Q1 2022 Udemy Inc Earnings Call
[music].
Thank you for standing by and welcome to the unit.
First quarter 2022 earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question at that time. Please press Star then one on your Touchstone telephone.
As a reminder, today's conference call is being recorded.
I would now like to turn the call pretty healthy Stacy bolt huh.
And your Vice President Corporate Communications, Ma'am, you may begin.
Thank you with me today are Greg <unk>, Chairman and Chief Executive Officer, and Sara Blanchard, you donate Chief Financial Officer before we begin during this conference call we will make.
Forward looking statements within the meaning of federal Securities laws.
These statements involve assumptions and are subject to known and unknown risks and uncertainties.
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 most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.
Our forward looking statements are based on information currently available to us.
Caution you to not 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.
<unk> 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 measure, we believe that these non-GAAP financial measures assist management and investors in evaluating our performance.
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 the non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. 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.
I will now turn the call over to Greg.
Thank you Stacy good.
Good afternoon, everyone and thank you for joining us.
We kicked off the year with a strong first quarter as businesses and consumers alike continue to choose to provide flexible expanses and effective skill development to empower organizations and individuals.
Our Q1 results demonstrate several of the large secular forces fueling our growth.
Hybrid and remote work driving learning on our online platform.
Accelerating digital transformation requires massive upskill and reskill demands.
And the ongoing great resignation.
Which has accelerated and urgent needs to engage and support employees to ongoing career development paths.
As a leading destination for learning and teaching online.
To me, it's benefiting from the societal tailwind.
This quarter's numbers clearly speak to this momentum.
We grew revenue by 22% year over year in Q1.
Our total revenue to $152 million.
This was driven by outstanding <unk> business performance in Q1.
Which grew 77% versus the prior year.
With over 11600 total yearly business customers.
And $280 million in RMR.
Up 80% from the prior year.
In fact, we now expect the Italy business will eclipse, our consumer business Q3, 2022 earlier than we previously projected.
As I look ahead to the rest of the year I'm excited to continue to grow our footprint internationally, where we have an opportunity to further our tremendous momentum in <unk> business.
I'm also excited to further our innovation leadership.
In our platform and technology.
Investing in our marketplace by supporting instructors around the world as they produce roughly 5000, new courses every month.
Our Q1 results illustrate these themes at work, let's dig a little deeper.
I will cover three critical growth drivers of our <unk> business and performance in Q1.
First I'll briefly talk about <unk> business.
Where we saw very strong demand and solid execution and continued topline performance in the quarter.
Sure.
Jackie.
Ill discuss the unprecedented and far reaching changes we are seeing in the way employers are prioritizing new always on approach to workforce skills and learning culture that drives our massive.
And third.
An update of our marketplace, which continues to serve as a vibrant and healthy engine fueling <unk> businesses rapid growth.
Let's start with your <unk> business.
We achieved a record two.
$280 million up 80% year over year in Q1.
Driven by strength across all regions and multiple verticals, including government financial services and manufacturing.
New customers this quarter included Baptist Health system.
<unk> Medici.
Garnered global and both the trucks.
We also saw strong momentum in larger enterprise organizations.
As more customers expand their use of your enemies curated quality content and consumer driven learning experience.
This resulted in 87% year over year growth in customers with over $100000.
Sure.
And 56% year over year growth in customers with over $1 million Aramark.
Both reflective of the expansion trends within our customer base.
Speaking of expansion are yearly business net revenue retention this quarter was 120%.
From a 118% in the prior quarter as we continue to see massive success and growth in our land and expand strategy.
For example, Graham Stat.
The world's largest provider of flexible work and human resources services.
Ladies was over 100000 people weekly in the United States and Canada.
With the goal of impacting the working lines of 590 people by 2032 career training and development opportunities.
2019, <unk> business to increase talent mobility across their client base.
<unk> doubled the number of licenses they use to support their efforts.
<unk> has built learning paths for key technical roles.
And the Companys <unk> business course categories include it in cloud certifications web development and machine learning.
In 2021, 61% of workers place to Amsterdam.
Technology organization, where active <unk> business learners or course completed.
In addition, 96% of Randstad employees noted that you didn't he has helped them learn a new skill gained promotion will become more effective at work.
The company recently won an American staffing Association eliminate award.
Recognizing the innovation and effectiveness to train Upskill and Reskill temporary and contract employees for the most in demand rolls all built on the EW platform.
Other existing customers growing their <unk> offering this quarter include Grupo followed Bella.
Abu Dhabi Port.
Jim past USA.
Indeed.
In Florida.
As we look into some of the deal highlights this quarter I'm excited to note that together with our in market partners send Jackie.
<unk> business is closed our first deals in the People's Republic of China.
We launched a new website and management, along with an iOS app for mobile learning.
We are pleased with how the pipeline in China is growing as we deepen our presence there.
Adding to our wins in APAC.
