Q2 2022 Coursera Inc Earnings Call
We believe that core service offerings really are suited to these needs.
This leads me to the third trend driving our business the transformation of higher education and adult learning more broadly.
At technology and automation accelerate a changing skilled landscape a new an inclusive lifelong learning model must meet this challenge with rapid speed and scale.
Adapted to this change will require institutional collaborations between academic institutions industry leaders in government to meet the needs and tastes of this new digital world.
One example of this is our recent Coursera for campus partnership.
Louisiana Tech University, along with University of Louisiana system is launching a systemwide for credit initiative in partnership with Coursera and Google.
Beginning with the summer programming series opened the faculty.
The Louisiana Tech University office of professional education outreach is often google's entry level professional certificates on the <unk> platform as a complement to their regularly scheduled professional development.
Later this year they plan to expanding the ship to other universities and the University of Louisiana system to reach faculty via their bridging the divide program and more broadly for students who are interested in gaining the in demand skills for high growth jobs like data analysts and UX designer.
We believe that innovative programs like these from forward thinking institutions demonstrate the future of higher education the.
The future is not universities or industry. It is the collaboration between universities and industry.
Critical thinking coaching and community are all hallmarks of the University experience that higher education institutions do exceptionally well, but.
But at the pace of digital transformation, many universities and colleges lack a connection to industry SaaS changing skilled landscape and evolving employer demands.
This is the power of <unk> platform.
And innovations like career Academy connecting learners educators and institutions and a global learning ecosystem designed to keep pace with rapidly changing world.
Our platform has three distinct advantages that we continue to reinforce.
First are the leading educator partners, who created a broad catalog of branded content and credentials.
As the global reach of Coursera.
And the third is the data technology and ongoing product innovation that powers our unified platform.
Lets discuss recent highlights for each of these.
First our educator partners.
We now have more than 275, educate our partners on coursera, including World class universities and globally recognized industry leaders.
Recently, we welcomed four Premier Indian University partners, including the Indian Institute of management Ahmedabad.
The Indian Institute of management indoor.
Indian Institute of Science, and the International Institute of information technology or Triple Bundler.
Additionally, we announced our revenue industry partners at course of our conference and that will continue to expand our catalog of high quality job relevant content.
These industry partners include a sensor.
Coinbase Genentech's goodwill here.
<unk> mines mines, Pwc, India and.
<unk> education.
Our broad catalog of content and credentials created by these educated partners continues to grow.
We announced 10, new University certificates from the Indian Institute of Technology <unk>.
Many of the Institute of Technology routinely.
And the University of Colorado Boulder.
These programs generally takes six months or less complete and help learners develop expertise and cutting edge fields like machine learning for finance supply chain management with AI and natural language processing.
Additionally, we unveiled three new Masters degree programs expected to start the first student cohorts later this year.
They include a master in data science from the International Institute of information Technology Bangalore.
An executive MBA from the Indian Institute of Technology routine.
And our first ever University and industry collaborative degree on Coursera with a masters in management and digital health care transformation from northeastern University and Mayo clinic.
This new program combines a top academic research institution with the expertise of one of the world's best hospitals.
We believe that this type of partnership demonstrates the promise of cross sector collaborations.
Students benefit from the cutting edge skills in north Eastern faculty, along with the real World expertise case studies and hands on projects drawn directly from Mayo clinic.
Finally, we announced a significant expansion of our entry level professional certificate catalog.
For existing partners. These new certificates include Google fixed certificate designed to prepare learners for a career in digital marketing and E Commerce.
Five new certificates for meta for in demand careers in the field of software engineering, including front and backend Android and iOS of onboard as well as database engineer.
And three new certificates from IBM and technical support supply chain and operations.
We also previewed the first entry level professional certificates expected from several new important partners, including Akamai ACR certification Institute and Microsoft.
In total we have announced 32 entry level professional certificates across nine industry partners.
Three of these certificates are live on the platform today and 12 of those have secured American council on education, or AC credit recommendation, which enabled more universities to accept the certificates for credit towards a degree program.
These entry level professional service, which provides online job training for high demand entry level digital jobs that don't require a college degree or any prior work experience. They are well suited for the millions of <unk> and Kerr switchers looking to land a high paying digital job with <unk>.
Major advantage of the global reach of our platform.
Our large grown learner base attract educator partners looking to teams both individuals and institutions around the world.
Once again this quarter, we added approximately 5 million new registered learners growing our global learner base to $107 million by the end of June .
Learner growth continues to be broad based with double digit increases in all regions and the fastest growth coming in the Asia Pacific region.
Additionally, we've grown the number of paid enterprise customers by 64% this quarter to 958.
With the majority of new additions coming from Coursera for business customers.
Our final advantage is the ongoing product innovation on our unified platform or.
Our product team continues to introduce a number of new capabilities to better serve our learners educators and institutions.
As I mentioned earlier I was thrilled to announce career Academy for institutions at the course of our conference in May and we're excited about the early feedback that we're getting from our enterprise customers.
Career Academy enabled higher education institutions governments and businesses.
To offer a co branded turnkey solution to Upskill and Reskill entire populations of students workers and employees for new economy careers at rapid speed and scale.
Campuses can help attract and retain students by offering industry recognized certifications and micro credentials.
Long with skills development that helps graduate enter in demand careers.
Governments can provide job seekers, a path to a better career and help them gain the skills they need to achieve it.
