Q2 2022 Udemy Inc Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Yeah.

Thank you and welcome to <unk> second quarter 2022 earnings Conference call with me today are Greg Qatari, Eaton's, Chairman and Chief Executive Officer, and Sara Blanchard.

To me the 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 that could cause actual results to differ materially from those discussed or anticipated.

For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

Our forward looking statements are based upon information currently available to US we 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 from comparable measures contained in our financial statements prepared in accordance with the U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist man.

<unk> and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release, a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is <unk>.

<unk> 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 afternoon, everyone and thank you for joining us.

Q2 was a very strong quarter for year to date.

Continuing our momentum as the <unk>.

That form with exception of breadth depth and reach for loosening structures around the world, who seek to improve lives and business outcomes through learning.

In a changing labor market.

Highly skilled talent is scarce and increasingly valuable.

<unk> platform for Reskilling and Upskilling.

Has become mission critical for businesses and individuals.

The added tailwind of hybrid and remote work as well as digital transformation are further driving <unk> adoption.

But what makes you to make truly unique.

Unsurpassed quality of our content.

Nurse currency year to me, because thats, where they learn best.

That's why we win.

We hear this directly from lenders for example, we were thrilled in June would stack overflows annual survey of nearly 30000 developers who are around the world found that two thirds of the responders selected <unk> as the most popular online course or certification program for Larry.

How to code.

This truly incredible result reminds us of why we do what we do.

How people learn valuable skills like coatings, so they can advance their careers explore new opportunities.

<unk> really change their lives.

We saw strong execution this quarter with revenues of $153 million up 21% year over year.

We delivered another quarter of outstanding business performance with year over year revenue up 77%.

$316 million up 74% year over year.

We now have over 12000 <unk> business customers.

And for the first time year to date business revenue exceeded consumer revenue in Q.

As we've outlined on previous calls our year to meet business loading platform has expanded beyond on demand courses to also include additional learning methodologies to further engage the alert.

Help them interact with the as sector and their peers.

In practice and test their knowledge.

During the quarter, we signed our largest deal in using my history, a multi year existing customer renewal deal with a large global professional services firm encompassing all three revisits learning methods.

These included.

Our on demand learning via our marketplace, driven curated course content.

Cohort based learning via our Corp, you operate.

And immersive learning via our year to date business pro offering with labs Workspaces and assessments.

We also saw some early but encouraging signs of stabilization in our consumer business in Q2.

After adjusting for FX impact consumer revenue declined by 2% year over year in the quarter.

As I look ahead to the second half of the year. Several key drivers will help position us for further growth and expansion.

First our ability to grow at scale with a large market opportunity ahead of us as enterprises increasingly embrace upskilling and reskilling.

Second.

Our expansion into larger enterprises as they tap into a broader set of <unk> products and learning methods.

And third the customer centric.

Driven product innovation.

That we're delivering to individuals and organizations as we continue to invest in our marketplace to support our 71000 instructors around the world and the nearly 5000 new courses they produce every month and year to date.

That said.

We continue to see a more volatile and uncertain macroeconomic environment, which has already impacted our consumer business.

As we've noted in previous quarters.

While these are forces beyond our control we believe that these macro factors will drive more organizations to prioritize cost effective training reskilling and upskilling their workforces.

Additionally, the current economic environment positions us well.

We have a high and measurable ROI and also rapidly deployable.

Our strong employee engagement also demonstrates the immediate impact of bottler.

We believe these factors promote a certain level of resilience countercyclical lender market.

Will help us weather the coming months as organizations prioritize this thing.

Let's dig in a little deeper into three of our key performance areas this quarter.

First I'll speak to <unk> business, where we saw very strong global and enterprise demand as well as solid go to market execution.

And more importantly, significant ROI for our customers.

Second I will discuss our ongoing work to promote a vibrant and healthy marketplace, including supporting our instructors.

And third.

Detailed the product interface that we are bringing to our customers and the workforces they support.

Let's start with you to meet business.

Our record <unk> of.

$316 million was up 74% year over year in Q2.

Driven by strength across all regions in multiple verticals, including professional services technology and manufacturing.

Our unique business net dollar retention rate this quarter was 118%.

As we continued to see success and growth in our land and expand strategy.

We delivered 79% year over year growth in customers with over 100000 in IRR and 60% year over year growth in customers to handle over $1 million, reflecting continued success in the enterprise.

Multiyear deals now represent over 40% of total IRR a.

A strong signal of <unk> mission critical value with larger organizations.

As I noted earlier.

We signed our largest deal in company history in Q2.

This record deal was a significant expansion with a global professional services company and a multiyear deal encompassing the full range of Vietnamese business products.

On demand cohort and immersive learning.

The deployment of both cohort and immersive learning methods in tandem with on demand learning demonstrates how <unk> serves as a learning partner with a comprehensive end to end learning platform that can be tailored to help achieve specific business goals.

We're thrilled to work together with this customer to bring <unk> to even more employees in the organization.

Just a couple of weeks. After this deal closed we signed our second largest deal in <unk> history.

A competitive displacement at a multiyear deal with a large global services and consulting company, who will deploy <unk> learning to over 100000 users along with 25000 unique business pro licenses.

This company will use you to meet to help increase leadership technology.

In data science skills across their organizations with ample opportunity to scale, even larger as they seek to deploy more learning methods.

Including cohort based.

Tailored learning journeys to drive organizational change leadership excellence.

Where organizations are choosing giving me business, because we sell them tangible measurable results.

For example.

Booz Allen Hamilton, a global firm, providing world class industry, leading expertise across industries utilizes unique business for their upskilling efforts.

Using Italy business to power programs with thousands of data scientists.

Nearly 94% of Booz Allen Hamilton learners are now highly proficient and data science.

And they're usually train graduate now have a 93% employee retention rate.

On top of that Booz Allen has a 3% increase in consultant availability since beginning their work with <unk> business.

These measurable results are wide customers continue to expand and grow their footprint with us.

Especially with highly technical content like data science.

Further proving out our land and expand model other existing customers growing their <unk> offering this quarter include coal.

Colgate Palmolive.

Lululemon Athletica.

Volkswagen Group China.

Tibco software.

Bosch Global software Tech and global.

And new customers this quarter include.

Broadridge financial solutions.

Samsung Sds.

<unk> U S.

Android Brazil.

<unk>.

We continue to see strong uptake internationally across multiple regions, including APAC.

We're through our partner Ben say, we support the Tokyo Metropolitan government and their efforts to accelerate the digital transformation of small and medium sized enterprises and Tokyo.

By the end of March 2023, easily and <unk> will provide over 250.

Tokyo based Smes with skills courses and Japanese to support digital transformation.

<unk> growth is also fueled by expanding partnerships.

Our partners range from other businesses offering gives me courses as an additional product to their customers.

As well as other online learning platforms that use <unk> course offerings as a way to up level the content portfolio and further serve their lenders.

For example, we've partnered with some total.

Global leader in talent acquisition.

Onboarding.

Learning management and talent management solutions.

Enabling them to sell yearly business content through their learning management experience platform.

This coupled with our sum total <unk> business integration.

Divides sum total customers with a streamlined purchasing process and access to get in the courses.

And in Latin America, we partnered with E class.

Online learning platform in Chile.

Enabling them to resell <unk> business courses.

As we look ahead to Q3, we believe that the global market and demand for online learning will help drive strong year to meet gives us growth over the long term.

Since launching just seven years ago gigabit business has quickly scaled to over $300 million.

RR.

With a revenue CAGR of 90% plus over the last three years as our marketplace content and instructor flywheel has provided a powerful foundation for organizations learning and scaling.

With <unk> businesses predictable revenue stream eclipsing our consumer business in June .

We look forward to continuing to drive this momentum and expanding into larger global and domestic organizations.

So let's move on to the second area of focus in my remarks today.

Our work to support our instructors and learners and building and growing our vibrant and healthy marketplace.

And structures of the foundation of everything we do here at <unk>.

The power of our marketplace with dynamic content that helps grow careers and enable unique learning paths for over 54 million learners that usually.