We achieved nearly $500000 in IRR in our first cornerstone usually business in South Korea through our partner <unk> think big that we announced last quarter.
Our momentum in China highlights the incredible runway ahead of us as we further penetrate the international market in your <unk> business.
We're 53% of our revenue was currently outside of North America.
Domestically.
We recently closed a large deal with one of the U S military branches.
And now proudly supports several branches without learning programs.
All of these wins speak up the momentum of our partnership as well as the large investments in time money and resources organizations are making to deploy <unk> at scale into a wider audiences.
While we do expect <unk> business to grow larger than our consumer business in Q3.
We are truly just getting started on the <unk> opportunity for you to me and.
And we believe the global market will only serve to accelerate our topline <unk> business growth over the long term.
It's important to recognize that we have quickly reached top line scale at one hundreds of millions of dollars in <unk>.
And continue to see exceptional growth in your <unk> business.
Over the last three years.
<unk> has grown at a CAGR of nearly 90%.
With the massive tailwind highlighted earlier a world class go to market team and a huge addressable opportunity in front of US is clear that we are executing gaining market share and building the right ecosystem of partners.
Building World Class partnerships is a key component of our strategy to scale through market entry or further market penetration.
According to our goal of providing accessible affordable education for everyone.
Partnerships with well regarded international brands have served us well in establishing our presence in markets, including Japan, China, South Korea, and sub Sahara Africa.
To that end is.
Need to announce a partnership with first National Bank, one of South Africa's largest banks, serving over 9 million customers.
Through this multimillion dollar partnership agreement first national customers now have access to one hundreds of global courses from you to me.
Not only does this partnership introduced you to meet to a whole new audience, but it aligns our brand with one that F&B customers already trust with their finances.
Let's move on to the second area of focus my remarks today.
The secular tailwind, we see across employee learning and the digital transformation that are fueling these rapid changes.
In February Harvard Business Review published study analyzing 50 million recent job announcements to see what skills and degrees are in demand.
With the researchers found is the great recession has dramatically accelerated the trends of organizations moving away from degree requirements.
And towards skill based hiring.
A brief quote from the article underscores why <unk> is winning.
What we've learned is that employers are indeed resetting degree requirements in a wide variety of roles.
Change is most noticeable for middle skilled positions.
Okay.
In evaluating job applicants employers are suspending the use of degree completion as a proxy and instead now favor hiring on the basis of demonstrated skills and competencies.
At <unk>, we are uniquely suited to benefit from the trends highlighted in this HDR report and the dramatic changes in the way employees are expanding their skill sets and taking charge of their career development.
For example.
Our marketplace enables learners.
To not just stay current on the ever evolving skills required in the digital workplace, but to do so in a practical and efficient manner.
Yes.
What we'd like to think of as learning at the speed up business.
Plus our marketplace accessibility and the ability to rapidly creating curate top quality content enables these learners to complete these courses at the speed aligned with their appetite for knowledge without waiting months or years for course creation to catch up with the skills gap.
Indeed to be the leader in defining this category of what <unk> calls demonstrated skills and competencies means that we have to continue to push the innovation envelope on our technology and products. So that organizations can successfully reskill and upskill their employees.
To that end this quarter, we launched three new assessments and 19, new labs within <unk> business Pro and launched a learning paths API.
That allows luna to bring their curated union business lowering passed directly into their LMS or internal sites to help drive effective learning.
We launched eight career landing pages on <unk> Dot com.
To help lenders discover the skills, they need to start or improve their careers and data science or web development for example.
In addition, we've launched career guides as part of our subscription offering to guide subscribers through their learning journey.
Our proprietary skills graph helps learners chart <unk> acquisition of course journey that matches their professional aspirations.
Together with our investments in AI and machine learning these product enhancements create longer term learning paths that strengthen the relationship between learners and year to me and most importantly help our learners achieve their goals.
We also continue to prove and innovate on how our content is delivered and updated.
While always ensuring that it remains fresh and relevant and high quality.
This quarter, we launched an integration with workday allow.
Allowing learners and administrators to access course completion data.
Near real time.
The beauty of <unk> marketplace model is the ability for us to learn based on the feedback loop from our users and the content they select.
Power and is enormously valuable learning data with AI will drive more and more relevant and targeted results for our customers.
Speaking of our marketplace, let's now turn to the marketplace community.
Our valuable instructors and 11, a community that they help to thrive.
As I've said before our instructors our lifeblood.
Fuel, our which marketplace with expert driven content and allow us to provide a unique learning path to 52 million learners.
For example, <unk>, Dr. Steve balance share a personal finance expert based in the United States.
$1 million in total revenue after publishing over 30 courses on our platform.
Steve recently shared that creating and filming courses is now his full time job and he has been able to achieve this without accruing any personal expense. Besides the $900 initial investment for a camera and a microphone <unk>.