And businesses can become a career destination to attract frontline workers and expand their talent pools, while reskilling and redeploying their current workforce.
So we are academy Leverages, our entry level professional certificates and guided projects, which equip learners, particularly those with no college degree or prior work experience with two critical elements designed to help them and landing a good job.
<unk> is a branded credential created and endorsed by an industry leader that provides employers signaling value and.
And second is the ability to build a portfolio of handgun projects using the software applications and tools of the trade to demonstrate their skills proficiency for.
For example, an aspiring data analysts can practice equal Python and tableau, while UX designers can build projects using stigma and Adobe creative cloud and they can do this in a cloud based desktop browser without the need for a license or local installation on their device.
As we continue to expand our catalog with announcements of highlighted earlier institutions will be able to offer learners a more diverse selection of roles from a wider range of industries brands and languages.
Next we introduced clips for for sale for business customers starting in May.
This allows companies to make the most valuable in demand skill development content more easily accessible to their employees.
Leveraging existing according to our content clips deliver short five to 10 minute videos and lessons that address in a moment learning needs.
Videos and lessens our surface within the context of our longer courses, providing a clear path deeper skill development when the learner is ready to enroll in the fall of course.
We launched with over 10000 clips that we expected scale to more than 200000 clips by the end of the year using our existing catalog of content and credentials.
Finally innovation for learners.
Our team has been focused on creating a more personalized engaging learning experience to better serve unique needs of each individual learner.
Of course, there are conference we introduced a number of new tools and features focused on the motivation and support of learners.
These include the ability to input a personalized schedule into of course and receive data driven deadlines for each item based on a real experiences a prior computers.
AI powered nudges and in course coaching with features like highlighting key lectures and content other learners reviewed prior to an assessment and <unk>.
Learning generated summaries of key lecture videos, providing learners with an easy way to review prior course material gain a quick understanding of a topic and progress more quickly through their studies.
Before I turn the call over to Chen for closer to discussion of the financial results. Let me remind you of several of the key priorities that we're focused on to grow in the years ahead.
First we will continue to invest in our fast growing enterprise segment, focusing on both new customer acquisition and expanding existing relationships.
Second we are still in the early stages of our debris segments and our focus on expanding our program catalog, including the types of degrees offered in a greater variety of subject matters of languages from new and existing partners.
Third we will broaden our entry level professional certificate catalog sourcing new partners, expanding with existing leaders and offering learners, a greater variety of job roles industry and languages to choose from.
And finally, we will continue to scale the <unk> platform investing in growing our registered learner base, increasing our network of educator partners and their content and credentials and expanding our reach into more countries more institutions and to more learners around the world.
And now I'd like to turn it over to Ken Ken Please.
Thanks, Jeff.
And good afternoon, everyone.
We continued to demonstrate strong progress across our platform.
Our number of educate our partners and their catalog of job relevant content and credentials growing our global reach with individuals and institutions and delivering new innovations for learners educators and our enterprise customers.
Q2, we generated total revenue of $124 8 million.
Which was up 22% from a year ago on strong demand for our entry level professional certificates and sustained momentum across our enterprise segment.
As Jeff mentioned, our revenue performance was mixed this quarter with strength in enterprise offset by lower than expected growth in consumer and degrees, which I'll cover in more detail. Shortly during the discussion of our segment results.
Nonetheless, the long term structural trends driving our business have not changed.
Individuals and institutions are increasingly turning to online learning to supply the digital skills required in today's economy.
Second we have a powerful combination of university and the industry content that delivers day in demand skills and branded recognized credentials required by learners no matter the stage of their career.
And third our three sided platform provides us with global reach and the ability to leverage our strategic assets across our segments to compete differently.
Please note that for the remainder of the call as I review, our business performance and outlook I will discuss our non-GAAP financial measures unless otherwise noted.
Our non-GAAP adjustments removed only stock based compensation and related payroll tax nothing else.
Gross profit was $79 2 million, a 63, 5% gross margin up 28% from a year ago.
This margin was approximately three percentage points higher than the prior year period due to the ongoing drivers we've discussed the past several quarters, particularly the positive changes in our segment content margin for both consumer and enterprise.
Our consumer segments content margin rate increased from 66% from the prior period prior year period to 73% this quarter and our enterprise segment content margin rate increased from 67% in the prior year period to 71% this quarter.
This expansion continues to be driven by learners consuming a larger proportion of industry partner content, which tends to have a lower than average content costs.
Total operating expense was $99 3 million or 80% of revenue compared to 67% in Q2 of last year.
The increase was partially driven by one time impairment expenses associated with the subleasing of a portion of our mountain view assets as a reminder, during our outlook last quarter, we discussed our expectations around a likely partial sublease of our mountain view headquarters, which was consummated in a lease during Q2. This resulted in three.
$2 million additional cost this quarter, which are included in the departmental expenses and account for portion of the Opex increase as we did not pull the cost out as pro forma.
As discussed previously we expect a net benefit to accrue over the coming quarter and years with much of the savings expected to be redeployed to fuel our talent strategy.
Now moving to the expense details.
Sales and marketing expense represented 38% of total revenue up from 32% in the prior year period as we expanded the capacity of our enterprise sales force and invested in the marketing programs related to higher margin content and credentials.
Research and development expense was 26% of revenue up from 22% from the prior year period, driven by content development investments associated with our entry level professional certificates.