Our instructors also encompass a truly global footprint.

Banning learning across over 75 languages.

Thank you Jimmy and it's instructive succeed together.

Our team takes an active role in partnering with instructors to help them broaden their global reach and impact.

As well as their earnings.

For example, <unk> carriers is the India based web developer instructor and year to me, who helps prepare students and over 200 countries to succeed in AWS.

Global cloud and other certification exams.

In June we ran guys surpassed 1 million students worldwide.

Key credit the support he received from <unk> constructive partner team with helping us reach this incredible milestone.

Our instructor successes, our success and we know it is vital for us to nurture. These relationships. So the highest quality instructors continues to choose you to me as their teaching platform.

It's not just the quality of our instructors that matter is their ability to rapidly produce high quality content.

Example in.

Version of the AWS certified solutions architect associated exam.

Place the current exempt this much.

To help employees and individual learners around the globe successfully prepare to achieve this certification.

It'll be instructor Sean drilling them.

Has had it for six rated gives me course available on this updated certification since April .

Showcasing the freshness and relevance of our content offering.

More than 10000 learners have taken this course to date.

And speaking of content.

According to our Q2 global workplace learning index.

Courses to help individuals improve their test taking skills. So a nearly 300% increase in course consumption in the U S compared to previous quarter.

Signaling the importance professionals place and preparing for certification exams.

And providing their knowledge of various software skills.

We are proud of <unk> role in helping individuals prepare for these important milestones in their careers.

Now, let's move on to the third area of my remarks today.

<unk> continued product innovation.

This quarter, we saw this in action with <unk> business.

It will be rolled out our skills insights dashboard, enabling customers to unlock learning insights within their organization.

We also introduced 18 new labs.

Or in course workshops, and six updated gives me pads and <unk> business grow.

These new Rollouts were implemented in response to a direct consumer feedback and reflect the wider consumer centric approach to our product development.

This approach is a large factor in why new customers come to you Randy.

Our existing customers expanded their relationships with us.

And in our marketplace, we're driving higher conversions with five new payment methods in Belgium, Malaysia, Singapore, Philippines.

Improved search ranking for our users and algorithm optimized personalized discount promotions.

We're also expanding our subscriptions footprint with personal plan subscriptions now available in 100% of users in the U S. Great Britain, Australia, and South Africa.

Yes.

Lastly, we launched the bulk coupon creation tool that enables instructors to market their courses more effectively across our global community of learners.

Together with continuing to build the best and most innovative learning company in the world. So that our customers realize the best possible outcomes and ROI from learning community.

Our customer centric approach to product development aims to provide the best experience for learners.

Highest monetization opportunities for our instructors.

And the most flexible and effective way to Upskill and Reskill employees for organizations.

Before I conclude I'd like to cover two important areas of investment for us at year to date.

Our ESG goals and partnerships.

Second.

Our equity and inclusion initiatives to help anchor our company mission.

Workforce culture.

Turning first to ESG, where we're currently rated in the first percentile for ESG risk ratings in our industry category last year by the ESG research firm sustainability.

I'm excited to announce that we recently launched our first ESG impact report in Q2.

Highlighting our ESG efforts and spotlighting, how we support our learners instructors customers and communities.

You can find the report on our ESG website and I encourage you all to take a look.

This impact report marks the first major step in telling our ESG story to a larger audience and we look forward to expanding our dialogue with relevant investors partners and nonprofits in the coming months.

I'd like to share with you the incredible impact we've seen with one of our nonprofit partners the last mile.

An organization that provides incarcerated and formerly incarcerated individuals access to resources to thrive in today's rapidly evolving shop market.

Since 2019, the last mile has used year to meet the setup learning paths with specific objectives and groups has successfully helped over 150 program participants learned coding workplace skills for successful reentry into the workforce.

Elisa.

Who had served a prison sentence from 2018 to 2020.

Signed up forgive me business courses to the last mile program.

To learn coding and opened doors to a new career.

Fast forward two years to lease and now teaches others from her community how to code and has used the <unk> to meet to secure our role as the lead web designer at the Indiana Department of corrections.

We're also excited to continue our partnership with upwardly global.

Upwardly global helps eliminate employment barriers among skilled immigrants and refugees as they integrate with the U S workforce.

Italy has partnered with a fully global since 2020 to provide access to resources that can help individuals prepare to past industry recognized certifications and secured new jobs.

Take Maria a business analytics professional originally from Jamaica.

Following her upwardly global job coach recommendation.

Where we have completed several data analytics courses through the <unk> business platform.

Including Microsoft Excel business intelligence with power query index.

In machine learning for data analysis regression in forecasting.

Soon after adding our new skills and of course certificates to her Linkedin profile, a hiring manager reached out to her to schedule an interview.

Where we are past the interview and was offered a business analysts role at the company.

These are just a few examples of the way you to me, it's improving lives to learn.

Growing a successful business always comes down to talent and culture.

And that year EMEA I'm proud to say that we continue to attract and retain our valuable employees.

As we move forward.

We continue to fuel <unk> business growth with targeted tolerant estimates.

Typically in sales and customer success.

Though we remain confident about our business trajectory.

Continue to hire to support growth.

We're also honing our resource allocation to remains which typically efficient against the macroeconomic environment.

It is a balance we take seriously.

Our unique culture, our diversity equity and inclusion commitments and our company's mission to impact careers and lives for the better help us higher than retain a truly passionate and talented team of <unk>.

And we continue to be recognized as a top employer.

I'm proud to share that this quarter.

Place to work Ireland.

On its 2022 lists of Ireland's best workplaces in Tech.

A wonderful build upon our great places to work award in Ireland last quarter.

We're also excited to share that fair pay workplace has certified <unk> as a company achieving pay equity.

This important certification means that we are committed to using the most trusted and transparent message to annualized pay equity by race gender and their intersection to ensure ongoing pay equity for our employees.

To conclude Q.

Q2 continued to demonstrate that our symbiotic model is working.

Growing and supporting our content on the union marketplace benefits learners and instructors alike.

And drives high quality global and broad content forgive me business customers and organizations.

The strong topline growth of <unk> business in turn helps fuel further investment and growth in our marketplace content creators.

This ecosystem is not only unique to the industry, but it has helped us surpass over $300 million in recurring revenue in Q2.

With an enterprise scale and recurring revenue business model that is firing on all cylinders.

Due to me is disrupting learning through our unparalleled platform and rapidly scaling SaaS business.

Improving lives to learn is our mission.

And we are proud to bring together our 71000 instructors over 12000 customers in growing roster of strategic partners to deliberate worldwide.

Together, United in our commitment to Upskilling and Reskilling, we are activating positive outcomes for our businesses and individuals even in the face of economic uncertainty.

With that I'll turn the call over to Sarah to dive into the numbers.

Thank you Greg.

Yes, Greg we had a very strong second quarter, driven by continued momentum and execution and our need to meet that.

This is evident in our exceptional youre doing business aircraft in Q2 of 74% versus the prior year with you to meet that customer growth up 44% from the prior year.

<unk> business continued to perform well across a broad array of verticals and geographies.

This is total revenue of $133 1 million was up 21% year over year and up 1% sequentially.

I need to meet that does net dollar retention rate was 118% this quarter within our expected quarter to quarter range highlighting the continued success of our land and expand strategy.

Business revenue was $74 6 million.

77% from the prior year, demonstrating our consistent and sustained growth at this scale.

Our consumer business delivered $78 5 million in revenue down seven.

From the prior year.

As Greg noted earlier, we found crushing so early signs of stability in our consumer business, which was down 2% year over year, when excluding the impact of buybacks.

While macro uncertainty still presents some degree of volatility in our consumer business and outlook.

Is important to note that we continue to see the consumer marketplace is fundamentally healthy.

We are encouraged by the stabilization of topline performance at Lasalle detail.

We continue to Adam Schechter, and thousands of course with monthly.

And our marketplace serves as a vibrant and John that Phil.

Yep.

The symbiotic that some of these two parts of our best thinking.

As a unique and differentiated model that we believe will continue to drive the topline.