The credits you to meet for providing the platform and the marketing resources to help him reach thousands of learners around the world.
Rahul I here based in India.
In October 2021.
Who announced his retirement from the services industry to become a full time using the instructor at age 36.
When Rob who began its journey teaching on you to me. He was in that 80 lakhs equivalent to $110000. Today six years later he is the owner of <unk> villas and Pune several commercial offices.
And regionally gifts at his father, a commercial property for business.
Together, our 68000 instructors.
At roughly 5000 courses each month and.
And we now have 196000 courses available on our learning platform that helps fill through the best courses to the top.
I'd like to take a moment here to thank all of the incredible and talent infrastructures will help make you to me what it is youre content fuels, our unique dynamic and diverse learning engine.
We are proud to have welcomed nearly 4000, new instructors to a unit community this quarter.
Steve and novel Typify year to me is extraordinarily instructors.
They are real world experts, who deliver high quality fresh content.
<unk> in turn provides the scale to deliver their knowledge to learners worldwide.
Our learning platform is fueled by our incredible content engine our marketplace.
Which is the engine generating the user feedback and the ever evolving content that we leverage to ensure the quality breadth and depth of content start by corporate and consumer learners alike.
Before I conclude I'd like to briefly cover three other topics close to my heart.
First our ESG initiatives and partnerships that we continue to grow and prioritize.
Second a brief word on the Ukraine war in the refugee crisis.
And third the company DNA of equity and inclusion that anchors our company mission and workforce.
Simply put <unk> exists to improve lives through learning ESG is embedded in our mission to provide flexible effective skill development to empower organizations and individuals.
In March we published a new ESG section on <unk> website.
Showcasing our key ESG activities goals and procedures.
And soon we will launch our first ESG impact report.
Highlighting our ESG efforts and spotlighting, how we will support our learners and structures customers and communities.
Further our mission.
With a number of amazing nonprofit organizations to provide unique courses to those in need free of cost.
One example of many is our partnership with SBA Academy, a San Francisco based organization.
<unk> over 1 million underrepresented professionals to pursue careers in technology.
To SP academies <unk> partnership.
It's job seekers can now access the latest most in demand educational resources and their preparation to work in the technology industry.
In 2020.
<unk> determination to succeed was evident when she joined <unk> SV academies customer success program.
Success training, including <unk> courses and the support network that enabled her to launch a career in technology.
And immediately after finishing the program.
<unk> secured a customer success position with sbe academies tiring partner Genesis.
And only four months she was promoted to customer success manager and now she is holding the door open for other immigrant black mothers, who want to break into the tech industry.
And just as important in this global nonprofit work is what we're doing to assist in Ukraine.
We extend our thoughts to all who are impacted by the war on Ukraine and the refugee crisis. We realize there are many Ukrainians who no longer have access to traditional education and.
And we are therefore, partnering with Ukraine's Ministry of Education, and science to provide $1 5 million Ukrainians students at 600 universities and higher education institutions free access to technical business language and other relevant course content.
In addition, our free resource Center continues to offer over 703 year to me courses to learners worldwide.
We realize that these are small steps against the greater events taking place.
But we believe it's absolutely critical that we do what we can and demonstrate our support for those who have had their lives so devastatingly impacted.
Yes.
<unk> culture and ability to attract and retain our valuable employees is always top of mind for our leadership team.
Our mission to provide flexible affective skills development to empower organizations and individuals is grounded in equity and inclusion.
We are pleased great place to work Ireland has honored usually as number five on the list of Ireland's best mid sized workplaces. In 2022. Additionally, you didn't Miss Dublin Office has been named a 2022 best workplace for women, which recognizes top organizations with women's friendly policies and benefits.
<unk>.
We also recently announced that <unk> has been certified as a great place to work in the United States.
A distinction based entirely on what current employees say about their experience working at our company in order to support our commitment to diversity equity and inclusion we have added new courses covering areas such as unconscious bias empathy.
Ship psychological safety and leading with a diverse mindset.
Which are top of mind across enterprises now.
To conclude at <unk>, we are first and foremost a mission driven company.
Addressing one of the largest global workforce issues of the rapidly changing digital age.
This is what inspires our employees and structures and learners.
The beauty of our model is that as we grow content on the <unk> marketplace and engage more and more new learners uterine businesses SaaS based model continues to benefit with the broadest and most relevant content.
It is still a very large and underpenetrated market.
Together <unk> employees instructors and customers are changing lives, while driving a durable learning platform and high growth business.
Well our employees every day one of our core values at <unk> is to be both mission driven and results obsessed. This quarter's performance proved that we can be both with that I'll turn the call over to Sarah to dive into the numbers.
Thank you Greg.
Great said, we had a great start to 2022 with very strong you to meet that crowd.
The study concluded that organization, which phosphate learning culture are 92% more likely to develop novel classes Saracen.