General and administrative expense was 16% of revenue up from 13% in the prior year period.
Our net loss was $21 $6 million or 17, 3% of revenue and our adjusted EBITDA loss of $15 6 million or.
We're 12, 5% of revenue.
Now turning to cash performance in the balance sheet as of.
June 30, we had approximately $783 million.
Unrestricted cash cash equivalents and marketable securities with no debt.
Our free cash flow was a use of $3 2 million compared.
Compared to $8 5 million in the prior year.
The strength of our balance sheet in combination with the modest cash requirements for operating needs.
<unk> with a strong financial base.
<unk> to us well in any environment and allows us to invest constantly and our long term strategy.
Now, let's discuss our segments in more detail.
Consumer revenue was $69 $7 million up 12% from the prior year started this year, we communicated that we expected Q2 to be a seasonally light quarter for learners, reflecting the traditional education cycle with.
But that being said our consumer growth was lower than anticipated.
We saw softness in several markets outside the U S, particularly in EMEA with new payer conversion rates that were below our seasonal expectations and may reflect ongoing macroeconomic challenges in the region.
Second we conducted several pricing and payment related test in markets around the globe that resulted in a negative impact on consumer revenue.
To be clear, we continue to see increased demand for our job relevant portfolio of entry level professional certificates, particularly in North America, and we expect to rapidly expand this category with new and existing industry partners as Jeff highlighted.
Segment gross profit was $50 7 million or 73% of consumer revenue up from 66% from the prior year.
Expansion in our consumer segment margin demonstrates the ongoing benefit we see from a lower content cost rate associated with higher consumption of industry partner contact Ken.
And we added another 5 million new registered learners for a total base of $107 million.
Next is enterprise.
Enterprise revenue was $43 7 million up 55% from a year ago on strong growth across business government and campus customers the.
The total number of paid enterprise customers increased to 958 up 64% from a year ago.
And our net retention rate for paid enterprise customers was 111%.
Segment gross profit was $31 1 million or 71% of enterprise revenue up from 67% in the prior year driven by a higher consumption of industry content that similarly benefited our consumer segment, although less pronounced.
And finally, our degrees segment.
<unk> revenue was $11 $4 million down 4% from a year ago on lower than anticipated student enrollment and our mature programs and lower overall student activity Todd.
Number of degree students grew 19% from a year ago to 17460 <unk>.
Degrees performance reflects what we believe to be broader macroeconomic trends at play, particularly with U S and European enrollments and Masters degree programs, which is where our revenue is concentrated today as.
As we've discussed our degree segment is still its very early stages, we have a small base of fully mature existing programs, which is where we experienced decrease student enrollments.
While we remain excited about the momentum in new program announcements that will diversify our degrees revenue base. It will take time to see their contribution given the extended ramp we cycled, we've discussed and the lower range of international tuition price points.
As a reminder, there is no content costs attributed to a degree segment. The degree segment gross margin was 100% of revenue.
Now onto our updated financial outlook.
For Q3, we're expecting revenue to be in the range of 126% to $130 million or 16% growth at the midpoint of the range.
For adjusted EBITDA, we're expecting a loss in the range of 10, five to $13 $5 million.
For full year 2022, we anticipate revenue to be in the range of $509 million to $515 million or 23% growth at the midpoint of the range.
With a three sided platform our business has exposure to the needs of learners educators can institution that affect our three operating segments in different ways.
Given the revised full year outlook, we thought it would be helpful to provide new growth expectations by segment for 2022 to reflect our latest view.
For consumer we expect to grow in the high teens for full year, 2022, which is slightly lower than our prior expectations given the softer conversion rates seen in Q2.
For enterprise, we expect our broad momentum to continue with full year percentage growth in the mid forty's inclusive of some macroeconomic headwinds related to EMEA corsair for business customers.
And for degrees, we anticipate a mid single digit decline on an annual basis, given the enrollment challenges witnessed in the first half and forecasted for this fall and our most mature program.
For full year 2022, adjusted EBITDA, we're expecting a loss of $42 five to $48 5 million or a negative eight 9% adjusted EBITDA margin at the midpoint of revenue and EBITDA guidance ranges.
Our messaging and annual operating framework with regards to EBITDA margin has been consistent over the past two years at the beginning of the year, we set an annual EBITDA margin target and work within that plan to maximize our growth opportunities across the business.
With a reset revenue expectations for the second half of 2022, we have adjusted the pacing of our investments to align with the annual EBITDA margin target.
<unk> maintained the same margin target, resulting in a lower adjusted EBITDA loss in dollar terms for a midpoint of $45 $5 million down from the previous $48 $5 million loss.
This along with our strong cash position and minimal cash burn and allows us to prioritize near term growth opportunities, while strategically positioning coursera for the long term.
I'll now turn the call back to Jeff for final comments.
Thanks, Ken.
We've entered a new and ever evolving era of work the consistently requires new skills technology is creating nuclear opportunities with students and workers need access to flexible affordable and fast track learning and career pathways to transition into well paying jobs in the future.
This is particularly true for women and other underrepresented groups who've been disproportionately impacted by the pandemic and automation.
With many of our learners based in emerging markets. We partnered with the International Finance Corporation and the European Commission to publish a global study seeking to better understand how these learners, particularly women have been learning online since the pandemic onset.
During the fourth quarter of 2021, we surveyed nearly 10000 learners on Coursera in four focused countries, Egypt, India, Mexico, and Nigeria charging to learners that are completed at least one graded items between January 2019 to the end of June 2021.