Topline growth over the long term.

And the remainder of this call all financial metrics are non-GAAP unless stated otherwise.

Q2, gross profit was $89 million up 27% year over year, driven by Eva Mendes.

Gross margin was 68% of revenue up from 56% in Q2 of 2021.

This margin expansion was the result of the continued revenue mix shift can you hear me better.

On consumer.

Moving to Opex total operating expense was $101 7 million.

Or 56% of revenue.

Compared to 60% and secured last year.

Sales and marketing expenses represented 41% of total revenue.

Compared to 39% this quarter last year as.

As we continue to invest in our strong growth and clear ROI immediately business by expanding our go to market and enterprise marketing team.

R&D expense was 13% of revenue up 234 basis points year over year.

We are continuing to invest in building out a comprehensive planning platform.

Of our marketplace content engine.

Our focus is on building out the set of capabilities that allow our learners for Keith or quick question, Paul and the way that works best for them.

This includes continuing to build out commercial learning experiences like lots of necessity.

But also investing in the ability to more clearly align with skills needed to achieve professionalized question.

With a capability to guideline or through their journey.

These investments include three core areas of innovation.

First our proprietary cell craft that natural courses and scale to realize professional aspirations.

Well first one stays on yearly basis.

Then we will launch them as a part of our consumer offering.

Second we are fueling these skills graph with sophisticated machine learning and AI model.

It can personalize the learning experience for each individual.

Finally, we launched clear guidance as part of our consumer subscription offering.

We expect these investments to improve our experience provide more tangible outcomes for learners and customers and increased LTV over time.

Rounding out our discussion of operating expenses.

G&A expense was 12% of revenue versus 10% a year ago.

Net loss for the quarter was negative $13 6 million or <unk>.

Negative 9% of revenue.

Adjusted EBITDA was negative $8 6 million or negative 6% of revenue.

In Q2, we made the decision to pull back a bit on our direct response marketing side, which positively impacted our adjusted EBIT.

As always we continue to be disciplined on the efficiency of our marketing spend while also investing Robert declare and worthwhile growth opportunities.

Free cash flow.

The $6 5 million perfect positive $2 7 million a year ago.

Moving on to the balance sheet.

We ended the quarter with $512 million of unrestricted cash cash equivalents and marketable securities.

By segment.

Free cash flow of $6 5 million perfect positive $2 7 million a year ago.

Moving on to the balance sheet.

We ended the quarter with $512 million of unrestricted cash cash equivalents and marketable securities.

By segment consumer revenue was $78 5 million.

Down 7% year over year.

In the second quarter were approximately $1 3 million monthly average buyer.

It was down 2% practicing ergo.

Consumer gross profit with $42 3 million or 54% of consumer revenue.

Proximately 20 basis points higher than in Q2 2021.

Gross margin expansion was driven by lower consumer campaign in the quarter as a percentage of revenue.

As a reminder, in our consumer transaction business.

Chuck your costs are recorded immediately but the revenue is recognized over a four month period.

We also added 2 million, new consumer and business planners, bringing our total mer interface to $34 million.

As a reminder, we define <unk> as someone with embark and spent time running on the platform.

<unk> business continues its robust growth with Q2 revenue of $74 6 million up 77% year over year.

We ended the quarter with over 12500 <unk> to meet that this customer up 44% from a year ago.

We think this is also crossed the $300 million era in Chicago in.

I think in the quarter at $316 1 million up 74% as compared to a year ago.

Gross profit was $49 9 million or 67% of revenue, which represents a roughly 120 basis point increase year over year.

The improvement was primarily driven by a decrease in yearly basis constant cost as a percentage of revenue.

Revenue.

Let's now turn to guidance.

Looking ahead to the third quarter of fiscal 2022.

We expect revenue to be between 133 and 150 719.

As mentioned earlier, we continue to check.

Great.

Becoming a majority of our revenue in Q3 of SCR.

I would like to provide a little more color on our Q3 guidance.

While we are encouraged by the stabilization of our key to consumer performance.

Our consumer business continues to be affected by some of the larger macroeconomic factors that have impacted our consumer growth over the last several quarters.

We believe these headwinds remain heading into Q3, and we will continue to put some pressure I think Democrats in the near term.

We do expect our marketplace to continue to be healthy and a credit for that.

Growth in <unk> business remained strong and we remain very excited and encouraged by the rapid revenue expansion and strong net dollar retention.

For the third quarter, we expect an adjusted EBITDA margin of negative 14% to negative 12%.

Given the growth and opportunity within the best that we are continuing to make targeted investments in R&D and go to market initiatives, which are factored into our Q3 operating expenses.

Turning to our full year 2022 guidance.

Full year revenue to now be between $650 million and 640 million.

Compared to a range of $610 million to $640 million previously.

Our full year adjusted EBITDA margin guidance remains unchanged and we expect a range of negative 12% to negative 10%.

Before I wrap up I'd also like to announce that we will be holding our first investor analyst day on November 16th.

We'll be hosting it virtually and hope you all will China. Please save the date.

To conclude our Q2 performance demonstrated the strong growth and momentum, obviously, better and the symbiotic relationship with our marketplace.

The continued growth in recurring revenue coupled with strong net dollar expansion underscores the massive opportunity in front of us to help organizations and people change lives through language.

So with that we'll open up the call for Q&A operator.

If you'd like to ask a question at this time, you will need to press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Brent Thill with Jefferies. Your line is now open.

Hey, Thanks for the question guys.

Hi, Brett.

Brent can you please re queue.

Thank you sorry about that Brett Your line is now open.

Hey can you guys hear me.

Yes, we can.

Thanks for that David spoke on for Brad I appreciate the questions.

Greg I wanted to start you talked a little bit.

Opening remarks about.

Shifting budgets I guess from online to offline to online rather I think a lot of folks out there a little bit worried about pressure on LNG budgets.

As we head into a tougher macro I'm curious as you think about potential pressure on budgets do you think that encourages the shift of dollars from offline to online.

Yes, we actually do.

Still 80% of the of the online of the training today is in person and we know with remote work.

We know what the remote workforce, that's very expensive and it's more difficult. So we are seeing some budgets that are being cut back, but actually are theyre, adding more seats theater. It because we have a very effective cost effective.

Our Hawaii business and so we've been doing very well in this environment.

Okay.

That's helpful and just maybe just a follow up.

Can you remind us about your sales cycles.

A typical timeline have you guys noticed any changes in that over the last couple months. Thanks.

Really it's way too early for us to have seen any impact in that it's been bill. It was very consistent over the last couple of quarters. So we have not seen that.

Lengthened at all in our normal sales cycle. It really depends on size companies smaller companies, we deal within a quarter the larger companies six to 12 months.

Great I appreciate it guys.

Okay.

Our next question comes from Rob Oliver with Baird. Your line is now open.

Great Great. Thank you. Good evening can you guys hear me okay.

Yes, we can hi, Ralph.

Great.

Greg Hi, Sarah Thanks, just forget that double check.

So.

But obviously a huge quarter for you guys on <unk> with some major signature wins would you you called out Greg in your prepared remarks.

This tantalizing to focus on both of them, but I'll just focus on one and then I had a follow up on that on the second largest deal which came on the heels of the largest deal which you characterized as a competitive displacement I was wondering if you could add a little bit of color around the RFP process, what's some of the salient points were.

<unk> was chosen and was there a side by side trial period I know you discussed in the past you guys have mentioned often you run side by side with competitors any color there would be helpful. And then I just had a quick follow up.

Yes, I believe it was.

It was a head to head tests that went on.

Significant number of months and so normally that's in these larger companies will be careful they'll do head to head tests, and we had much higher engagement and.

Led to that deal.

Great. Okay helpful and Sara for you just on the.

Consumer side.

Yes, I think you guys were fairly clear you saw signs of stabilization.

In other words, and there's still some unknowns.

So we just wanted to get a sense from you I guess on some of the newer initiatives there in particular, perhaps the consumer subscription offering.

Peers, you guys mentioned, how you've rolled that out now broadly in the U S. I think I heard.

