free version of Coursera for government. We are getting wins I think theres, a little bit of a difference I mentioned the coursera.
Deal with Morocco, where the Ministry of Education did a deal for the universities in Morocco. So it is kind of a government and university institutional collaboration.
And what they're trying to do is up level their entire higher Ed system.
That will be creating interest in because it plays to 2 of our big strength in government and on campus I think for governments upskilling their own civil service workers that will come along and then for basically trying to get people re employed again I think this entry level certificate portfolio that were developing with industry partners is looking attractive. So I think it's kind of law.
It's early days, we think we're pretty well positioned and we think that the future will look a lot different on the path in terms of how governments go about this.
Alright, great that's helpful. Thanks.
Then just any comments on changes in the competitive environment, especially with the <unk> acquisition of add on so how should we be thinking about.
That especially given they are also on a number of segments that you also Brian. Thanks.
Yes, the competitive environment I guess, there's a few things that sort of well in which region for which products and where do we have the advantages I also think that.
In the case to an index both of those players were in the market. So now they're 1 and the team before they were 2 different entities, but it is not really the introduction on a new entrant. We are seeing a lot of new entrants I think everybody kind of knows this but these things are definitely funding a lot of <unk> around the world in China in India and Latin.
American U S et cetera, So I would say the competitive environment is definitely true.
Collecting the size of the opportunity.
And I think I feel better about our competitive position now than I, probably have in the last 4 years since I've been here and we're feeling pretty good.
We do think kind of keep on saying the same things on the script about our competitive advantage, but.
We're in a low single minded about this we have built this III cited model over the last 4 years, it's all organic.
Really integrating all of these pieces of it.
Benefit in 1 segment of our business will basically turn into an advantage in another segment.
Those are starting to click pretty decently, so I love the model I think more people will be adopting our kind of our model and we're pretty well ahead and I think that where we designed in a way that the pieces really reinforce each other so unlike in where we are right now.
Wonderful. Thank you so much sure.
And our next question coming from the line of Josh Baer with Morgan Stanley. Your line is open.
Awesome. Thanks for the question a lot of focus on consumer which is definitely it was a highlight in the quarter, but I wanted to ask 1 on degrees.
I was hoping you could unpack what's going on in that segment, a little bit of the 31 degrees any context for how many are fully ramped and if we look at.
Student growth is there a weighted breakdown.
That enrollment growth coming from new degrees ramping degrees.
Or like a same store sales like.
Enrolment.
Looking at programs that were in place.
Yeah, great. So thanks for the question, Josh I'll take a first crack and then turn it over to Ken. So today, we have about 31 degrees that have been announced 16. Our lives last quarter 16 relied on a year ago Q2, 12, a lot 21 announced 12 realized so we've really been building up.
The pipeline and the announcements on these degrees are now kind of moving production, but many of them are not net line. So to answer your question a lot of this learner growth is coming from expansion of cohorts and existing programs more so little new programs and even in an existing program. Some of it is an expansion of a given COVID-19.
But over say a 2 year program, you'll actually have new cohort starting for 2 years until it hit sort of a steady state. It is more that filling up cohorts and for a given degree program has already launched it getting there sort of a steady state maturity than it is new students coming in new programs.
Obviously the difference between 31 announced 16 lie brings on a lot of them are going to be going live and then I think we'll see more on the contribution from new degree programs, but thats not really whats being reflected in the degree revenue numbers right now Ken your thoughts on that.
Yes, so I agree generally we havent.
Josh released that kind of data on what's fully ramp and what's contributing.
A small minority that's fully ramped. So in addition to take 1 step further what Jeff was saying, there's new ones that are signed and have yet to be implemented and then as you understand based on your question. Then you have to ramp all the cohorts. So you get to a force to your degree.
<unk> set a 2 year cohort we.
We have not disclosed that the business is just too early on I do believe we're going to add additional color going forward.
We're going to wane from business was a little bit bigger to start creating a lot of that detail, but it is a bit more than a handful that are fully ramped. It's very early for our degree of business.
That's very helpful. Even just just seeing all the different kind of vectors of growth within.