And nearly half of the respondents reported earning in their countries bottomed 15th percentile of income.
Our research found that women and other underserved populations do online learning is more accessible than in person education.
That's 45% of women and 60% of women caregivers.
That they would've had to postpone or stop studies, if online learning warrant and option, citing mobility safety and family obligations as their top deciding factors.
Women also said that they face more restrictions that limit, how and where they learn with that online learning has provided an opportunity for them to achieve their goals.
The study also confirmed links between online learning and career outcomes and emerging markets.
IFC research found that online learning for instant games in the broader economy through direct and indirect effects with one new jobs created for every 30 people train them Coursera and our four focus countries.
About one third of the women surveyed said that they found a new job set up a business or improve their job or business performance.
<unk> online courses and.
And 22% of women saw an increase in their income with nearly 40% reporting an increase of 10% or more.
Finally, 99% of respondents said that they plan to continue learning either online or in a blended format. After the pandemic.
These results demonstrate we're increasing access online learning and combination with broadband connectivity and remote work.
The power to advanced equal opportunity in the post pandemic economy.
However, it will require significant collaborations from both the public and private sectors to address the scale of the crisis and build competitive equitable and sustainable Workforces.
Often say talent is equally distributed but opportunity is not.
With our <unk> community and <unk>.
And leaders in higher education business and government, we are working together to expand access to economic opportunities for learners around the world.
Now, let's open up the call to questions.
At this time I would like to let everyone know if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Now take our first question from the line of Stephen Sheldon with William Blair. Your line is open.
Hey, Thanks for taking my questions.
First one here just on the revenue guidance for the rest of the year. It seems like it assumes a year over year deceleration in the third quarter and then.
Some reacceleration in the fourth quarter. So can you talk about that and I know you gave some segment level expectations for the full year, but are there underlying segment level dynamics that you're kind of factoring in in the second half or kind of in play there.
Hi, Steven.
So.
No it was.
Based on.
Mechanics of are forecasting what we're seeing in the pipeline and the usual ratios that we used to determine our forecast there is nothing unusual in that.
We are ensuring our wanting to ensure that we are careful to hit our numbers this coming quarter.
But there is nothing unusual in there from a seasonality standpoint.
Got it and then on the I think <unk> previously talked about 50% growth I think this year for enterprise like that Youre talking mid forties, and I think you called out some headwinds in EMEA.
Can you just give some more detail and I guess, what those headwinds look like in EMEA.
Just generally.
What's kind of changing there.
Slower new client wins.
Churn picking up maybe a touch I mean, just just what what's driving the slowdown there.
Hey, Steve.
It's a combination of things I mean, when we look at enterprise you've got Corsair for business, We've got Coursera for government and we backwards here for campus.
And then we've got the different regions.
We are seeing in EMEA is more of a coarse ore for business challenge relative to what we're expecting.
In North America actually has been pretty solid on the enterprise side across all three segments.
And Gov globally, the courtyard for government has been quite positive.
Really is kind of Europe corsair for business and.
Most of that is really more in our pipeline development process as opposed to the churn rates, but it is kind of <unk> business in Europe , where we're seeing the biggest sensitivity and we suspect that that is kind of due to macroeconomic factors of what's going on in Europe , right now, but that seems to be where we're seeing the localized.
Weakness.
And of course, Stephen Your question was enterprise, but we saw similar weakness in EMEA and consumer on conversion rates. So suspect that's part of the same trend.
The general pressures on the economy there.
Got it alright, thank you for the color.
Yes. Thank you.
Your next question comes from the line of Taylor Mcguinness with UBS. Your line is open.
Yeah, Hi, Thanks for taking my question maybe to touch on what you were just referring to on the last question about some of the macro.
Weakness in how that's materializing and what you guys are seeing in the pipeline.
With with consumers. So can you talk on I guess, one on like the enterprise side is that more a function of deals being delayed and pushed out or.
What I guess, how are you guys thinking about that in terms of like the second half to half guide there and then there's the second part on the consumer side, maybe you can talk about activity levels on the platform, what youre seeing there and how that macro impacted is materializing.
Yeah. Thanks, Peter This is Jeff so on the on the enterprise side, it's not a not a lot a whole lot to add beyond what we mentioned the season.
I think it is it appears to be a little bit of tightness, where budgets in terms of how much do people spend how quickly that they spend it.
Feel like we kind of saw the opposite that when Covid first happened. It just seem like people are opening the walls, maybe with government money in Europe kind of moving pretty quickly. It almost feels like the opposite is happening that people seem to be a little bit more careful with their spend.
I would guess that's probably timing.
As well as kind of purchases, but not totally clear on exactly the distinction there.
On the consumer side.
It's interesting because the professional search are still performing really well, particularly in North America.
In Europe , it's kind of more of a conversion rate challenge.
And so.
Like handset maintenance the same kinds of effects you asked about activity levels I don't think that were seeing any notable difference in activity levels.
It seems to be an even larger top of the funnel seems to be similar between Europe and other regions I will say that generally speaking search volume for online courses and online degrees and this is not just on Coursera, but just general search volume is down.
There's sort of a bit of a.
The economy reopening and people don't do anything thats out of their house that were that we kind of see see globally.
And that probably is happening in Europe , as well, but a lot of it sort of conversion rates on the consumer segment.
