Q3 2021 Udemy Inc Earnings Call
[music].
Thank you for joining you to me.
Third quarter fiscal 2021 earnings conference call at this time, all participants are in listen only mode.
I can see the presentation there'll be a question and he had to step back.
To ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded I would now like turn the call of your health care legal to cover the Safe Harbor.
With me today are Greg or karri.
Sarah Blanchard.
CFO.
Where are we began during this call we may make forward looking statements within the meaning of federal security laws.
These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated.
For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our SEC filings, including our quarterly report from Form 10-Q for this quarter, which ended September 32021 filed with the SEC on December eight 2021.
Our forward looking statements are based upon information currently available to us.
We caution you not to place undue reliance on forward looking statements and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements, except as required by applicable law.
In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures.
These non-GAAP financial measures assist management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release, a reconciliation of these non-GAAP measures to the most comparable.
S. GAAP financial measures is included in our earnings press release submitted to the SEC.
These reconciliations together with additional supplemental information are available at the Investor Relations section of our website.
A replay of today's call will also be posted on the website.
During this call we referenced an ESG risk rating developed by sustained Olympics. The use of the ESG risk rating and the information included therein is subject to limitations for more information see our earnings press release, I will now turn the call over to Greg.
Thank you Taylor.
And thank you all for joining us on our first call as a public company.
It's quite an exciting journey so far.
We're grateful to our employees and instructors for their incredible commitment to our mission of connecting people everywhere to the knowledge and skills they need to succeed in a rapidly changing world.
We're also grateful to meet.
Business customers, who learners for trusting us as they upskill and Reskill to meet the needs of the modern workplace.
Thanks to them all we had a successful IPO of our strong third quarter.
As of the quarter and you can be had over 46 million paid and free learners and over 9500 customers subscribing to our year to meet business offering.
The third quarter, we grew revenue to $129 6 million up 9% year over year.
<unk> business grew 84% year over year with an NDA or are up $207 million.
As expected our consumer business was down 13% year over year due to the extraordinary topline growth last year during the early waves of the pandemic.
Driving year to be businesses strong year to year growth with increasing demand for our content.
It's quality, it's depth breadth its freshness.
Which is a direct result of our differentiated global knowledge marketplace.
It provides both the content and significantly that fuel our unique business offering.
Which meet the specific needs of our users.
For yearly business customers specifically.
We recently expanded our <unk> business offerings, with new language collections, and Italian and Russia, as well as the virtual learning and cohort based learning offerings.
For those of you who are new to me I'd love to start with our founder story, because it reflects <unk> commitment to making education and knowledge accessible unattainable.
Erin boldly grew up in a small village in World, Turkey, where he attended a one room schoolhouse far from any city or University.
She had an early interest in math and chess, but no one nearby debenture.
That is Paris, whilst the family at use computer and Internet access and.
And everything changed for Eric.
Suddenly you could tap into the world outside of the village and soon he was searching for math problems online learning from experts in the field.
Eventually he would win a national mathematics competition move to the U S and become a serial entrepreneur.
Online learning changed average life.
And he founded <unk> to me so that people everywhere it could access the world's knowledge pursue their dreams.
But aaron did more than simply launching online learning platform.
By using a marketplace approach that allows experts anywhere to share what they know which learners anywhere.
Usually disrupts the weight allergist shared at <unk>.
Ross the globe.
Our marketplace serves as an ideal platform for the continuous upskilling and reskilling necessary in a changing world.
Well it is training and education solutions, whether online or not rely on an outdated publisher bottle.
Legacy models hindrance to speed of course development limits, the pool of potential instructors and their creativity.
And it makes it difficult to localized globally at scale.
The publisher model is simply too slow for the kind of rapid.
Continuous content creation necessary today.
And it's not built to leverage user feedback to improve content quality and any timely way.
By contrast.
You do Miss dynamic two sided marketplace model allows us to talk just quickly developed an update content to meet demand.
Our consumer and business learners provide social proof and feedback at scale, new enrollments ratings and reviews, which in turn given structures the information they need to continuously improve their offerings.