17% more profitable and have as high as 50% greater employee engagement and retention rates than our peers.
Our year to meet that this growth speaks to the fact that more and more organizations are increasing investment in employee skills acquisition because of the proven for ally.
I'm, especially encouraged by our exceptional uli business <unk> of.
<unk>, 80% versus the prior year as well as the acceleration in the business customer growth up 49% versus the prior year.
<unk> business continues to serve as a key growth lever for us as we see healthy new logos and expansion among existing customers.
Wins across a wide range of industry verticals and good momentum in international growth.
Q1 revenue of $152 2 million was up 22% year over year and up 12% sequentially.
Our net dollar retention rate was 120% this quarter highlighting the continued success of our land and expand motion.
Do you have any business revenue was $64 9 million up 77% from the prior year continuing to demonstrate our strong growth at this scale.
Our consumer business delivered $87 3 million in revenue down 1% from the prior year.
Our consumer business is performing as we expected as we discussed on our last call.
A healthy marketplace and one that is able to attract and retain instructors and that provides the incentive for those instructors to publish an update high quality courses.
The consumer marketplace is healthy we are adding instructors and thousands of course this monthly and it continues to serve as a hybrid in China that fuel <unk> business growth.
This symbiotic system of these two parts of our business is a unique and differentiated model and we believe will continue to drive it to meet that topline growth over the long term.
For the remainder of this call all financial metrics are non-GAAP unless stated otherwise.
Q1, gross profit was $87 4 million up 31% year over year, driven by <unk> business.
Gross margin was 57% of revenue up from 54% in Q1 of 2021.
This margin expansion was a result of the continued revenue mix shift to your <unk> business from consumer and a reduction in content costs as a percentage of revenue across both segments.
For Opex total operating expense was $98 3 million or 65% of revenue compared to 58% in Q1 of last year.
Sales and marketing expenses represented 41% of total revenue compared to 41% this quarter last year, and we continue to invest in our strong brands and clear ROI and gummy business. Thanks spanning our go to market and enterprise marketing team.
R&D expense was 13% of revenue up two points year over year.
We are investing and innovating on our sophisticated learning platform, which is fueled by our marketplace content engine.
Furthermore, we are building capabilities to provide our learners with immersive learning experiences and proactive guidance on this.
<unk> and courses they need to achieve there perhaps alcohol.
These investments in our business will bring a tighter relationship between <unk> and <unk>.
And our customers.
As Greg mentioned, our innovation focuses on three core areas.
First we are rolling out proprietary skilled craft that math courses and scale to real life professional aspiration.
We will first launch Steve and <unk> business.
And then we will launch them at the part of the consumer offering.
Second we are fueling these scales graph with sophisticated machine learning and AI model that can personalize the learning experience for each individual.
Finally, we launched career guidance as part of our consumer subscription offering.
Ultimately these investments will lead to superior learning experiences.
Our tangible outcomes for learners and customers and higher ltvs over time.
We are also the foundation of our future efforts in Credentialing.
Rounding out our discussion of operating expenses G&A expense was 11% of revenue versus 7% a year ago as.
As we invested in a team and systems to operate as a public company.
Net loss in the quarter with negative $11 2 million or negative 7% of revenue.
Adjusted EBITDA was negative $7 million.
5% of revenue.
In the quarter, we had some consumer marketing project spend that we had previously expected to occur in Q1 shift to Q2.
Which positively benefited our EBITDA margin in Q1.
This was in addition to that gross margin expansion I mentioned earlier.
And lastly, free cash flow was negative $17 3 million versus negative $18 million a year ago.
Moving onto the balance sheet.
We ended the quarter and the year with $511 million of unrestricted cash cash equivalents and marketable securities.
By segment consumer revenue was $87 3 million downloads percent year over year.
In the first quarter, we had approximately one 4 million monthly average buyers, which was down 2% versus a year ago.
Consumer gross profit was $47 5 million.
Or 54% of consumer revenue.
Proximately 270 basis points higher than in Q1 2021.
Gross margin expansion was driven by lower consumer <unk> in the quarter as a percentage of revenue.
As a reminder, in our consumer transaction data and.
Instructor costs are recorded immediately.
But revenue is recognized over a four month period.
We also added $2 8 million, new consumer and better partners, bringing our total owner base to $52 million.
Of note, we define a learner and someone who had enrolled and spent time learning on the platform.
<unk> business continued its robust growth with Q1 revenue of $64 9 million up 77% year over year.
The year to meet business customer base is now well over 11000 up.
49% from a year ago.
<unk> business and in <unk> of $279 6 million was up 80% as compared to a year ago.
We are pleased with the trajectory of your enemy BSF and we now expect it to exceed consumer and the percent of revenue in Q3, and Greg noted earlier in his remarks.
<unk> gross profit was $42 7 million or 66% of Ele me business revenue, which represents a roughly 120 basis point increase year over year.