It appears you guys have settle around that $30 price point per months with but what struck us as a newer option at a significant discount for upfront pay can you talk a little bit about how that's going early reads on that and if those economics are right and then.

The corollary to that if we can expect you guys will tweak that consumer subscription pricing similar to the pricing we see the levers you guys pulled around your one off course solutions. Thank you.

Yes, great questions. So youre right on the economics, there and it's too early to tell its pretty early that we launched that annual plan. So I would say too early to tell but we are rolling out and we expect pretty broad rollout across most of the major markets in the back half.

From a pricing perspective, we're always testing we've discussed before that we have that's really sophisticated.

Pricing algorithm for our transactional sources.

And we will probably be doing some testing on a consumer subscription side, but we're not there yet.

Great. That's helpful. Okay. Thanks, again, guys I appreciate it.

Thanks.

Our next question comes from Terry Tillman with <unk>. Your line is now open.

Yes, Thanks, Greg and Sarah and congrats on the <unk> traction I just had a couple of questions. It seems like with UV pro and some of these enhancements like cohort learning immersive learning I think you all mentioned that those were added to some of these kind of signature wins in the quarter or renewals.

It seems like this could be a pretty meaningful uplift on Ub deal. So.

What is the typical uplift youre seeing so far where you'd be pros being attached and then how much have you actually kind of made this programmatic selling and gone back to base and comfortable in selling our new deals and then I had a follow up.

Hey, my questions. So we are still as we've discussed kind of seeding the market with these on some of these upsells really are smaller portions of the seats, while our customers are testing it out and I think they are ramping nicely, but too early to sort of give any uplift numbers, we are and have been.

In terms of enabling our sales force to sell kind of a solution set to our customers comprehensively.

We're hoping to continue to see that ramping and taking hold over the next few quarters.

Okay, Great and maybe a follow up I don't know if this is for you or Greg, but I'm kind of curious about like network effects on your business now, particularly in Asia Pac you seem like you have some interesting Doug. It's of course every quarter. So I think you are setting a precedent whether you like it or not.

You all had some large Japanese corporation deals now youre working with municipalities, whether it's Japan, or maybe an update on South Korea or China.

How would you kind of characterize where you are maybe creating these kind of halo effects of network effects, where you are becoming kind of like a brand of choice in those markets. Thank you.

Yes.

Absolutely believe that there is a network effect to this business that that as we are very well established in Japan, Japan continues to be one of our fastest growing markets. Our relationship with <unk> is very strong and we're building it out and it's it's very exciting to be around but it's also helping us in Korea.

We've only been there for two quarters, but we are really.

Reached 100.

We reached 1 million ALR.

Q2 in the second quarter in South Korea, but we also have a couple of large corporations to so we've got a couple of anchor tenants and so we feel real good about that in Japan, and excuse me in China.

We're building the pipeline, but it feels very strong it feels very good. So we are seeing network effects in Asia for sure, but I think we've seen this historically in other places.

Okay.

Thanks.

Okay.

Our next question comes from Jason <unk> with Keybanc. Your line is now open.

Hi, Thanks, This is actually Devin on for Jason Tonight.

It sounds like any business is firing on all cylinders, but just given the macro backdrop in Europe and a lot of investors are zooming in on that I'm curious to hear what youre seeing in that region.

Give me a business are you seeing deals getting delayed or pushed out just curious to hear any color.

I'm sorry on that.

Yes, we actually had a very strong quarter in EMEA and <unk> business. So they have been consistently very very strong for us and so we had another very good quarter. While we did see was a little softness in the small business.

Segment, so that the first time, we've seen a little bit of that and but other than that the large corporations. The large enterprises did very very well. So it was just one segment of Europe was a little bit soft.

Got it that's good to hear and then just one more.

I know theres a lot of emphasis on profitability by investors recently has there been any sort of re evaluation to your enemies strategy or framework around profitability targets.

Recently, just some thoughts on that.

Yes, so we've always been focused on driving toward profitability.

At the same time, we are making targeted investments we continue to see really strong demand and you'd meet business. So we're very thoughtfully building out that go to market team and obviously watching very closely.

And on the R&D side investing in things that.

We believe are going to drive long term improvement in our LTV, So I would say.

We have always had a focus on profitability, obviously, there with some macroeconomic uncertainty we're trying to make sure we're being very prudent and very targeted.

Were still investing where we believe it makes sense from a unit economics perspective.

Great. Thanks.

Thank you.

Our next question comes from Josh Baer with Morgan Stanley . Your line is now open.

Okay.

Hi, I guess that's me.

For the question and congrats on a strong quarter.

Wanted to ask a few more on margins and maybe start on the outperformance in Q2.

Was hoping you could.

Quantify the pullback in marketing spend or give a little more context on.

What made you decide to pull back on marketing spend and then as far as the outperformance was it mostly that and just generally the strong segment gross margins or any other moving pieces in Q2.

Yeah, Great question. So the majority of the outperformance was pulling back on the direct marketing spend.

Earlier on we saw some softness in conversion as we actually saw him in.

In June many of those conversions that come back and are looking good.

And there was some project spend as well that just from watching the macroeconomic environment, we're trying to be really really thoughtful with our fans.

So I would say nothing unusual just trying to run the business we view we're very.

Careful with our marketing ROI and we run it by channel by country, we have a pretty sophisticated machine over there.

So we are continuing to progress that and I think in the.

Third quarter.

If those conversion rates hold up we might be leaning in a little bit more than where it makes sense. Obviously on long term bottom line in mind.

Got it yes. That's the next question on Q3, and just more generally the back half.

With that outperformance in Q2 minus 5% margin in the first half and then guidance is for minus <unk> 13 in Q3, and then that implies minus 20 I believe in Q4.

So like maybe going.

Leaning back into direct marketing spend.

What about the R&D investments.

But anything else broadly too.

And as far as investment areas or any other moving pieces just surround that.

Decline in.

On margin.

Yes, the other moving pieces in there.

Our go to market teams. So had some great success in Q2, bringing on talent across the regions that we're still seeing more demand than we can handle and so those expenses are you entering Q3.

As those teams are ramping up.

But nothing unusual on the R&D side, where we were able to brands and Keystone stocks that we have.

<unk> been looking for in the second quarter.

Okay. Thank you.

Thanks, Jeff.

Yeah.

Our next question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is now open.

Hi, guys. Thanks for taking my.

Two for me first I know you guys added five new currency their support to find new currencies in the quarter can you talk about you initially see when he announced support for those currencies as does for companies to pay in their local currency and maybe you see an uptick in demand.

Yeah.

It's really on the consumer side that we're adding the currencies. So when you add currencies. What you see is an uptick in the conversion rates. So that's why you keep we keep adding currencies.

So when we add it is fairly simple math, we can see we can see the conversions are what we can see new payment methods, if we could add 5% conversions.

Our country, we will do that so this is the never ending store, we've been working on currencies for over a decade and we just actually those teams are gotten bigger because of the opportunities there are.

Of course global.

Understood that makes sense and then on one of the largest deals you guys flagged to replace a competitor.

Some insight into the customer decision there was it price driven or the bad and accommodate.

And I guess broadly speaking.

Have you seen any changes in the competitive landscape are you still waiting a similar amount or fair share.

Yes, we haven't seen a lot of change in the competitive landscape. We typically don't win on price is not usually the answer either its engagement. We win we win we go head to head and it's the quality of the content is the depth of the current status is the 13 local languages.

We add we add over 400 courses amongst European business, So it gets bigger and bigger fresher refresh or better and better and and Thats why we would.

Typically we have people that are underpricing us and so we're winning and we're winning our fair share so our.

Our close rates are if anything a little bit better.

Awesome, that's great to hear thanks.

Thanks, guys.

Our next question comes from Ryan Macdonald with Needham. Your line is now open.

Hey, this is Matt Shea on for Ian Thanks for taking the question wanted to start on the consumer segment, so going back to the currency and pricing and promotion update how do those changes impact the gross margin within the consumer business.

So are the biggest piece of our <unk>.