We also offer an structures comprehensive analytics and insights to help them improve the quality and increase engagement.
And then there is the financial incentives.
The potential to earn real income.
That motivates our instructors to produce the best most relevant content they can.
The efficiencies of the marketplace model have enabled us to build a vast catalog of high quality courses to provide a comprehensive and immersive learning experience to video and interactive exercises.
Learners can communicate directly with instructors do Q&A functionality.
Machine learning and AI capabilities in our platform enhanced of course discover ability by personalizing recommendations for each lever.
We offer local content and pricing to meet learners needs across the globe.
Again, we believe our marketplace approach allows us to be more affordable and accessible than other solutions, while providing the highest quality deepest and broadest catalog of courses to our customers and learners.
We estimate our market opportunity in online learning to be over 200 billion.
According to the World Economic Forum.
In the next six months about 40% of the workers will require a re skilling in nearly all business leaders report that they expect employees to pick up new skills on the job.
Digital acceleration continues.
To keep up with the pace of innovation, both individuals and companies was continuously upskill and reskill.
Joining me offers the ability to learn these skills with 5000, new courses created each month.
None of which are in languages other than English to serve an increasingly global workplace.
In order to maintain our position in the market, we're continually innovating our platform and developing new immersive learning products.
We launched <unk> business Pro which features labs and assessments and a number of technology verticals.
We also acquired a company called <unk>, which specializes in cohort based leadership training for Fortune 500 companies.
And in the quarter, we also incorporated new machine learning capabilities to enhance our search functionality and improve conversion and retention within the consumer business.
Global distribution continues to be a strategic focus.
Earlier in the year, we announced a strategic partnership with would you think big one of the largest Korean education companies to expand <unk> in Korea.
We're now also expanding our reach into two massive regions.
China via a partnership with <unk>.
A leading vocational education platform.
In sub Sahara Africa.
Through our partnership with the multi choice school.
Leading media company in the region.
Our partnership in China will focus on building our business presence in the country. Thanks, Jackie as local sales force and market knowledge.
You have expansion to Africa will be accelerated by multi choice group, which will advertise <unk> courses on TV to more than 12 million households in 13 countries.
These key strategic partnerships further positioning <unk> as the global learning destination.
Over 30 million unique visitors come to you or to me every month to learn.
This is the engine that fuels <unk> business and enables us to disrupt corporate learning.
Let me give you a few concrete examples to demonstrate how you'd make business customers engage with us.
Yeah.
Citibank started with five licenses in 2018 and has now expanded to 100000 licenses.
Three year agreement.
I'm proud that <unk> to me is city's largest learning content provider and the one with the most digital content consumed by city employees.
City chose <unk> business to partner for two strategic priorities.
<unk> learning and building learning into the flow of work.
Cities top courses include everything from technical topics like Python and agile.
Your skills like communication and leadership.
This quarter, we added new enterprise customers across verticals, including Fortune 500 Alcoa.
Fortunate 500, Mitsubishi chemical.
Carvana, the leading e-commerce platform for buying and selling used cars and free now Europe's leading multi mobility platform.
Which is deploying <unk> to meet business wall-to-wall, noting that continuous training is essential.
We've also expanded with customers like Citibank Michelle Linn.
Cargo Libre.
Let me also give you a quick overview of how learners are using our platform.
A former taxi and limo driver in New York.
Tim did you have to meet to learn sequel after dabbling with other online education offerings that never worked for him.
Now after completing courses and sequel certification and sequel for data Science from top European instructor MTS Ahmed. He recently accepted a full time tactical position at a large multinational bank headquartered in New York City.
Another learner signed up for you to be cautious due to the last mile program, while serving a prison sentence ethane.
As part of our ESG program gives me supports this nonprofit which was established to help current sleep or formerly incarcerated people trained for jobs and technology.
This individual now teaches others from his community how to code and use the skills. He learned on <unk> to meet to secure our role as a software engineer at a leading Silicon Valley Communications platform.
We're also extremely engaged with our instructors.
We drive the quality and breadth of our content and enable us to provide new content in real time in.
In 2020, we paid our structure is $161 million and on top of instructors, who are making over $1 billion in annual revenue.