The improvement was primarily driven by a decrease in the face of content cost as a percentage of <unk> to meet that Thats revenue.
Let's turn now to guidance.
Looking ahead to the second quarter of fiscal 2022, we expect revenue to be between 147 and $151 million.
As mentioned earlier, we continue to expect <unk> to.
<unk> experienced strong growth, becoming the majority of our revenue in Q3 of this year.
I wanted to provide a little more color on our Q2 guidance.
Our consumer business continues to be affected by some of our larger macroeconomic factors that have impacted our consumer growth over the last several quarters.
While visitor traffic and we'd see to meet business remained strong.
The conversion of those visitors into consumer buyers has slowed a bit compared to last year.
We believe these headwinds remain leading into Q2, and we will put additional pressure on consumer growth in the near term.
We do expect our marketplace to continue to be healthy and feeling good to meet that.
Growth in <unk> business remains strong and we are very excited and encouraged by the rapid revenue expansion and strong net dollar retention.
For the second quarter, we expect an adjusted EBITDA margin of negative 15% to negative 12%.
Let me provide a little more color on our Q2 EBITDA guidance.
As I mentioned earlier in Q1, we benefited from certain consumer marketing projects not impacting our Q1 expenses.
As we look ahead to Q tail. Some of these consumer costs. We did not see in Q1 are now expected to land in our Q2 operating expenses.
This quarter to quarter timing issue is an important consideration in our Q2 EBITDA margin guidance.
Of note our full year revenue segment revenue and adjusted EBITDA margin guidance remains unchanged at $610 million to $640 million in revenue with the year to meet business at $300 million to $310 million in revenue and consumer at 310 to 330 million.
And revenue.
Continue to expect an adjusted EBITDA margin of negative 12% to negative 10%.
To conclude I am pleased with our Q1 performance and our strong growth.
Yes.
Our continued momentum here is providing us with greater visibility into our revenue.
More and more recurring revenue streams.
Unlocking further expansionary growth opportunities as we land and expand into even more organizations globally.
We continue to demonstrate strong performance with 80% <unk> growth and a 120% net dollar retention rate.
We're excited to see <unk> business comprised majority of our revenue next quarter.
We look forward to further success and momentum in Q2, and the rest of the year.
With that we'll open up the call for Q&A.
Peter.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Moderator.
Okay.
Yes.
So for a moment, please volatile moderator rejoins.
Okay.
Okay.
Okay.
Okay.
Okay.
Sorry, everyone the moderator seem to be having some technical difficulties.
Just give us a moment please.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Okay.
Okay.
Okay.
Thanks.
Okay.
Our first question comes from the line of Stephen Sheldon from William Blair. Your line is now open.
Arago Thanks Terry.
Sure Greg.
Hey, sorry about that.
Worse.
Nice results here.
Maybe just starting on the beta side, you guys have rolled out a lot of new functionality there, which.
Perhaps mention lab Guarani, perhaps better I guess with all of the the what have you seen so far in terms of business is actually utilizing some of the product improvements or maybe where you're expecting the biggest adoption. When you think about the next few years.
Yes.
Yeah, great. Thanks for the question I think one of the things that we've spoken about is how we engage our customers and their employees through two different things one is our customer success team.
And upfront, we align with the customers to understand what it is that their business called bar and so for some of these newer products like the <unk> pro that has the assessments in the labs for those.
Employees that want those somewhere a lot we align with Apple we have.
Some preset ways that they can engage those teams and so we're starting to gain traction.
With the new product that we're rolling out the other thing that we've spoken about are those toyotas enterprise tools to engage the teams and Oliver.
All of our offerings and so those tools are there are very robust and they're used by learning leaders and those who are buying the product.
So we're happy with the engagement, we're seeing obviously, there's always room for improvement and so we never stop improving but we're going to continue innovating and rolling out new features because of the response we're getting.
Got it that's good to hear and then maybe just a follow up on the consumer side consumer gross margins nice step up there year over year and sequentially.
Mention some benefit from content cost, but can you just give more detail behind that and how youre thinking about.
Consumer gross margins over the rest of the year.
Sure. So two pieces one is our revenue recognition. So as a reminder, we typically actually see an increase in consumer gross margin in the first quarter, because we have a large Q4 promotional and so we have a lot of buying that happens in Q4 the content costs are recorded.
In Q4, and then what you'll see in the first quarter is that revenue is coming in because it comes in over four months for the transactional revenue and you don't have those instructor costs. The other piece of it is for the majority of our.
Transactional revenue the revenue shares 37%.
For <unk>.
<unk> that come to us from the instructors actually they're paid a much higher rate and what we're seeing actually is the number of where it's coming from instructors decreasing as the things that we're doing the market in our organic growth continues to increase as a percentage of the total.
So for the year, we expect to see those what I'll call normal fluctuations in gross margin because of our promotion cycle, but we do anticipate.