In EMEA, and particularly Europe that we're seeing.
Got it and then my next question just on the enterprise piece I think it looks like your.
Net retention ticked up a little bit, but it looks like at least like that.
Matt.
Logo ads in the quarter, it may be where the area that with a little bit weak relative to what we've seen in the past. So can you talk about that like the new versus.
Existing and expansion activity and when you think about the guide like where youre seeing more and more of the impact and how that influenced that.
Yeah on this one is really a mixture of different sized companies that we sell we do midmarket, we do some small medium business.
And then of course, we are bigger accounts as well also when we look at deal sizes. They are different between a campus of government and a business. So so part of this is variability within this segment part of it is variability in average deal size across sub segments. If you will of <unk>.
Enterprise.
I would I would say that as we and we've seen governments growing faster than.
Then business in terms of in terms of revenue growth and those are generally bigger ticket sizes. So I wouldn't I wouldn't be surprised if we end up seeing is.
I guess, what I'd say general continued sort of variable depending on the mix of what's growing fastest on the campus side and we're seeing pretty good uptake of career Academy. These are these are warning that there is a more narrow simple focused SKU.
That might sell faster than the typical ones. So we might have higher numbers with.
Lower average ticket sizes.
It's really it's really sort of a combination of mix across segments. I think that we're seeing most of the cannot know if you want to add anything to that.
Just a little bit on the data side looking at the number of paid the net increase which essentially youre, referring to a 41 versus 100 ish generalize over the previous four quarters was definitely slower on the enterprise side, which is reflected in a lower forecast for the rest of the year. So it's.
It's part of the same but there is absolutely a mixes as Jeff said between smaller and larger customers.
But it's fewer conversions once again.
Great. Thanks, so much for answering my question.
Sure Doug.
Your next question comes from the line of Brian Peterson with Raymond James Your line is open.
Hi, gentlemen, thanks for taking the question. So I wanted to hit on the degrees business for a second and I understand some of the programs can have different enrollment times.
But I was curious what drove the enrollment change, particularly in the second quarter for some of these programs I guess in the traditional cycle, maybe that's not the case and then maybe looking ahead, how do we think about that potentially getting better it doesn't sound like maybe thats the case and the outlook.
Is there a possibility for those enrollment trends to change as we're looking ahead to maybe the fall semester of 2022.
Yeah, Hey, Brian So when we look at the degree segment I mean, clearly at minus 4% in Q2 is lower than expected.
A lot of that is lower than anticipated student enrollments.
Part of it is also lower overall student activity. So the tuition period it depends on how many credit our students are learning.
Partly probably because of working maybe because of the vacation wherever it students have pulled back in the activity level. So if you look at where the degree segment revenue comes from currently with our current portfolio of degrees.
Our four largest most mature degree programs.
Saw limited to negative revenue growth.
Year over year and three of these four are in the U S.
We think that what's going on when we look at our funnel and also sort of outside information what's happening with other degree.
Debris providers in the U S market, we think that there are economic trends, particularly in the U S associated with a strong labor market.
And the stronger labor market historically has led to lower enrollments. If you look countrywide at.
Sort of national data on graduate enrollment rates, it's down 1% in spring of 2022 compared to plus four 6% spring 2021. So we do think that there is.
And the impact in the U S because of that and Thats, where the concentrated in more mature programs are I would also say that some people, but there is a recession there should be counter cyclical right.
It's a funny recession right now people are talking about a recession, but the unemployment rate is really low and generally speaking.
Degrees are counter cyclical with mostly unemployment.
And so if unemployment goes up and a recession happens that's where you get the most were kind of looking at a potential recession, but were really low unemployment. So I don't think that we're seeing yet.
Any sort of counter cyclicality, because it's more associated with unemployment rates. The other thing I'll add and then I'll turn it over to Ken but.
When we look at the revenue sort of year on year.
Part of it as I mentioned is the students enrollments and then part is the average revenue per students.
So the more intense Lee that students are learning the higher their tuition in a given period.
Average revenue per student was lighter in Q2 because of lighter kind of learning mode. If you will that students have been taking and so that was another different from what we were expecting Jim I don't know if theres anything you want to add to that.
Not a lot I just reemphasize that our revenue is quite concentrated in a few large U S and European Masters degree programs, which is slightly referred to graduate programs that again, it's the large majority of our business today, so effect on those markets affect us disproportionately in that business.
And also that.
Everybody understands I think there are degrees model. It takes a long time to build revenue from new programs. We've recently had the last few quarters. Some great New program announcements those are still building and don't show in revenue immediately so where we.
We're excited about that trajectory over time, but we don't see any near term impact what we're seeing now is specifically what's happening in the U S and Europe for Masters degree programs.
You asked by the way, Brian like when is it going to get better.
My best guess would be it will be related to unemployment.
Best guess based on historical patterns.
Understood I appreciate all the context, there and maybe a follow up for you can just in terms of the growth environment, obviously, an uncertain macro we referenced some cyclicality how do you think about that balance maybe beyond 2022 in terms of the growth versus the margins. There I appreciate you're not giving guidance for 'twenty three yet.
Has anything changed in terms of the thought process on how you are looking at some of the investment posture. Thanks, guys sure no. It definitely incredibly important question as to how we run the business.
The environment has changed in the outlook has changed somewhat in the near term.