We look at this investment in our instructors is crucial to our differentiation.
Okay.
First structures are amazing.
Kyle Pugh, Microsoft certified trainer and instructor at you to me reached 1 million students on the platform in September.
Kyle posted its first course on using the in 2015 and has turned teaching from our side hustling with full time job.
Even hired a team to assist with maintaining its 20 plus courses and keeping up with the learner Q&A.
Lindsay Marsh, a graphic design instructor on unique hit $1 billion in revenue after four years on the platform.
Lindsey recently shared that creating and filming courses is now a full time job.
She credits shoot me for providing the platform and marketing resource to help her reached thousands of learners around the world.
These are just a few of the over 60000 structures that make you to me marketplace. So special.
It's a global learning platform, we see a huge opportunity to serve there is an economy square access to continuous learning as problematic or too expensive.
Through our free offering we.
Provided learning to millions of people around the world.
We're committed to inclusion and diversity, both in our own workplace and the learners we serve.
And take pride in having been ranked by sustained Olympics in the first percentile for ESG risk ratings, and the Internet software and services industry.
Industry as of July 2021.
Due to our exacting standards and our commitment to enabling access to education for everyone.
Overall, we're extremely proud of our success carrying out our mission of connecting people everywhere with the knowledge and skills they need to succeed.
With that I'll turn the call over to Sarah.
Thank you Greg.
We're very pleased with the results in the quarter, particularly with the growth.
Which we expect to continue to grow as a percentage of revenue over time with strong unit economics.
Before I lay out the quarter, let me briefly explain our revenue model.
Our revenue comps for paid consumer learners.
With customers.
And online learning has become more mainstream and organizations have realized its benefits. They have experienced rapid adoption of our solutions and our revenue mix has been shifting towards me to meet that.
Consumer revenue was 61% of our revenue versus 77% a year ago.
This does revenue has increased from 23% a year ago.
Presenting 39% of our revenue.
Today consumer revenues, mainly consists of individual course purchases.
By individual matters.
We're also starting to generate revenue from our consumer subscriptions, which were initially launched in Q2.
Do you mean business revenue, primarily relates to meet business subscription contracts with annual or multiyear subscription term.
There's a subscription are generally billed in advance on an annual basis.
Before I jump into the numbers, it's important I mentioned that the majority of our consumer revenue is recognized radically over four months following the course purchased.
Whereas the majority of our consumer content costs are recognized in the same path as of course its protest in line with that.
As a result of this disconnect in tiny between consumer revenue and content cost.
Typically seen lower consumer gross margin in quarters with high consumer in that balance.
This is Dan followed by a quarter with higher consumer gross margin when that deferred revenue is being recognized with no associated content cost.
With that said third quarter revenue of 129.
What's up 9% year over year, driven by extremely strong from an argue to meet that.
At the same time, our consumer business faced extraordinary comparison, given accelerated topline growth during the early waves of the pandemic last year.
We continue to see growth outside North America, outpacing North American growth delivering.
Delivering over 60% of our revenue from international customers.
For the remainder of this discussion all financial metrics are non-GAAP unless explicitly stated otherwise.
That's profit with $72 2 million up 4% versus the third quarter of 2020, driven by the strong result any enemy.
Gross margin was 55, 7% of friendly.
Approximately 300 basis points lower versus the prior year due to the timing of revenue recognition and that's fair.
Third quarter of 2020 from the Covid peak that happened in the second quarter of that care.
Again, the instructor costs associated with the Covid peak were incurred in Q2 2020, while a significant portion of that revenue was recorded in Q3 2020.
Trading an unusual spike in gross margin in the third quarter last year.
Our cost of revenue consists primarily of content cost, which are payments Torrance chapters.
Content costs depend upon how we acquire each miner.
For consumer courses instructors or any specific percentage of the net billing amount when they learned their purchases instructors cars.
Alright, that's all for you to meet that that's our consumer subscription offering.
On a pro rata share a second subject of instructor costs generated by those subscription offering.
We expect content costs as a percentage of revenue to decrease overtime as you'd be business and consumer subscription become a larger portion of overall revenue.