A small step up over here.
Thanks.
Okay.
Very helpful. Appreciate it.
Thanks for the question.
Thank you. Our next question comes from the line of Rob Oliver from Baird. Your line is now open.
Rob Oliver from Baird. Your line is now open.
Rob Please check your mute button.
If your phone is on mute please UN mute it.
Please check to make sure youre not on speakerphone Rob.
Our next question comes from the line of Josh Baer from Morgan Stanley . Your line is now open.
Great. Thanks for the question one a focus on <unk>.
For business.
We saw the acceleration there are and the improvement in the net retention rate.
The acceleration in customer count like so taking a step back I mean, if you could provide any more context really on what's resonating.
On that side of the business anything.
Anything to call out.
To start there.
No.
Answer the question, Josh I think the interesting thing about <unk> business is just the breadth.
What's going on there that we are doing extremely well in all geographies and all segments of the business and I think that's what's that's what's unique about it.
We are doing well everywhere and then and then we have these new partnerships with their exhibit starting off well with Korea, we start our first full quarter in Korea than we did 500 to almost 500000. They are in our first full quarter with <unk>.
Starting to sell in mainland China.
So it just that the business is just extraordinary I think is amazing market fit I think our content is is is really zero superior to what's out in the marketplace.
And in OXXO.
So it's reflected in our business results when it's very very broad based.
That's helpful. And then second wanted to just ask.
If we are headed into a tougher.
Macro environment recession.
Where do you think you'd meet business falls on the priority list I mean are there certain use cases that hold up better.
There is a land and expand model helped you. There just wondering how you would expect that business to perform in a weaker macro environment. Thank you.
Yes, we believe that <unk> will do very well.
Any kind of circumstances, just because of the massive tailwind behind it.
The digital transformation, that's going on the future of work has changed due to the pandemic. There's a skills based economy creator economy. So there's just massive tailwind in this business and so on.
We believe that a tougher economic environment will not hurt us at all in fact.
Flooring potentially becomes a much more of an issue and that covers an area and so there's a great resignation going on and people want to make sure that that date, they engage their employees and they keep them longer. So all the trends are really tailwind for us right now.
Yes.
Okay.
Great. Thank you.
Thank you. Our next question comes from the line of Brent Thill from Jefferies. Your line is now open.
Hi, guys. This is David Lafitte Monaco, Brian Thanks for taking the questions two if I may.
I guess on the first one.
Is there any color you can provide as to what percent of companies enterprises.
Using an enterprise learning product like yours today.
How much opportunity is there left how much of this market remains completely on penetrated any color there would be helpful. And then I have a follow up.
It is very early days in this market.
Two years ago, the majority of the learning.
Incorporations were done in person and those days are vastly changed because of the pandemic and hybrid working and the.
The complete future of work has changed so it's very early days, so we believe that.
We're very early innings in this business.
And just to add to that you know we have a large number of customers over 11000 customers right now, but we're only 10% penetrated we're in a land and expand.
Situations that we have really strong net dollar retention at the 120% in total and for our larger customers those with over 1000 employees at 127% so with our existing <unk>.
Even with just our existing customers, we got a long runway, but like Greg said, it's just early days across the board.
Understood. That's helpful and then on the consumer business just wanted to touch on.
Lee.
How many what percentage of buyers or if you can give like rough directional how this has trended but.
The buyers each quarter like how many of them are returning buyer as far as that new buyers.
Kind of a discussion around new buyers with retaining buyers.
Your ability to retain some of the used.
Consumers on the consumer side of the business would be helpful.
Yeah, Great question, so a large amount of our buying on the transaction side actually come through our returning buyers, it's well north of 50% of it. We're also seeing some trends that we'd like to see where engagements up this year compared to last year as we continue to invest in things that drive engagement and retention.
The last thing I'll mention as you know we're in the early stages as we spoken about for a consumer subscription business and we are innovating, there and really driving a career guidance in learning path and different ways to engage and retain our learners.
So a lot of her in.
Buying that happened to us from returning but also we have we have a lot of work that we're doing now that we're excited about.
Great. So helpful. I appreciate the color guys.
Thanks for the questions.
Thanks, Brad Thank you.
Thank you. Our next question comes from the line of Terry Tillman from chewing.
Your line is now open.
Hey, everyone. This is Conor Bachelor I'll on for Terry Thanks for taking my questions I just wanted to start off one with international so congrats on the on the deal in China, It's really great to hear I'm, just curious too as what youre seeing in terms of competitive pressure in some of these emerging regions like Japan, South Korea, China.
And then also in terms of these emerging markets, maybe how does the land and expand dynamic change as you involve partners more heavily in these deals.
Okay.
So as far as the competition in those markets in the Asian markets in Japan, we have very little competition, we have by far the largest local Japanese business catalog and so there's very little competition. There. So we're growing rapidly there.