But philosophically, we're not changing our approach we want to continue to scale. The business, we want to build leverage into the business. So we expect to see improving EBITDA margin. So this last quarter, we reduced of course the forward look on revenue and so we're reducing our rate of growth for the year are.
<unk> of investments, we still want to fund growth. So we're not changing anything we're in a great financial position from a cash standpoint were stable, we're burning $3 million a quarter that should continue at roughly that rate going forward. So we control our own destiny with $783 million in cash and cash equivalent, but we do want to.
To have that model start to scale, we plan to continue to do that regardless of the revenue rate and so youll see us continue to adjust our investments on a go forward basis. So I think next year, we'll see depending on the growth environment at the end of the day, we need to win in this market we need to own these markets and we need to have long term growth, we are not going to be confused.
About that this is a growth company, but at the same time, we need to see leverage and so going forward, we don't have guidance, yet, but you will expect.
Our EBITA margin to be better next year, we've committed to that early on as we went public and we continue to hold the same philosophy, Kevin if I just sort of continue on a little bit about sort of where are we continuing to invest I mean, we did pull back on the pace of expense growth.
Try to match the lower than expected revenue growth.
I'm trying to kind of hold adjusted EBITA margin roughly roughly the same where we're still leaning in heavily in building direct sales force to land and expand in enterprise growing top of funnel of the distribution.
Adding more localized learner experiences around the world.
Some of the product innovation that we talked about notably the career Academy those professional certificates, the eclipse, which is sort of a shorter more accessible learning.
These are all things that we're continuing to invest in because it seems like there is good demand for us and theyre pretty differentiated and so we don't really want to pull back on that.
Understood. Thanks, guys.
Sure.
Yeah.
Your next question comes from the line of Josh Baer with Morgan Stanley . Your line is open.
Great. Thank you for the question I wanted to ask a couple of follow ups on the enterprise.
The step down in the.
The net new.
In addition quarter over quarter from that 100 level to 41 like is that all in the EMEA region or.
Or was there impact in other geographies in North America.
Yes.
Our North America enterprise.
It was pretty consistent with what we were expecting.
I'm not sure exactly the number of deals maybe Ken you can grab that but when you look at overall new bookings.
That was pretty solid.
Assuming the Asps were changing a whole lot I know that our new and expansion while the new logos in Europe was where it was really at the latest I don't know if that accounts for the full amount of it certainly on the on the on the revenue expectations Thats, where were seeing the weakness for the rest of the year can any additional color that you can provide.
In terms of the net logo ads and kind of where were those showed up.
As you referenced the focus is on ACB on contract values, how we measure the sales force measure our success over time so the.
So we were lighter in EMEA has just said.
<unk> in North America was fine.
But it's an ACB total contract value focus that we look at as opposed to a number of new ads for them to look that up but it's not something we necessarily forecast to be fair, we've run the business on contract value.
Okay got it and.
Now with enterprise in mind on the guidance I guess, just wondering if you are.
Seeing some of these.
If you are seeing deals that are pushed out or are you or is there a change in.
I guess again for like the new account additions is there a change to win rates essentially like.
Are you is this just a.
A little shift in macro.
In EMEA.
Demand, that's getting pushed out or is there any other changes to note in the competitive landscape.
Or anything else to note there.
Yes, Josh.
We didnt mentioned in competition and the scripts, but.
I'm feeling pretty good about our competitive position, especially in Coursera for campus and Corsair for governments and with this career academy be professionally long form job training certificates.
We're growing that portfolio quite quickly.
It has just really resonating with governments are trying to get people trained for jobs and are looking for an affordable way to do that with good quality and good brands and then frankly academic institutions, who are seeing competition from others and saying if I'm going to track student I've got it I've got to provide something that make them more job ready when they graduate industry Mike.
Well credentials is becoming quite a buzz word around the higher the academic space.
Not to say, there's no competition, but we really feel good about our competitive position in both the campus environment. The government environment <unk> honestly not really much change that we've seen.
Nothing stands out as being.
More exceptional than these macroeconomic factors that we're talking about.
So Jonathan just to add on briefly confirmed one piece.
So it would be more pushing out of lack of closure in particular in Europe . That's what we've seen not that we're losing to competition a little hesitant to say, it's pushed out and delayed because of deal that doesn't happen might not ever happened right being realistic, but we're not losing.
It's just we're not closing immediately and again that effect primarily in Europe .
Got it thank you.
Yes.
Your next question comes from the line of Ryan Macdonald with Needham Your line is open.
Hi, Jeff and Ken Thanks for taking my questions.
Question on the consumer segment, you talked about some pricing experiments during the quarter that perhaps had a bit of a negative impact or not impact youre expecting can you can you provide a bit more color on what youre doing there and perhaps corrective actions youre, taking that gives you more confidence in sort of a back half step up in the consumer revenues like you're implying in the guidance.
Sure no problem, yeah, well, there's a number of pricing.
In packaging experiments that we ran.
Some of them, which came through some work we did in India with some shifts in how we handle subscriptions within certain credit card rules, there, where we saw some promise actually some improvement in some of our metrics related to revenue and so we ran experiments in other parts of the world primarily Europe and.
Instead, we saw a decline and as a result, we changed those back to what we were doing so yes. So a hit this quarter on an ongoing basis, we expected any ongoing effect from them, although we corrected it and.
And we did take some steps to young company. We are growing we are trying to be as aggressive as we can in figuring out where there's opportunity for growth.
But we are insuring.