Turning to Opex total operating expense was $74 2 billion or 57, 2% of revenue compared to 54, 2% in Q3 last year.
Sales and marketing expense represented 36% of total revenue compared to 38, 4% in Q3 of 2020.
Research and development expense was 11, 9% of revenue versus nine 5% the year ago period, as we continue to increase and immersive Barney.
Subscription and to further improve our personalization and machine learning capabilities.
General and administrative expense was six 8% of revenue versus six 3% a year ago as we ramped up a public company.
Net loss in the quarter was $1 7 billion or one 3% of revenue.
Adjusted EBITDA was positive $1 6 million or one 2% of revenue.
With our huge market opportunity, we're focused on prudent investment in driving topline Krauss and expect that we will continue to incur short term losses, while incrementally getting leverage for longer term profitability.
Free cash flow was negative $8 5 million versus negative $26 6 million a year ago.
Moving onto the balance sheet, we ended the quarter with $130 2 million of unrestricted cash cash equivalents and marketable securities.
Now, let me discuss our consumer and business segments individually.
Zimmer up and it was $79 2 million down 13% versus a year ago.
The third quarter of 2020 was exceptionally strong driven by Covid related buying in Q2 2020.
So we expected to see a tough comp this quarter.
In the quarter, we had approximately $1 3 million monthly active buyers, which was down 6% year over year.
Consumer gross profit was 42 million or 53% of consumer revenue.
Mike mentioned consumers on top of the funnel size for you to be better.
During the quarter, we added two 4 million new consumer emphasis learners, bringing our total base to $46 5 million.
You don't meet that that's continued to deliver exceptional growth in Q3 with revenue of $50 4 million up 84% year over year, driven by strength and did a lot of those as long as expansion within existing customers.
We exited the quarter with over 9500 business customers up 42% year over year.
To meet this that's net dollar retention rate was 118%.
And in this era of $274 million was up 80% as compared to the prior year.
Going forward.
First to continue to see strong growth in new customers and revenue.
Right.
Ebay business gross profit was $32 9 million or 65, 4% appear to me that that's right now.
Gross margin was down slightly year over year as we increased our investment in customer success to help support Orlando and expand strategy.
Yeah.
I'd like to share some thoughts on what is ahead of us and the business over the long term.
There is a massive opportunity to support organizations and individuals as the world moves towards its skills based economy.
Our marketplace with its dynamic ability to create new high quality content.
Equally positioned to keep pace with accelerating change and the global need for Upskilling and Reskilling in a way others cannot.
We intend to invest thoughtfully with a focus on driving growth while investing in areas that will improve unit economics.
And securing our leadership position in global affordable and accessible learning with driving long term improvement to EBITDA margins.
We will continue to invest in immersive and hands on learning capabilities as well as furthering our ability just arent cohort based learning.
We're just getting started and consumer subscriptions, which will support learners at different stages in their ongoing learning journey.
Investing in deepening our competitive moats and continuing to expand our international presence.
All of our constituents, while we work to create operating leverage and improved EBITDA margins overtime.
Looking to the fourth quarter, we expect revenue between 130 and $134 million with consumer delivering similar absolute revenue as last year as we work through the 2020 Covid dynamics.
<unk> business continues to show very strong double digit growth.
We expect an adjusted EBITDA loss between $28 5 million and $24 5 million or an adjusted EBITDA margin of negative 22% to negative 18, 3%.
And with that operator, please open the call for questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when your Touchstone telephone again to ask a question. Please press star.
I didn't want.
Our first question comes from Sterling Auty of Jpmorgan. Your line is open.
Yeah. Thanks, Hi, guys. So on the consumer business you had mentioned.
That you're starting to see a little bit of traction in the consumer subscription any more detail that you can give to that element in terms of you know.
We're either geographically or what youre doing to kind of support the adoption on the subscription side.
Yeah.
Hey, Sterling.
Taking the question.
It's very much early days in our consumer subscription.
You already were really focused still on testing and learning and we're doing it at about five countries right now, it's a very small percentage of our traffic.