Cost of revenue are the instructor costs and those are our take rate and so I was wondering pricing changes and promotion changes.

Does that take rate it doesn't really impact gross margin too much.

Got it that makes sense, Okay, and then appreciating all the updates around <unk> business and the tailwind that you guys have behind you.

Kind of impacts are you seeing from the potentially weakening macro that could cause fee base declines either because of layoffs are tightening budgets, just kind of trying to get a sense of what negatives are built into the guidance.

We haven't seen a lot of impact.

The fact is we were only at 10% of the seats are potential seats in our current customers. So our land and expand strategy is working very very well.

And you can see that our net retention. So we think that there is.

This environment that gets more difficult that the fact is is because we have a very effective efficient Kyle ROI product that that we will do fine in this environment.

Yeah.

Got it congrats on the quarter guys.

Thank you.

Okay.

Our next question comes from Arvind <unk> with Piper Sandler Your line is now open.

I think thanks for taking my question.

Yes, I just wanted to ask about your overall strengthen.

And in our business segment and are certainly.

You've provided some color, but wanted to re ask.

Sort of what are you seeing in terms of your overall pipeline now versus six months ago and secondly, if there are any sort of.

Tien Tsin conversations you've had with clients now versus six months ago, and then I have a follow up after that.

We're seeing continued strength in our <unk> business.

We are adding why we keep adding more people, while we keep adding more and more go to market teams. Our pipeline is bigger than it was six months ago. So it continues to grow as we keep adding go to market people and to keep scaling well our pipeline keeps building.

The business looks very strong at this point.

Terrific and then.

Yes.

With some company is looking to save costs.

Certainly we've seen a lot of like layoffs.

We focus on on an updated operating efficiency are you already benefiting from consolidation, where a particular client we may be using two or three.

Irrigation providers and.

They're kind of like consolidating their spend with with one provider or are you seeing any benefit.

Any headwind from that consolidation.

We really haven't seen that at this point I think it's too early for us to see that kind of an impact.

There is we really haven't so our close rates continue to be very high.

Our net retention, ladies and gentlemen. This concludes today's conference. So we really haven't seen a huge effect at this point.

Perfect. Thank you.

That concludes today's question and answer session.

Ladies and gentlemen, this concludes today's conference.

You for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

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[music].

Thank you and welcome to <unk> second quarter 2022 earnings Conference call with me today are Greg Qatari Eaton's, Chairman and Chief Executive Officer, and Sara Blanchard you to me as Chief Financial Officer before we begin during this conference call. We will make forward looking statements within the meaning of federal Securities.

What.

These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated.

For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

Our forward looking statements are based upon information currently available to US we 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 from comparable measures contained in our financial statements prepared in accordance with the U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist.

Management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release.

Reconciliation of these 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.

Replay of today's call will also be posted on the website I will now turn the call over to Greg.

Thank you Stacey.

Good afternoon, everyone and thank you for joining us.

Q2 was a very strong quarter for you to continue.

Continue our momentum as the platform with exceptional breadth depth and reach for loosening structures around the world, we seek to improve lives and business outcomes through learning.

In a changing labor market.

Highly skilled talent is scarce and increasingly valuable.

<unk> platform for Reskilling and Upskilling.

Has become mission critical for businesses and individuals.

The added tailwind of hybrid and remote work as well as digital transformation are further driving <unk> adoption.

But what makes you to be truly unique.

Unsurpassed quality of our content.

Nurse currency year to me, because that's where they learn best.

That's why we win.

We hear this directly from learners. For example, we were thrilled in June which stack overflows annual survey of nearly 30000 developers who are around the world found that two thirds of the respondents selected <unk> as the most popular online course or certification program for Larry.

How to code.

This truly incredible result reminds us of why we do what we do.

How people learn valuable skills like coatings, so they can advance their careers exploring new opportunities and ulta.

It really changed their lives.

We saw strong execution this quarter with revenues of $153 million up 21% year over year.

We delivered another quarter of outstanding business performance with year over year revenue up 77%.

And <unk> of three.

$316 million up 74% year over year.

We now have over 12000, <unk> business customers and for the first time you have to meet business revenue exceeded consumer revenue in June .

As we've outlined on previous calls our unique business loading platform has expanded beyond on demand courses to also include additional learning methodologies to further engage the learner.

Help them interact with the instructor and their peers.

In practice and test their knowledge.

During the quarter, we signed our largest deal in <unk> history, a multi year existing customer renewal deal with a large global professional services firm encompassing all three <unk> business learning methods.

These included.

Our on demand learning via our marketplace, driven curated course content.

Cohort based learning VR Corp, you operate.

And immersive learning via our year to date business pro offering with labs Workspaces and assessments.

We also saw some early but encouraging signs of stabilization in our consumer business in Q2.

After adjusting for FX impact consumer revenue declined by 2% year over year in the quarter.

As I look ahead to the second half of the year. Several key drivers will help position us for further growth and expansion.

First our ability to grow at scale with a large market opportunity ahead of us as enterprises increasingly embrace upskilling and reskilling.

Second.

Our expansion into larger enterprises as they tap into a broader set of <unk> products and learning methods and.

And third the customer centric.

Driven product innovation.

That we are delivering to individuals and organizations as we continue to invest in our marketplace to support our 71000 instructors around the world and the nearly 5000 new courses they produce every month and year to date.

That said.

We continue to see a more volatile and uncertain macroeconomic environment, which has already impacted our consumer business.

As we've noted in previous quarters.

While these are forces beyond our control we believe that these macro factors will drive more organizations to prioritize cost effective training with scaling and upscaling of their workforces.

Additionally, the current economic environment positions us well.

We have a high and measurable ROI and also rapidly deployable.

Our strong employee engagement also demonstrates the immediate impact of bottler.

We believe these factors promote a certain level of resilience.

The County walk as it will help us weather the coming months as organizations prioritize their spend.

Let's dig in a little deeper into three of our key performance areas this quarter.

First I'll speak to <unk> business, where we saw very strong global and enterprise demand as well as solid go to market execution.

And more importantly, significant ROI for our customers.

Second I'll discuss our ongoing work to promote a vibrant and healthy marketplace, including supporting our instructors.

And third.

Detailed the product interface that we are bringing to our customers and the workforces they support.

Let's start with your <unk> business.

Our record <unk>.

$316 million was up 74% year over year in Q2.

Driven by strength across all regions in multiple verticals, including professional services technology and manufacturing.

Our unique business net dollar retention rate this quarter was 118%.

As we continue to see success and growth in our land and expand strategy.

We delivered 79% year over year growth in customers with over 100000 in IRR and 60% year over year growth in customers to handle over $1 million, reflecting.

Continued success in the enterprise.

Multiyear deals now represent over 40% of total IRR.

A strong signal of <unk> mission critical value with larger organizations.

As I noted earlier.

We signed our largest deal in company history in Q2.

This record deal was a significant expansion with a global professional services company and a multiyear deal encompassing the full range of the enemy business products.

Ondemand cohort and immersive learning.

The deployment of both cohort and immersive learning methods in tandem with on demand learning demonstrates how <unk> serves as a learning partner with a comprehensive end to end learning platform that can be tailored to help achieve specific business goals.

We're thrilled to work together with this customer to continue to me to even more employees in the organization.

Just a couple of weeks. After this deal closed we signed our second largest deal in <unk> history.

A competitive displacement at a multiyear deal with a large global services and consulting company, who will deploy <unk> learning to over 100000 users along with 25000 unique business pro licenses.

This company will use <unk> to make to help increase leadership technology.

And data science skills across their organizations with ample opportunity to scale, even larger as they seek to deploy more learning methods.

<unk> cohort based.

Tailored learning journeys to drive organizational change.

Leadership excellence.

But organizations are choosing giveaway business, because we serve them tangible measurable results.

For example.

Booz Allen Hamilton.

Global firm, providing world class industry, leading expertise across industries utilizes <unk> business for their upskilling efforts.

Using unique business to power programs with thousands of data scientists.

Nearly 94% of Booz Allen Hamilton learners are now highly proficient and data science.