Within the existing.
Programs.
Just as a follow up I'm, just wondering if you're seeing any changes as far as your ability to source students from your registered learner base.
Maybe with some of the different geographies, becoming more back to normal related to Covid and I'm wondering how how that ability to find those students might change as you scale.
Yes, I think it's going to be a combination I think on the 1 hand as we developed our registered learner base, while the bigger pool position.
At the same time as we have a broader set of on degrees, including from different regions. Finding a good match between a given learner in a given that we will go up so I think the selection will facilitate.
Acquisition of degree students and at the same time I think there will be continuing competition I mean, they are definitely more universities putting degrees on line there are other players.
We really like our model a lot.
Look at the expected or the percentage of sales and marketing going towards revenue, it's down a bit on some cut some good topline growth in Q2, but we're not seeing anything that suggest at this stage of the game that.
That this new model is going to lose the leverage that we've been seeing so far so we think about how many stamina registered learns come from from unpaid sources, we think about customer acquisition cost per degree students, we look at sales and marketing as a percentage of revenue.
All indicators are feeling good and we're feeling good about how the model is going so far.
Thank you.
And our next question coming from the line of Terry Tillman with true with your line is open.
Hey, guys. This is Joe Meares on for Terry Thanks for taking the question.
Could you please expand a little bit on that recent blog post you guys.
North American transaction.
Ken or cash.
Tim.
Instead of North American transaction and this is this the number of customers from the customers we announced in June.
I believe so yes.
Okay.
Should we pull it up.
Okay.
As such the RPI view right now on the on Nicole and good afternoon.
Sure.
Camera chemical interest, but again.
We get that dock and then I'll take another question yes.
Yes.
Cool.
Yes.
Follow up on the degrees business.
Is there anything going on around like seasonality in this image.
June quarter, I think it was down slightly quarter over quarter anything specific going on there or is that just kind of it.
Is it more of a lumpy business right now because it's more.
Yeah.
We've definitely seen a seasonality in terms of when students are enrolled on the program and when they are paying tuition. So in the summer months, sometimes it lightens up a little bit.
So thats, probably probably what we're seeing.
Great and then if I could just follow up with a question.
Investing in the business, how should we think about investing for growth going forward versus operating leverage into the second half of 'twenty, 1 and beyond.
Yeah. So Ken you touched on this a little bit, but you want to take a crack at that.
Yeah sure so I.
I guess it <unk>.
On the numbers a little bit if you look at the guidance, we gave for the year and last earnings call. The midpoint of the range had a negative 13, 1%.
EBITDA margin and the new guidance.
A negative 10, 1 so we're definitely dropping some of it to the bottom line, we're not in a hurry to get to profitability. We're not burning much cash we think the opportunity is amazing and we have a bunch of opportunity to invest into these notes since this competitive advantage that we think again the more we do that the better it's going to be for all of our <unk>.
Once.
Certainly shareholders included but learners as well with our success.
So but.
The outperformance.
We can't invest quickly enough quarter to quarter. So so we're seeing some additional leverage is going to dropdown, we've committed to increasing profitability on an annual basis from here on out and.
And so it's going to come a little bit sooner because we've taken on another 300 basis points of EBITDA margin. This year for the full year.
With everything else, we're trying to invest as quickly as they can.
For growth for the future does that help.
Super helpful. Thanks, So much guys appreciate it sure.
We have our next question coming from the line of Jason <unk> with Keybanc capital. Your line is open.
Great. Thanks, guys for taking my questions first 105, net new enterprise customers quarter over quarter.
High high Watermark net net adds perspective, it's the second quarter net ROE acceleration for the enterprise segment.
How much of this strength is from maybe from the sales investments that you've made at the end of 2020 versus just the overall uptick in churn.
Yes, Jason Thanks for the question.
I would I think the number of paid customers is indicative, but certainly not perfectly reflective of what's really going on I wouldn't I wouldn't put a ton of emphasis on that because some of those might be bigger deal some of those might be lower deals smaller deals et cetera.
But clearly the revenue growth.