We're just in the testing and learning phase and then once we find the sweet spot of where we want to be there. Then we will we will wrap it up so but we're not there yet.
Understood and then one follow up on the business side, you know looking.
Looking at the success that you're having in new customer adoption. If you could just kind of talk to us around the ramp of some of your sales resources and effectiveness in the major regions of the world.
We're continuing to build out our go to market team. Our go to market team. Today is it's about 400 people and so we're continuing to ramp it up and but theres still a lot of new people because we're continuing to hire we're building it out across the globe. We started in North America. Then we went to EMEA then we went to <unk>.
Pack and we're building out all of those areas. But then we just started building out Latin America. So we still have a lot of people ramping up while we were seeing with the established.
Salespeople, we see very good trends, but there's also a lot of new ones coming in as we continue our global expansion.
Yes.
Understood. Thank you.
Thank you.
Our next question comes from Josh Baer Morgan Stanley Your line is open.
Great. Thanks for the question and congrats on the first quarter.
Question for Greg with pressures on enrollment and higher Ed that we've been hearing about this semester. The one thesis is that individuals are choosing higher wages in the workforce over school and so with that in mind I'm. Just wondering if youre picking up any increase in demand on the consumer side related to individuals.
<unk> for skills for the workplace.
Yes, we're seeing those same trends in as well with some college enrollments in the U S, specifically, where they're down.
And we actually think that for us is a headwind, but it's a headwind for schools excuse me, but a tailwind for us so.
We have we are in the skills based economy, we're helping people upskill and reskill and get that first job. So.
This is something that's actually a good trend for us.
Great that makes sense and in for Sara with.
Your excellent international presence.
Was hoping you could provide some context around an overview for foreign currency exposure, if theres, a hedging program or if theres. It was impacted in the quarter any context for what constant currency growth was in 2020 or this quarter would be great. Thank you very much.
Yeah. Great question. So you know that the biggest piece of cost for US is our content costs and that is a natural hedge for us we don't have a ton of other exposure from an FX perspective, obviously currency.
Gains and losses and in constant currency theres different countries going.
Different ways from an FX perspective, but we have that natural hedge built into our into our business.
Okay. Thank you. So so it's impacting the top line and as well.
That's right impact the topline and the Bottomline together okay.
The top line of that cost yes.
Okay.
Yeah.
Thank you.
Our next question comes from Terry Tillman of choice Securities. Your line is open.
Yes.
Yes, thanks for taking my questions and congrats as well from me, Greg and Sarah on the IPO of a successful IPO I just had two questions. One is you know given the timing of our IPO and then we launched coverage and just kind of you know you've got well over a month of the fourth quarter under your belt I'm curious on the consumer side I do think if I'm not mistaken you do some <unk>.
Promotions in and kind of that cyber week is pretty important anything you can share at all in terms of just consumer engagement.
Over kind of that black Friday, or cyber Monday, or just what you've seen so far quarter to date are around kind of seasonal buying and then I had a follow up.
Yes. Thank you.
Yeah. This is the fourth quarter is one of our big quarters that are in the consumer business the fourth quarter and the first quarter of next year or two are two big quarters and so we came in and we had we saw black Friday, and we do a lot a lot of promotions and a lot of marketing and we're very happy with what we saw our traffic is holding up I mean, the thing the things.
The early indicators for us is our traffic and our traffic has been consistently over 30 million unique visitors and it's up over 50% year over year versus the first but not year over year versus 2019. So our traffic is holding up and and we're seeing we're seeing good trends and so even though black Friday overall.
The consumers was off a little bit we had a very solid solid performance.
That's great to hear Gregg and then my follow up for either you or Sarah is just on the <unk> business side, what I'm curious about is some of the initiatives you have to just further strengthen engagement and just and just drive better outcomes for the business customers like immersive learning you'd.
You'd be pro.
What are you seeing from some of those initiatives and could they have potentially a positive development on the dollar based net revenue retention. Thank you.
Yeah. So thanks for the question you know we're in the early stages of what we're building out from our self learning and the response from customers is very positive. So I think it will help not just our net dollar retention because I think having more products to sell into our COO.