And they're usually train graduate now have 93% employee retention rate.

On top of that Booz Allen has a 3% increase in consultant bill ability since beginning their work with <unk> business.

These measurable results are wide customers continue to expand and grow their footprint with us.

Especially with highly technical content like data science.

Further proving out our land and expand model.

Other existing customers growing their <unk> offering this quarter include Colby.

Colgate Palmolive.

Lululemon Athletica.

Volkswagen Group China.

ZIP code software.

Bosch Global software Tech and global.

And new customers this quarter include.

Broadridge financial solutions.

Samsung Sds.

<unk> U S.

Android Brazil.

<unk>.

We continue to see strong uptake internationally across multiple regions, including APAC.

We're through our partners than say, we support the Tokyo Metropolitan government and their efforts to accelerate the digital transformation of small and medium sized enterprises in Tokyo.

By the end of March 2023, and <unk> will provide over 250.

Tokyo based Smes with skills courses and Japanese to support digital transformation.

Given this growth is also fueled by expanding partnerships.

Our partners range from other businesses offering given the courses as an additional product to their customers.

As well as other online learning platforms that use <unk> course offerings as a way to up level the content portfolio and further serve delivers.

For example, we've partnered with some total.

Global leader in talent acquisition.

Onboarding.

Learning management and talent management solutions.

Enabling them to sell <unk> business content through their learning management experienced platform.

This coupled with our sum total <unk> business integration.

Divides sum total customers with a streamlined purchasing process and access to get in the courses.

And in Latin America, we partnered with E class and online learning platform in Chile.

Enabling them to resell <unk> business courses.

As we look ahead to Q3, we believe that the global market and demand for online learning will help drive strong business growth over the long term.

Since launching just seven years ago, given the business has quickly scaled to over $300 million.

Roy.

With a revenue CAGR of 90% plus over the last three years as our marketplace content and instructor flywheel has provided a powerful foundation for organizations learning and scaling.

With you to make businesses predictable revenue stream eclipsing our consumer business in June .

We look forward to continuing to drive this momentum and expanding into larger global and domestic organizations.

So let's move onto the second area of focus in my remarks today.

Our work to support our instructors and learners and building and growing our vibrant and healthy marketplace.

And structures of the foundation of everything we do here at <unk>.

The power of our marketplace with dynamic content that helps grow our careers and enable unique learning paths for over 54 million learners that year to date.

Our instructors also encompass a truly global footprint.

Spanning learning across over 75 languages.

The <unk> constructor succeed together.

Our team takes an active role in partnering with instructors to help them broaden their global reach and impact.

As well as their earnings.

For example, <unk> carriers is the India based web developer instructor and unity, who helps prepare students and over 200 countries to succeed in AWS.

Global cloud and other certification exams.

In June ground, guys surpassed 1 million students worldwide.

He created the support he received from using these constructive partner team with helping us reach this incredible milestone.

Our instructor successes, our success and we know it is vital for us to nurture. These relationships. So the highest quality instructors continues to choose you to me as the <unk> platform.

It's not just the quality of our instructors that matter, it's their ability to rapidly produce high quality content.

Example in.

Version of the AWS certified solutions architect associated exam.

Place the current exempt this much.

To help employees and individual learners around the globe successfully prepare to achieve this certification.

It would be instructive sanderling them.

Has had it for six rated gives me course available on this updated certification since April .

Showcasing the freshness and relevance of our content offering.

More than 10000 learners have taken this course to date.

And speaking of content.

According to our Q2 global workplace learning index.

Courses to help individuals improve their test taking skills. So a nearly 300% increase in course consumption in the U S compared to previous quarter.

Signaling the importance professionals place and preparing for certification exams.

And providing their knowledge of various software skills.

We are proud of <unk> role in helping individuals prepare for these important milestones in their careers.

Now, let's move on to the third area of my remarks today.

These continued product innovation.

This quarter, we saw this in action with <unk> business.

<unk> will be rolled out our skills insights dashboard, enabling customers to unlock learning insights within their organization.

We also introduced 18 new labs.

Or in course workshops, and six updated <unk> paas and <unk> business Pro.

These new Rollouts were implemented in response to a direct consumer feedback and reflect the wider consumer centric approach to our product development.

This approach is a large factor in why new customers come to you and me and why existing customers expanded their relationships with us.

And in our marketplace, we're driving higher conversions with five new payment methods in Belgium, Malaysia, Singapore, Philippines.

Improved search ranking for our users and algorithm optimized personalized discount promotions.

We're also expanding our subscriptions footprint with personal plan subscriptions now available in 100% of users in the U S. Great Britain, Australia, and South Africa.

Yes.

Lastly, we launched the bulk coupon creation tool that enables instruct us to market to of course, it's more effectively across our global community of learners.

Together, we're continuing to build the best and most innovative learning company in the world. So that our customers realize the best possible outcomes and ROI from learning community.

Our customer centric approach to product development aims to provide the best experience for learners.

Hi, its monetization opportunities for our instructors.

And the most flexible and effective way to Upskill and Reskill employees for organizations.

Before I conclude I'd like to cover two important areas of investment for us at year to date.

Our ESG goals and partnerships.

Second.

Our equity and inclusion initiatives to help anchor our company mission.

Workforce culture.

Turning first to ESG, where we're currently rated in the first percentile for ESG risk ratings in our industry category last year by the ESG research firm sustainable ethics.

I'm excited to announce that we recently launched our first ESG impact report in Q2.

Highlighting our ESG efforts and spotlighting, how we support our learners instructors customers and communities.

You can find the report from our ESG website and I encourage you all take a look.

This impact report marks the first major step in telling our ESG story to a larger audience and we look forward to expanding our dialogue with relevant investors partners and nonprofits in the coming months.

I'd like to share with you the incredible impact we've seen with one of our nonprofit partners the last mile.

An organization that provides incarcerated and formerly incarcerated individuals access to resources to thrive in today's rapidly evolving market.

Since 2019, the last mile is used year to meet the setup learning paths with specific objectives and groups has successfully helped over 150 program participants learned coding workplace skills for successful reentry into the workforce.

The Liza how.

Who had served a prison sentence from 2018 to 2020.

Signed up for unique business courses to the last mile program.

To learn coding and opened doors to a new career.

Fast forward two years.

Lisa now Tejas, others, Fougere community, how to code and has used the <unk> to meet to secure a role as the lead web designer at the Indiana Department of corrections.

We're also excited to continue our partnership with upwardly global.

Upwardly global helps eliminate employment barriers.

<unk> skilled immigrants and refugees as they integrate with the U S workforce.

Italy has partnered with a fully global since 2020 to provide access to resources that can help individuals prepare to past industry recognized certifications and secure new jobs.

Take Maria a business analytics professional originally from Jamaica.

Following upwardly global job coach recommendation.

Where we have completed several data analytics courses through the <unk> business platform.

Including Microsoft Excel.

This intelligence with power query index.

And the scene learning for data analysis regression in forecasting.

Soon after adding our new skills and core certificates to her Linkedin profile, a hiring manager reached out to her to schedule an interview.

We are past the interview and was offered a business analyst role at the company.

These are just a few examples of the way given me, it's improving lives to learn.

Growing a successful business all it comes down to talent and culture.

And that Youre in EMEA are proud to say that we continue to attract and retain our valuable employees.

As we move forward.

We continue to fuel unique business growth with targeted tolerant estimates, particularly in sales and customer success.

Though we remain confident about our business trajectory.

Continue to hire to support growth.

We are also holding our resource allocation to remains with strategically efficient against the macro economic environment.

It is a balance we take seriously.

Our unique culture, our diversity equity and inclusion commitments and our company's mission to impact careers and lives for the better help us higher than retain a truly passionate and talented team of <unk>.

And we continue to be recognized as a top employer.

We're proud to share that this quarter great.

Great place to work Ireland hydrogen on its 2022 lists of Ireland's best workplaces in Tech.

A wonderful build upon our great places to work award in Ireland last quarter.

We're also excited to share that fair pay workplace has certified year EMEA as a company achieving pay equity.