In Korea, there's actually there's not a lot of international competitors, but there are a number of local competitors. So were built we built out our our Korean content and we started with a nice size, but we're building that.
And as far as China goes Theres actually one of our competitors actually just pulled out a quarter or two ago. So theres less international competition, but there is some local competition, but not that much.
So, but as far as land and expand its very similar you know we work with our partners. We worked very closely with them. We believe we work like we're one team so.
They're using the same procedures, they're using the same marketing materials and so they tend to do very well like our actual.
Net retention in Japan is higher than it is in other places so I wish I was actually going very well.
Perfect. Yeah. That's that's really good color, maybe just one quick follow up so on marketing in addition to generating traffic organically organically through the consumer side of business I know that there are some some marketing testing for different channels like affiliate networks partner ecosystems, and TV I'm, just curious of any takeaways with those different marketing channels, maybe where you plan to.
Continuing to invest in and.
In region. Thank you.
It's we're always testing.
And consumer marketing, so it's that kind of a business. So we are doing a lot of TV testing, where testing television in about five or six countries right now, but we're also testing Youtube and Facebook and on and on and on our Tictoc is something that we're going to launch a test in the next quarter. So I just think it's a never ending test enroll test.
Raul tests as well and just looking for the most efficient way to acquire customers Youre looking for the most efficient way with the lowest cost of acquisition. So it's a never ending story.
Okay.
Great. Thank you.
Thank you. Our next question comes from the line of Rob Oliver from Baird. Your line is now open.
Hi, guys can you hear me okay.
Yes.
Oh, great, Okay, awesome, thanks, and apologies for that before.
So just a couple of questions, Greg and Tara and I did Miss one of the question because I was.
We've been trying to get back and so apologize. If this was asked already but just clearly a really strong enterprise.
Business trends across the board.
And I wanted to just dive into that a little bit more where on a couple fronts. One are you seeing any change or variance in where the lands or I know you guys have traditionally landed in both HR and in it and just would be curious for any color. There and then the second part of that question is I know.
So you guys often.
Will you will sort of in the first year of an engagement run side by side with say another competitor and some of your marquee customers are ones that you've won following that that year period, and just curious with the tremendous momentum in there.
U b side, whether some of those new wins were ones where.
Those expansions were ones, where you had been kind of running side by side with with.
The competitor than did I had a quick follow up.
Well.
Yes, I don't think Theres anything youll different with demands today I mean, we are building out our go to market team. So long as there's more people in more countries. So are the lands tend to be more diverse than they were before as far as geographies. We're building all Latin America now and so we're getting more we're getting more new customers there.
And so it's just it's very very broad and it continues to be very dwelling on the lands and ending of the same thing with the expansions now as far as the trials. We are in trials. All the time. So we are and we like the trial with our competitors because we believe we have the deepest content the freshest content and.
We do very well in trials.
So a lot of them in a number of the lands are arm in trial as I said, we are in trials every single day.
And so and I said, we're winning more than our fair share and I think that's reflected in our growth rate, we're growing faster than the market is and arm and again, it's a lot to do with our marketplace and our business model.
So it was a we love we love to go into trials.
Got it okay.
That's great Greg I appreciate it and then third just a question for you just on the consumer subscription side, obviously, a lot of variability in the consumer trends and you guys have done a nice job modeling to that.
And getting us focused on kind of that kind of flattish area.
But can you talk a little bit of a conservative Christian I realize it's still very early.
It does seem like the content at least from my.
Checks and observations is getting richer around consumer subscription and just would wonder.
Albeit recognizing that its early you know what kind of trends youre seeing there. Thank you guys very much.
Yeah, great. Thanks for the question. So it is still early days.
We are happy with what we're seeing there, but as we spoke about we're still kind of in beta mode until the second half of the year.
As we've said you know there is some limited visibility on the consumer side, especially on the transaction side, where we're seeing some conversion suppression.
And we do anticipate our second quarter to be down year over year, but from a subscription perspective that is starting to gain traction nicely in our beta test areas and so we're going to continue innovating there I loved that youre seeing some of the new stuff that we're doing from a content from a capability perspective.
And we're going to continue doing that and then when we're ready we're going to start rolling out more broadly.
In the back half.
Great. Okay. Thanks, again, guys really appreciate it.
Thank you. Our next question comes from the line of Brett No block from Cantor Fitzgerald. Your line is now open.
Hi, guys. Thanks for taking the question.
Maybe just go into a bit more detail on your full year guidance. It seems like enterprise momentum is really just picking up steam I mean $40 million of net new <unk> in the quarters quite.
Quite spectacular I guess as you.
Breakout this segment guide for the full year should we be expecting kind of enterprise to be closer to the top end of that range.
Maybe consumer now I guess a bit closer to the bottom of that range or is it still too early to tell given.
How early we are in the year, putting the consumer segment.