Customer base will obviously help on that dollar retention, but also in just new logos, there's a lot of excitement about hands on and community Workspaces assessments and so we're very excited to continue the progress there.
Okay.
Thank you.
Thank you. Our next question comes from Rob Oliver of Baird. Your line is open.
Great. Good evening can you guys hear me okay.
Yes, yes.
Okay great.
Thanks, My first question Greg is for you.
On the business side, obviously very strong and it seems like.
A nice expansion with city, which was already a pretty large deployment.
Just curious what youre seeing there in terms of the mix.
Type of land that Youre seeing with U b, whether it's mostly large enterprise whether it's commercial and then if you can just remind us I know you guys just called out the seasonality on the consumer side of the business, which makes perfect sense for Q4 and Q1 is there also that.
Seasonality with the enterprise buying that we can expect in Q4 and the <unk> side of the business and then I had a quick follow up for you Sir.
Yes, so so yes theres seasonality in.
This aside and its fourth quarter. It is fourth quarter. So December is always our biggest months for landing.
And as far as the type of accounts that we're seeing it's very very broad based we're seeing small were seeing media. We're seeing enterprise. So we're seeing everything and we have a land and expand strategy is as we've talked about before we're only in about 10% of the seats in our current customers. So we have the ability to expand for many many years.
And so and the market is very good the HR people are investing in retention skills.
We are investing in Reskilling and Upskilling, so that the market is particularly good.
Yeah, Thanks, Greg I appreciate it.
Alright.
Maybe it's a little early to call this out and maybe its next fiscal year, but when do you guys have been.
Paying the tape with partnerships and global partnerships and deals and just wondering.
Just for example on multi choice Gregg talked about.
The advertising element there are there any economics.
Bear in mind that these partnerships start to ramp any economic implications, whether it be rev share or impact on margins or is it just too early to discuss that thank you guys very much.
Sure some of them too early on some of the partnerships that are more similar to our existing partnership in Japan.
There is structured very similarly, so you shouldn't see eye difference from an economic perspective.
Okay. Thanks again guys.
Thank you.
Next question comes from Stephen Sheldon with William Blair. Your line is open.
Hey, good afternoon, and thanks for taking my questions.
One of your first question on what I, just want to ask about the fourth quarter guidance. It looks like at least relative to my model revenues coming in a little better than expected, but spending is also.
It looks a little elevated relative to what we'd modeled so I guess are you, making any incremental growth investments relative to what you would have previously expected and is there anything related to the continued success with fourth quarter promotional activity you know given that there's some revenue and expense timing mismatch, where some of that expense over all of that.
<unk> expense for Q, but the revenue would be spread out over an extended into early 'twenty point, though.
Yeah, great. Thanks for the question. So Theres a few initiatives that we have increased expenses on the first is on top of the funnel and doing some TV advertising are really building out our brand internationally and in the U S.
We are obviously, we've experienced an increase in costs associated with being a public company, but mostly we really are investing in the global go to market team beyond the immersive learning so increasing investments on the sales and marketing side and on the R&D side to build out some of these capabilities.
Yeah.
Okay got it.
And then you could really really strong growth I guess on the business side with new customers and it seems like some sizable customers too.
I'm curious if you're if you're seeing any changes in the breadth of initial deployments across the employee base is with these new customers. Thank.
And then you'd mentioned, Greg you're only covering about 10% of total employees. So clearly a lot of up selling opportunities, but are we starting to see bigger initial wins to cover a bigger percentage of the employee base than you've seen historically, but any color on that.
Yeah. The initial the initial sales are getting bigger and bigger over time in fact, we had our first.
Land.
Plus land so we've never done that before we've built a million customers, but we've never landed one than we did a we did in this quarter. So so we are seeing that over time.
Bigger and bigger.
Great. Thank you.
Thank you.
Our next question comes from Nat Schindler with Bank of America. Your line is open.
Great. Thank you and just actually to follow up on that last question and actually see if you can go into more detail.
Can you walk us through the basic sales cycle that you've had with large enterprises on your business side, how long. It takes so long and then take to land and then what.