This important certification means that we are committed to using the most trusted and transparent message to analyze pay equity by race gender and their intersection to ensure ongoing pay equity for our employees.

To conclude.

Q2 continued to demonstrate that our symbiotic model is working.

Growing and supporting our content on the <unk> marketplace benefits learners and instructors alike.

And drives high quality global and broad content forgive me business customers and organizations.

The strong topline growth of <unk> business in turn helps fuel further investment and growth in our marketplace content creators.

This ecosystem not only unique to the industry, but it has helped us surpass over $300 million in recurring revenue in Q2.

With an enterprise scale and recurring revenue business model that is firing on all cylinders.

Due to me, it's disrupting learning through our unparalleled platform and rapidly scaling SaaS business.

Improving lives to learn it is our mission.

And we are proud to bring together our 71000 instructors over 12000 customers a growing roster of strategic partners to deliberate worldwide.

Together.

Our commitment to Upskilling and Reskilling, we are activating positive outcomes for our businesses and individuals even in the face of economic uncertainty.

With that I'll turn the call over to Sarah to dive into the numbers.

Thank you Greg as.

That's correct.

We had a very strong second quarter, driven by continued momentum and execution and our need to be better.

Yeah.

This is evident in our exceptional leerink business aircraft in Q2 of 74% for the prior year with you to meet that customer growth up 44% compared with the prior year.

<unk> business continued to perform well across a broad array of verticals and geographies.

Total revenue of $153 1 million was up 21% year over year and up 1% sequentially.

I need to meet that does net dollar retention rate was 118% this quarter within our expected quarter to quarter range highlighting the continued success of our land and expand strategy.

New business revenue was $74 six.

77% from the prior year, demonstrating our consistent and sustained growth at this scale.

Our consumer business delivered $78 5 million in revenue down 7% from the prior year.

As Greg noted earlier police on correcting the early signs of stability in our consumer business, which was down 2% year over year, when excluding the impact of buybacks.

While macro uncertainty still presents some degree of volatility in our consumer business and outlook.

Important to note that we continue to see the consumer marketplace is fundamentally healthy.

We're encouraged by the stabilization of top line performance at Lasalle detail.

We continue to Adam Schechter, and thousands of course with monthly.

And our marketplace serves as a vibrant and John that Phil.

Yes.

The symbiotic that some of these two parts of our business.

I think unique and differentiated model that we believe will continue to drive topline.

Topline growth over the long term.

And the remainder of this call all financial metrics are non-GAAP unless stated otherwise.

Q2, gross profit was $89 million up 27% year over year, driven by Eva Mendes.

Gross margin was 38% of revenue up from 56% in Q2 of 2021.

This margin expansion was the result of the continued revenue mix shift from consumer.

Moving to Opex total operating expense with $101 7 million.

56% of revenue.

Compared to 60% and secured last year.

Sales and marketing expenses represented 41% of total revenue.

Compared to 39% this quarter last year as.

As we continue to invest in the strong growth and clear ROI and jewelry business.

Our go to market and enterprise marketing team.

R&D expense was 13% of revenue up 234 basis points year over year.

We are continuing to invest in building out a comprehensive planning platform.

On behalf of our marketplace content engine.

Our focus is on building out the set of capabilities that allow our learners for Keith or quick question, Paul and the way that works best for them.

This includes continuing to build out commercial buying experiences like last in this effort.

But also investing in the ability to more clearly align the skills needed to achieve professional aspirations.

With the capability to guide them through their journey.

These investments include three core areas of innovation.

First our proprietary cell craft that natural courses and scale to realize professional aspirations.

Real quick one for <unk>.

And then we will launch them as a part of our consumer offering.

Second we are fueling these skills gap with sophisticated machine learning and AI model that can personalize the learning experience for each individual.

Finally, we launched clear guidance as part of our consumer subscription offering.

We expect these investments to improve learner experiences provide more tangible outcomes for learners and customers and increased LTV over time.

Rounding out our discussion of operating expenses.

G&A expense was 12% of revenue versus 10% a year ago.

Net loss for the quarter was negative $13 6 million or negative 9% of revenue.

Adjusted EBITDA was negative $8 6 million or negative 6% of revenue.

In Q2, we made the decision to pull back a bit on our direct response marketing side, which positively impacted our adjusted EBIT.

As always we continue to be disciplined on the efficiency of our marketing spend while also investing Robert declare and worthwhile growth opportunities.

Free cash flow.

$6 5 million perfect positive $2 7 million a year ago.

Moving on to the balance sheet.

We ended the quarter with $512 million of our air ticket cash cash equivalence and marketable.

All securities.

Thanks Douglas.

Free cash flow of $6 5 million perfect positive $2 7 million a year ago.

Moving on to the balance sheet.

We ended the quarter with $512 million of unrestricted cash cash equivalents and marketable securities.

By segment consumer revenue was $78 $5 million down.

Down 7% year over year.

In the second quarter with approximately $1 3 million monthly average buyer.

Which was down 2% practicing here now.

Consumer gross profit with $42 3 million or 54% of consumer revenue approximately 20 basis points higher than in Q2 2021.

Gross margin expansion was driven by lower consumer campaign in the quarter as a percentage of revenue.

As a reminder, in our consumer transaction business.

Chuck your costs are recorded immediately but the revenue is recognized over a four month period.

We also added 2 million, new consumer and business planners, bringing our total learner base to $54 million.

As a reminder, we define <unk> as someone with a mark against the time running on the platform.

<unk> business continues its robust growth with Q2 revenue of $74 6 million up 77% year over year.

We ended the quarter with over 12500 <unk> to meet this customer up 44% from a year ago.

The business also crossed the $300 million era in Chicago.

Ending the quarter at $316 1 million up 74% as compared to a year ago.

Do you think that this gross profit was $49 9 million or 67% of revenue, which represents a roughly 120 basis point increase year over year.

The improvement was primarily driven by a decrease in the REIT business content cost as a percentage of revenue.

Correct.

Let's now turn to guidance.

Looking ahead to the third quarter of fiscal 2022.

We expect revenue to be between 153 million and $157 million.

As mentioned earlier, we continue to experience.

Alright, Ron Butler, becoming a majority of our revenue in Q3 of this year.

I'd like to provide a little more color on our Q3 guidance.

While we are encouraged by the stabilization of our Q2 consumer performance.

Our consumer business continues to be affected by some of the larger macroeconomic factors that have impacted our consumer growth over the last several quarters.

We believe these headwinds remain heading into Q3 and will continue to put some pressure on consumer growth in the near term.

We do expect our marketplace to continue to be healthy and as credit for you to meet that.

Growth in <unk> to meet business remains strong and we remain very excited and encouraged by the rapid revenue expansion and strong net dollar retention.

For the third quarter, we expect an adjusted EBITDA margin of negative 14% to negative 12%.

Given the growth and opportunity within the guide that we are continuing to make targeted investments in R&D and go to market initiatives, which are factored into our Q3 operating expenses.

Turning to our full year 2022 guidance.

We expect full year revenue to now be between $650 million and 641 compared.

Compared to a range of $610 million to $640 million previously.

Our full year adjusted EBITDA margin guidance remains unchanged and we expect a range of negative 12% to negative 10%.

Before I wrap up I'd also like to announce that we will be holding our first investor analyst day on November 16th we will be.

Hosting it virtually and hope you all will join US please save the date.

To conclude our Q2 performance demonstrated the strong growth and momentum.

And this symbiotic relationship with our marketplace.

The continued growth in recurring revenue coupled with strong net dollar expansion underscores the massive opportunity in front of us to help organizations and people change lives through language.

So with that we'll open up the call for Q&A.

Sure.

If you'd like to ask a question at this time Youll need to press Star one one on your telephone.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Brent Thill with Jefferies. Your line is now open.

Hey, Thanks for the question guys.

Hi, Brad.

Okay.

Brent can you please re queue.

Thank you sorry about that Brett Your line is now open.

Hey can you guys hear me yes.

Yes, we can.