It has been pretty decent year on year enterprise is up 69% 21, Q2, 2021versus last year now so where does that net.
Net revenue growth coming from it's a combination clearly we are ramping up our sales team around the world and as they ramp up they can go out to market and hit their quotas on all that stuff.
We're also really trying to advance the platform and have our products and services for businesses that are really skills oriented and for governments that have the right kind of portfolio and per campuses that include like academic integrity, and plagiarism detection and sort of functionality that they need.
I think it's really a combination of a greater global appetite for online lending across all 3 types of institutions are larger sales force selling it and we continue to I think improve not only the product, but our ability to position the products. So I feel like we are seeing pretty strong growth on a <unk>.
<unk> of different dimensions, none of which really fully explains the story, but I feel like it's pretty balanced.
And I'm kind of happy with that level of balance.
Great.
And then you mentioned a few country examples, but where are we in terms of the international localization efforts.
It's still fairly early days the way that we're really approaching this is we have a global team we want on 1 platform and when obviously when you want to do things that are localized you want that to be a set of configurations. So that the cone could support all the different localization. So we've created a global team.
<unk> a dedicated centralized team that's building localization capabilities.
And we're working on those capabilities sort of turning nielsen's on certain regions first the first reason that we're focused on is India I mentioned in the script, we're doing a lot of on payments currency wallets, even what form of payment as a subscription or is it a lump sum is installment pay et cetera.
And I'd say, we're pretty early stages.
But.
It was a good investment for us to make anywhere we think that we are discussing service on its.
It's pretty simple things that when you put different images and different copy and show different content show different credentials offer different prices in different currencies. You can you can do a nice job bumping up conversion rates in different regions. So early days and look in premium.
Excellent. Thank you sure.
We have our last question coming from the line of Ryan Macdonald with Needham Your line is open.
Hi, Thanks for taking my question and congrats on an amazing quarter.
Jeff you talked a bit earlier on the degrees business about sort of the <unk>.
A number of announced degrees versus the 16 live today as we think about the additional 15, there can you talk to the <unk>.
Cadence from the expected cadence of those going live on the majority is expected to hit sort of in the fall semester here versus 2022 and then on.
As a follow up to that how is the pipeline of on.
Online degree programs looking right now if you think about after 2022.
Are you seeing in terms of mix versus grad versus undergrad or domestic versus international. Thanks. Good all right. Let me see if I can give you on.
High level helpful answer to that so in terms of the kind of overall pipeline of windows.
And interesting opportunity turn into cohorts of students paying revenues.
I would say that overall the at the top of the funnel.
We see continued international interest in universities wanting to move things online and not that people focus on shutting on our campuses I think they are just realizing.
Not only are is there a risk had not having online because of the pandemic. The capacity is much greater the cost can be much lower and you can appeal to working professionals and so theres a whole audience that arent. The younger people that can come to campus that you can tap into I think a lot of the pandemic has forced universities to go online and other kind of realizing wow.
We've got a lot of benefits if we do this so we do continue to see really nice broad.
Interest in online that's kind of a permanent feature of higher education.
And then in terms of how quickly and where might based on we continue to build up our team to do that we feel good about that so.
We think that's going to bode well for the out years and then on let me those that are announced which you can see because we no announcements on that public information and then the ones that are live and you can see both because they are on our web site, which is why <unk>.
And we have 31 announced 60 months.
Many of those we did announce quite some time ago, we had 20 announced in Q2. So that's about a year and that's a time, although there was a pandemic and their time to build out those degrees. So we do expect generally speaking.
A number of degrees to be on live and then that will produce not a lot of revenue this year.
But in 2022 and 2023 of those cohorts are filling up when you think that that will serve us well. So we definitely expect a reasonable amount of growth to the existing <unk>.
<unk> announced but not line degrees.
Excellent I'll start with the 4 part 1 question.
Yes.
The 3 of them at least right.
Okay.
<unk>.
That wraps the Q&A today, a replay of this webcast will be available on our Investor Relations website, along with a transcript in the next 24 hours. We appreciate you joining us. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
[music].
Okay.
Yeah.