A few new sign ups as we look at future experiment. So.
Tiers for the team for looking for more growth and we've upped the operational game a little bit in that group. So that will not have a recurring effect beyond beyond their forecast.
Ryan This is something that we actually saw in Q1.
Ran some tests in Q1.
This was pretty interesting it might be a way to stimulate.
<unk> paid learners with albeit potentially a risk on the retention side.
And the things that we should run at a little bit more broadly. So basically we took something that worked in Q1, we ran a little bit more broadly in Q2 basically in May we said that we don't like the back end of this on the retention side, we should hold it back to Ken's point.
There'll be some persistent with diminishing effect over the rest of the year and so we factor that in.
Excellent Thanks, and maybe just a follow up on enterprise, obviously, you talked AD nauseum about Europe and sort of delay of deal I'm. Just curious when you talk with your customers what youre seeing in terms of head.
Head count and retention there obviously, we've seen in sort of May and June start to see some tech layoffs.
And mass in the U S and some hiring freezes just curious what youre hearing in terms of potential expansion opportunities from us from a pure head count perspective at your existing customers.
Sure. Ryan. This is one I think that is a little bit more specifics coursera generally speaking when we sell into companies, it's a higher price tag than the competition. It is usually not an enterprise license agreement that covers all hedged based on the number of people usually by seat licenses at a higher price for our target population.
Generally a small portion of the overall company.
Often what theyre doing is theyre upskilling people in very high demand rolls like data science and tech.
Like digital marketing and things.
So.
I think with respect to overall layoffs.
I don't think that thats going to impact our revenue.
Sort of revenue retention, if you will of enterprise accounts, because we don't typically have those broader enterprise license agreements I mean, it might certainly have caused a pullback and maybe you might be seeing some of that in terms of new spender or sort of cross selling into other organizations.
But anecdotally.
We are certainly seeing customers have their organizations restructured downsize.
In some cases.
The point of contact that we've had are being moved around so it looks like and again in Europe .
There are there are changes that companies are making that seemingly.
In response to the environment, that's really pretty anecdotal.
I Couldnt give you an exact count on that.
Thanks for the color.
Sure. Thanks, Dan.
Your next question comes from the line of Jason <unk> with Keybanc capital markets. Your line is open.
Great. Thanks for fitting me in.
Can you just talk a little bit about the linearity of the headwinds that you saw him by segment, how they kind of developed in the quarter did these materialized earlier early on or towards the end just trying to understand kind of how it played out.
Yeah, I think that this is going to be different by segment.
One of the things about enterprise is it's typically very back end loaded that's kind of when the deals get done. So you don't get a lot of visibility into the last usually a few weeks on consumer it's a little bit more continuous and then degrees frankly is based on what are the what are the close dates for the application process and so.
Cross each segment the dates are a little bit different but generally is backend loaded on on enterprise towards the end of the quarter.
Yeah.
As I mentioned.
On the consumer side, it was sort of a gradual.
Sort of.
Recognition of the conversion rates in Europe , and then these pricing test, which are kind of midway through the quarter.
<unk>.
Enterprise, we didn't really see anything until more of the later part of the quarter, because we still get a lot of it a lot of visibility is not equal in linear process in.
In light of degrees it was more sort of the cohorts and seeing are they filling up or not when the closed its kevin anything you'd add to that no I think that captures it exactly.
Okay, and then just to clarify the third quarter guidance I imagine in the Santos.
<unk> trends to kind of remain consistent.
Worst.
Alright.
Any thoughts there.
Yes sure.
Of course, we did forecast with all available information, where we think the trends are going it also depends on segment as Jeff referred to the same this visibility.
It depends how we do each of those existing but we assume we made assumptions on all of the key factors that conversion rates.
And certainly did not factor improvements on any of them.
It's important for us to hit our numbers for this quarter is a little bit painful.
But we took into consideration everything we know and did not assume anything in an optimistic fashion.
Great. Thank you.
Thanks, Jason.
Your next question comes from the line of Terry Tillman with <unk> Securities.
Your line is open.
Yes, Thanks for fitting me in as well on the call I had a couple of quick questions I'll try to make a brief.
So we've got about a 10 percentage point downtick in enterprise revenue and I'm not trying to harp on that but youre talking about enterprise sales capacity expansion in quota carrying head count expanding so it's kind of interesting that those are happening at the same time is that enterprise sales capacity lever to the European market, where it seems like the softness or is it.
Another markets, where it's more resilient and how quickly could that provide some offset in terms of assuming they become productive and then I had a follow up.
Yes, it's a great question so we.
So the answer is yes, the performance by the reps is varied by region.
And by reps and byproduct as Jeff mentioned before secrecy, which we're very excited about has been slower in Europe and so as we look we will reallocate quotas, we have not pulled back on the number of reps were on an overall basis happy with the performance of the reps and anytime you have a slower quarter.
Of course, you have lower productivity, but it's the one thing we're not cutting capacity because we have any doubts.
Productivity going forward, we certainly did see variance by region.
Typical and so performance in Europe was weaker as one would naturally expect with results that werent as good.
That's what we've seen we've seen a bit of variability by product correct as the reps are stripes by product and a little bit high region.
Okay and final question and then thanks for that but the final question and thinking about kind of positive opportunities. Their career Academy, maybe you could talk a little bit more about the actual pipeline. How many are signed up in terms of kind of reference customers of the ticket size for career Academy. Thank you.