What the processes to expand within and what's typical.
Yeah. So on the sales cycle in enterprise can be three to nine months. We have we have some that have taken two years. So so it can be it can be very large, but typically I think nine months would be a good a good average.
And as far as the expansion again, it's it's all different but but we the processes. We have a sales and customer success team that worked together with executives in the company to understand what outcomes that they're trying to drive.
And we draw and we work with them to drive those outcomes, we use playbooks and help them achieve whatever their goals are and then the expansion works overtime.
And do they start with particular groups within the organization and expand out from there or do they just.
Look for how how did the other most organizations look at using your service on the bids come.
We come in from usually either.
Two sides coming from the technology side, and that's where we started when we were smaller and now we're coming in more in probably 50 50 in the technology side on the HR side. So so it will go in any way that we can get we can get in and it.
But it tends to be both of those are both that way.
I think one of the trends that we're seeing that is a benefit to US is you know the HR and the learning budgets are increasing as customer as employees employers are thinking about retaining are in place upskilling reskilling, all the needs that sort of being an employer today and so we have seen that that trend as Greg said.
More and more towards HR and then at the same time those budgets are becoming a.
Larger and larger I S teams are focused on how do we retain our employees how do are they keeping up with the digital transformation and the accelerated pace of change and you know, it's it's difficult to hire the skills. They want right now so it's really about upskilling and reskilling their teams to the extent possible.
And finally can you talk just a little bit on how you competitively situated against other guys who are coming in and the online learning space.
Or are they use for example, coursera are the are the businesses, who are using you've seen you as a replacement or a different way.
They're similar offerings or are they using you for different things.
Yeah. That's a good question I mean, it's almost everything you can pick up we the big of the enterprise they tend to have more than one.
Different content provider, so we will sit alongside our competitors.
From a flex will do all of those things. So it just depends by by customer the customer the competitors enter.
Reprise business, our Skillsoft Linkedin learning Thoreau started coursera.
So those are the big ones, we have advantages that we believe we have a marketplace. Our marketplace is an advantage. We're much more global we can develop content much faster than everybody else can but again with people have different strengths or weaknesses that we will sit alongside them.
Great. Thank you.
Okay.
Thank you. Our next question comes from Jason <unk> Keybanc capital Your line is open.
Great. Thanks, Greg.
For taking my questions, maybe my first one I think at the beginning you mentioned the new AI engine to improve conversion on the consumer side.
Maybe can we talk about some of these initiatives is this engine already been implemented.
Okay.
Yes. Thank you. Thank you for the question.
We use AI and machine learning in a number of different places on our platform. We felt the pricing engine that allows us to price individually course per country. We use it for matching we use it for recommendations we use it to acquire.
Learners, we use it for skills tagging and assessments.
And so yes, we are using it in all those places, but it's constantly being tested you you're constantly upgrading the algorithms and testing there. So so we're we're getting wins there all the time, especially in the search and recommendations area.
Perfect and then you mentioned, some new language collections and Italian Russian and you know expansion into Korea, and sub Sahara Africa, how do you decide which countries are languages that you want to focus into next and then what levers.
Do you have and you know building content in these areas.
Yes, it just really depends on what we're hearing from our enterprise enterprises.
Which is that they're looking for so.
Beginning ones are obvious we're getting into into something that are less obvious but its the markets that we wanted to build for Korea. For example, we're building out our Korean collection right now we did a deal with with our partner would you think big and the two of US are working together to build our careers collection for you to be business and for our.
Silver side. So we're building out our collections in a number of different places in the world and we're just going from one country to the next.
Thank you.
Thank you. Our next question comes from Ryan Macdonald Needham Your line is open.
Hi, Greg and Sarah Thanks for taking my questions and congrats on a nice quarter I wanted to first start with the <unk> acquisition.
Just to understand sort of how that's going to be integrated in the platform and what the go to market is going to look like there and then as we think about the fourth quarter guide what should we be assuming in terms of contribution from core for you. Thanks.
Yeah.
So we purchased Corp, you a few months ago.
And the business is.