It's a great question. So I think we do anticipate yummy business to continue to have strong growth. We're really pleased with what we're seeing there and Greg mentioned, we're not just building out the team, but the team is ramping really nicely across all segments and all regions and all.
Land and expand motion is working well from a consumer perspective.
I said, we do expect Q2 to be down year over year, we don't have visibility into growth in the back half right now.
Like you're hearing from all the consumer Tech Bellwethers like we're also seeing conversion at <unk>.
The person at the top of the funnel, but we're kind of waiting to see.
We do think that there are some counter cyclicality that we have so depending on what happens as unemployment increases we think that benefits could could be a benefit to the consumer better sell.
We're reiterating guidance, but I think your instincts and you'll be continuing to be a really strong are alright.
Perfect and then make less seasonality perspective, as maybe landing with larger customers.
Are you seeing any any shift in seasonality from a business side, maybe towards a more traditional kind of software purchasing cycle, whereas Q4 heavy.
Sure.
And we've always been very Q4 heavy like everybody else, but it's been if anything it's actually less so.
The first one to support as 123 tend to be our stronger I think than they were a little bit historically.
But part of that is just we're building out our go to market team and we're just getting much better at much better on what we're doing.
But it's still going to be very fourth quarter had because that tends to be the business.
Okay perfect. Thank you maybe just one last one on FX I know you guys are now really global in.
The dollars appreciated pretty significantly again pretty much every currently out there are you guys.
Yeah.
Contracting with enterprises.
The U S with local currencies hurt in U S. Dollar was there any FX impact on the quarter. Thank you.
Yes, so the vast majority of our gummy business contracts are in U S dollar.
And so as you.
<unk> business grows as a percentage of our revenue the FX risk actually decreases.
So we saw a very small amount of impact for the first quarter and for the year. We think we have about a 1% to 2% at the at the very outside rest of the top line.
Yes.
Yes.
Perfect. Thanks, so much I appreciate the time guys.
Thank you Ms Gretchen.
Thank you. Our next question comes from the line of Jason <unk> from Keybanc Capital. Your line is now open.
Yes.
Hi, Greg Hi, Chiara. This is absolutely Devin congregation today. Thanks for taking my question, maybe just one and also want to double click on <unk>.
The strong growth there.
You mentioned solid sales execution in that segment remains strong.
Comment on maybe felt like all call. Jay are you also seeing those metrics, including in the past quarter.
Yes, so our sales cycles continue to be what you typically see there about nine to 12 months for the larger enterprises faster for the commercial segments.
Close rates are strong they've gone up a little bit, but they've always been strong and like Gregg said, our favorite thing to do is actually trial.
That's where we really see we win more than our fair share.
Thank you.
Thanks for the question.
Thank you. Our next question comes from the line of Ryan Macdonald from Needham. Your line is now open.
Hi, This is Matt Shea on Brian . Thank you for the questions I wanted to touch on China, a little bit more curious with the recent partnership and expansion what kind of trends you guys are seeing there, especially in terms of usage given that.
Walk Downs during Q1, and then any color on the contribution that China contributed in the quarter.
It's very early days in China, So it's not material at all at this point.
We just we just opened it up we just launched the App and we just closed a few contracts.
So it's really really early days for us to really have enough data to really understand all that but we like what we're doing.
What we are building a nice pipeline, we're building out our sales organization there and.
Our partners are very excited by what they're seeing and one of the interesting transitions that we're getting a lot of pipeline from some of the European countries that have offices in China. So we actually have a bunch of existing <unk> customers that have offices in China. So we think there's a nice runway for us.
Okay.
Got it that's helpful and then keeping in mind that it's still early you noted the loss of a competitor pulling out of the Chinese market have you seen that.
Kind of impacting your ability to build a pipeline more quickly or any opportunities that you're already seeing that create.
Yes, it's absolutely helping us build our pipelines. So there are certain there is certain we had won a large European multinational who was looking for a replacement and now that they know we're in the marketplace a company contacted ourselves. So yes, we are seeing it will make it easier to build our pipelines in China for sure less competition.
Okay.
Got it I appreciate it thank you guys.
Thank you there are no further questions. We will now turn the call back to Greg <unk>.
Closing remark.
So I want to thank everyone. I appreciate all your questions to summarize our strong Q1 results illustrates three themes driving <unk> strong performance.
First strong demand solid execution and continued topline growth.
Second on.
Unprecedented tailwind is accelerating to workplace shift to digital upscaling alerting that drive our Tam.
And third the continued health of <unk> consumer marketplace, which fuels the growth of <unk> business.
Simply stated <unk> has the broadest and most relevant skill building content and what is a very large and underpenetrated market. We're just getting started and I'm excited for the opportunity ahead and appreciate your time.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
[music].
Right.
[music].
Yes.
[music].
Okay.
Okay.
Okay.
Okay.
Sure.
[music].
[music].
[music].