Yes, sure it's Terry.
Career Academy, we launched it on May 5th at conference.
So it was really pretty much.
Two thirds of the quarter, maybe half the quarter that was out there.
We're pretty pretty happy with the progress kind of right out of the gate.
It is a it is a sort of a narrowly specified product that's kind of the base cleanup AD industry micro credentials for your students. So they can get jobs when they graduate.
The average ticket size I would say, it's a relatively limited number of pieces of content that longhorn usually 50 to 75 hours fees professional certificates, but it's about 22 professionals or did it gets out of a catalog of 5000 towards a much more focused part of the catalog.
And it is a <unk>.
Much more sort of simple and standardized offerings the average ticket price.
<unk> is lower than our standard one because it's a more focused offerings.
And we are expecting and so far the evidence suggests that this is the case that the ability to to move deals through the pipeline for career Academy will be a little bit quicker because it's a simpler it's easier it's a little bit less expensive.
And there seems to be a residents of this idea of AD industry micro credentials to help my students to compete for students and then help my students get jobs when they graduate so.
I think we're looking at some favorable characteristics, although to your point and what I was kind of trying to allude to one of the earlier calls.
If the average ticket price comes out we could see an increase in the number of deals signed clients.
But that might grow faster than the overall revenue if the average size of the ticket is lower.
It's likely going to be with career Academy at least in Coursera for campus.
Okay. Thank you.
Yes.
Your next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for taking my question.
First one on the enterprise side I don't think you guys have added lessons reminded at enterprise revenue in the quarter since <unk> 'twenty.
If you add $3 million or <unk>.
Call it 49% growth for the year.
So I guess what is with the mid 40% guidance is that a result of conservatism that you expect to increase churn and.
And to that point, we've seen a lot of companies flagged deal cycles lengthening have you seen that across.
Of course that if a business campus.
Or government.
Yes.
Yes, again, it's not.
It hasnt been renewals and new bookings, where it's been slower.
On the revenue side again, primarily Europe .
The.
With a little bit across the board we've seen the effect.
<unk> and <unk>.
<unk>.
But both are doing well it was a deceleration versus historic week stellar.
We still are confident in the enterprise business, but want to be clear about that we feel very good about where we are and the additional products for introducing so I wouldn't read into this a broad weakness in our enterprise business. That's not what we believe we're seeing we think we've seen some slowdown in region.
And again, we're continuing to it's the one area we've chosen to continue to invest particularly as we rightsize some of our investments going forward.
Does that answer your question is there anything more specific.
Yeah.
Yes.
That helps.
And then another question on just the segment margins I think the consumer segment margin has kind of continuously.
Maybe for foreign outperformed your guys expectations definitely mine it seems like that mix is really.
Staying at the industry side from a content perspective.
I guess is that something you expect to persist, especially as you seem to ramp more of the business towards the entry level professional certificates.
And do you think it's maybe unemployment ticks up youll see the university content, maybe see that uptake a bit more how should we think about that dynamic.
Yes.
Generally say on the consumer segment, it's kind of just what kinds of content are individuals around the world looking for these days it seems.
Seems like what we're seeing is people are coming because they wanted to get a new job a lot of people wanted to become data analysts and computer science and people, who make money and have more flexibility in their job.
So a lot of that kind of content does skew towards industry.
I think that if we continue to see growth in consumer because of people looking to start and switch careers, which is what we've been seeing and that has not abated.
Obvious reason why it would abate the kind of content that they would be looking for is this sort of <unk>.
Career switchers professional certificate content.
So yes, I remember when we first started talking about this is we started seeing is showing up in may with Q2 of 2001. It has continued to not just persist but grow a bit.
Less consumers switch away to a different kind of content I think it will persist.
I do want to say that we are we are reinvesting a lot of the money into supporting and promoting these programs and so we're trying to build up the best fastest one of the best set of entry level professional certificates as possible, we're marketing them pretty heavily and so what's not showing up on some of the content fee cost of <unk>.
Outline is showing up a bit on the sales and marketing where we're promoting these and also someone R&D, where we're capitalizing some of the cost of the content development. So it's not that at all we're just naturally be falling to the bottom line. We are reinvesting some of this and building up more content and making sure that we really promote that because we just think that this is a time.
When a lot of people are looking for this kind of content and frankly, the kind of content is pretty unique to coursera I mean generally speaking.
No I agree.
Maybe just quickly one last question on <unk>, plus I think last quarter.
$30 or.
North of 30% of the consumer revenue.
Was there any weakness related to of course are a plus and I guess any update on how that metric as a percentage of consumer revenue.
So there was no specific weakness in core surplus Christa Airbus has grown throughout this year.
It's still north of 30%, we are not looking to give specific guidance on the coarser plus.
Composition of the total.
Ongoing basis, but general colors, where we'd like to provide.
I'll confirm were north of 30% to 30% and it's grown throughout the year. So we feel great. It's continues to be adopted where does it cap out we don't know its great revenue, it's nice to have.
Recurring revenue it makes it easier for the consumer team to continue to grow their revenue.
So that's been great but.
So all of those all of those wells in Coursera plus.
Awesome, Thanks, guys I appreciate it.
Sure great. Thanks, Brian that wraps the Q&A a replay of this webcast will be available on our Investor Relations website, along with the transcript in the next 24 hours. We appreciate you joining us today.
This concludes today's conference call you may now disconnect.
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