Leadership training for top universities. They have we have cycled faculty from top professors from Harvard and my T weren't in Stanford that are teaching their teaching leadership courses.
It's our first foray into cohort based learning and our plan is to start with leadership, but then work across India business into other verticals.
Cohort based learning and then eventually take cohort based and bring it onto our consumer marketplace.
To promote it.
From a Q4 perspective, you know the corporate your acquisition was really about the technology the capabilities.
And the skill set that that team had and so we don't anticipate it having a huge impact on the fourth quarter. We are integrating that into our go to market team and so it'll be sold alongside you to revisit the nuomi business problem, but it'll take some time for that to get into the pipeline.
Excellent. Thanks for the color on that and then when we think about this this partnership model as you continue the international expansion are.
Are these partnerships exclusive in each country or are there opportunities to multi source some of those partnerships.
Okay.
They are exclusive.
We just we did a partnership in Korea in China and in sub Sahara Africa with multi choice group and those are all those are all specific to those countries are unique.
Yeah.
Thank you.
Our next question comes from Brent Thill of Jefferies. Your line is open.
Hi, guys. This is David on for Brian Thanks for taking the questions and congrats on the IPO two if I may the first one can you maybe talk a little bit about your strategy to go after the instructor I guess, specifically some of the top instructors and how are you acquiring instructors.
Any sort of secret sauce that you guys are doing.
At this point because of our scale of our marketplace and that we spent $161 million last year, an instructor payments the instructors tend to come to us. So we get the top instructors because we monetize better than any other place that they can and so we don't have to spend a lot of time doing.
That we did in the early stages of our of our business to build our marketplace in the beginning but now we don't have to spend as much time now when we go into a new country. We go we go into a new country and we wanted to build.
The local content, which we're doing in a place like Indonesia right now we put somebody into the marketplace and we have that work with with local instructors to bring the content online. So it really is more starting to flywheel. Once we get the first 500 to 1000.
Customer of <unk>.
Structures.
Local language that's the flywheel takes off and then we don't have to get involved for example, we have 12000 Portuguese courses today, we have not had to get involved in it and that in many many years.
Got it thanks for the color and EM.
A follow up on the consumer business.
Obviously tough comps against last year, but going forward, how should we be thinking about the growth rate for this business over the next few years and yes. It is going to be driven by new.
New customers or increasing monetization of existing customers.
Yeah. So you know I think a few things on the consumer business. The first is you know COVID-19 really accelerated trends that we've already seen and we really are we got two years of growth in 2020.
Q3, 2021 is our biggest quarter as we are recognizing revenue from that peak by that happened in Q2 2020. So.
Well, we're working through some tough year over year comps it really feels like things are stabilizing the pandemic isn't over and no. One can really see perfectly into the future here, but our business is significantly bigger than pre pandemic.
Our traffic is significantly higher than when we think about where the gross adds were getting back to growth. There's a few levers theres. Obviously, you know there's an enormous tam and at the levels. We're at we're just scratching the surface of the consumer market.
The learning that is going to happen. We are recently launched in Q2, our consumer subscription business and that is not only going to increase the L. T V.
They weren't themselves, but it's actually going to open up a new consumers that we can bring onto our platform.
So you know I think well, we're still working through what is hopefully the tail end of pandemic behavior and you know getting back to some modest growth in the near term, but the bigger lovers are out in the future with the with the subscription and building that out as well as.
And we're self learning capabilities, which for launching initially and year to meet business with year to me that that's pro but then will be porting that over to our consumer side as well.
Great. Thanks, guys.
Thank you.
Showing no further questions at this time I can turn the call back over to Greg <unk> for any closing remarks.
I wanted to thank you for your questions and your interest in <unk>.
Over the last 11 years, we've built a global platform to meet the needs of learners instructors and organizations everywhere.
Our mission is to democratize learning and the affordability accessibility and high quality of our content makes that possible.
The marketplaces disrupting corporate learning as we're able to keep pace with the ever changing needs of companies and Upskilling and reskilling their employees.
Whether we're talking about teams of corporate learners or in its structure. According their first course on you're going to be creating new possibilities for people everywhere every day. Thank you.
You.
Ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
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