Thanks, David <unk> on for Brad I. Appreciate the question, Greg I wanted to start you talked a little bit.

Your opening remarks about.

Shifting our budgets I guess from online to offline to online rather I think a lot of folks out there a little bit worried about pressure on LNG budgets.

As we head into a tougher macro I'm curious.

As you think about potential pressure on budgets do you think that encourages the shift of dollars from offline to online.

Yes, we actually do.

Still 80% of the of the online of the training today is in person and we know with remote work.

We know what the remote workforce, that's very expensive and it's more difficult. So we are seeing some budgets that are being cut back but actually are they are adding more seats theater. It because we have a very effective cost effective.

Hi, Roy business.

We've been doing very well in this environment.

That's helpful and just maybe just a follow up.

Can you remind us about yourself cycle.

What's the typical timeline have you guys noticed any changes in that over the last couple months. Thanks.

Not really it's really too early for us to have seen any impact in that it's been bill. It was very consistent over the last couple of quarters. So we have not seen that lengthened at all in our normal sales cycle. It really depends on size companies.

While our company is we deal within a quarter the larger companies six to 12 months.

Great I appreciate it guys.

Our next question comes from Rob Oliver with Baird. Your line is now open.

Great Hey, Thank you. Good evening can you guys hear me okay.

Yes, we can hi, Ralph.

Hi, Hi, Greg Hi, Sarah Thanks, just figured I double check.

So.

But obviously a huge quarter for you guys on <unk> with some major signature wins, which you called out Greg in your prepared remarks.

This panel I think the focus on bolt on but I'll just focus on one and then I had a follow up on.

On the second largest deal which came on the heels of the largest deal.

You characterize it as a competitive displacement I was wondering if you could add a little bit of color around the RFP process, what some of the salient points, where for why <unk> was chosen and was there a side by side trial period. I know you discussed in the past you guys have mentioned often you run side by side with competitors any color there would be helpful. And then I just had a quick follow up.

Yes, I believe it was it was.

It was a head to head tests that went on for a significant number of months.

Normally in these are larger companies, we'll be careful they'll do head to head tests, and we had much higher engagement.

Led to that deal.

Yeah.

Great. Okay helpful and Sara for you just on the.

The consumer side.

Yes, I think you guys were fairly clear you saw signs of stabilization.

Not out of the woods and there's still some unknowns.

So we just wanted to get a sense for.

You I guess on some of the newer initiatives there in particular, perhaps the consumer subscription offering.

It appears you guys mentioned, how you've rolled that out now broadly in the U S. I think I heard.

It appears you guys have settle around that $30 price point per month with but.

What struck us as a newer option we are at a significant discount for upfront pay can you talk a little bit about how that's going early reads on that.

And if those economics are right and then.

A corollary to that if we can expect you guys will tweak that consumer subscription pricing similar to the pricing we see the levers you guys pulled around your one off core solutions. Thank you.

Yes, great questions.

Youre right on the economics, there and it's too early to tell it's pretty early.

That annual plan.

Too early to tell but we are rolling it out and we expect pretty broad rollout across most of the major markets in the back half.

From a pricing perspective, we're always testing we've discussed before that we have that's really sophisticated.

Pricing algorithm for our transactional Parsons.

And we'll probably be doing some testing on that.

Our subscription side, but we're not there yet.

Great. That's helpful. Okay. Thanks, again, guys I appreciate it.

Thanks.

Our next question comes from Terry Tillman with Truest. Your line is now open.

Yes, Thanks, Greg and Sarah and congrats on the you'd be traction I just had a couple of questions. It seems like with UV pro and some of these enhancements like cohort learning immersive learning I think you all mentioned that those were added to some of these kind of signature wins in the quarter or renewals.

Seems like this could be a pretty meaningful uplift on Ub deal. So.

What is the typical uplift youre seeing so far where you'd be pros being attached and then how much have you actually kind of made this programmatic selling and gone back to base and comfortable in selling our new deals and then I had a follow up.

Yeah. Great question. So we are still as we've discussed kind of seeding the market with these on some of these upsells really are smaller portions of the seats, while our customers are testing it out and I think they are ramping nicely, but too early to sort of give any uplift numbers, we are and have been.

Sort of enabling our sales force to sell kind of a solution set to our customers comprehensively.

We're hoping to continue to see that ramping and taking hold over the next few quarters.

Okay, Great and maybe a follow up I don't know if this is for you or Greg, but I'm kind of curious about like network effects on your business now, particularly in Asia Pac you seem like you have some interesting new Doug. It's of course every quarter. So I think you're setting a precedent whether you like it or not.

You all had some large Japanese corporation deals now youre working with municipalities, whether it's Japan, or maybe an update on South Korea or China.

How would you kind of characterize where you are maybe creating these kind of halo effects of network effects, where youre, becoming kind of like.

Our brand of choice in those market. Thank you.

Yes.

Absolutely believes that there is a network effect to this business that that as we are very well established in Japan, Japan continues to be one of our fastest growing markets. Our relationship with <unk> is very strong and we're building it out and it's it's very exciting to be around but it's also helping us in Korea.

We've only been there for two quarters, but we will.

Reached 100.

We reached 1 million ALR.

Q2 in the second quarter is South Korea, but we also have a couple of large corporations to us we've got a couple of anchor tenants and so we feel real good about that in Japan, and excuse me in China.

We're building the pipeline, but it feels very strong it feels very good. So we are seeing network effects in Asia for sure, but I think we've seen this historically in other places.

Okay.

Thanks.

Okay.

Our next question comes from Jason <unk> with Keybanc. Your line is now open.

Hi, Thanks, This is actually Devin on for Jason Tonight.

It sounds like your business is firing on all cylinders, but just given the macro backdrop in Europe and a lot of investors are zooming in on that I'm curious to hear what youre seeing in that region.

You mean business are you seeing deals getting delayed or pushed out I'm just curious to hear any thoughts.

Jerry on that.

Yes, we actually had a very strong quarter in EMEA and Europe business. So they've been consistently very very strong for us and so we had another very good quarter. While we did see was a little softness in the small business.

So that's the first time, we've seen a little bit of that and but other than that the large corporations. The large enterprises did very very well. So it was just one segment of Europe was a little bit soft.

Got it that's good to hear and then just one more.

I know theres a lot of emphasis on profitability by investors recently has there been any sort of re evaluation to your enemies strategy or framework around profitably targets.

Recently, just wanted to have some thoughts on that.

Yes, so we've always been focused on driving toward profitability.

At the same time, we are making targeted investments we continue to see really strong demand in <unk> business. So we're very thoughtfully building out that go to market team and obviously watching very closely.

And on the R&D side investing in things that are.

We believe are going to drive long term improvement in our LTV is now I would say.

We have always had a focus on profitability, obviously, there with some macroeconomic uncertainty we're trying to make sure we're being very prudent and very targeted.

Were still investing where we believe it makes sense from a unit economics perspective.

Great. Thanks.

Thank you.

Our next question comes from Josh Baer with Morgan Stanley . Your line is now open.

Okay.

Hi, I guess that's me.

For the question and congrats on a strong quarter.

Wanted to ask a few more on margins and maybe start on the outperformance in Q2.

Was hoping you could.

Quantify the pullback in marketing spend or give a little more context on.

What made you decide to pull back on marketing spend and then as far as the outperformance was it mostly that and just generally the strong segment gross margins are any other moving pieces in Q2.

Yeah, Great question. So the majority of the outperformance was pulling back on the direct marketing spend.

Earlier on we saw some softness in conversion as we actually saw him in.

May and June many of those conversions that come back and are looking good.

And there was some project spend as well that just from watching the macroeconomic environment, we're trying to be really really thoughtful with our fans.

So I would say nothing unusual just trying to run the business. We view, we're very careful with our marketing ROI and we run it by channel by country, we have a pretty sophisticated machine over there.

So we're continuing to progress that and I think.

In the third quarter.

If this conversion rates hold up we might be leaning in a little bit more there where it makes sense, obviously, some long term bottom line in mind.

Got it yes. That's the next question on the Q3 and just more generally the back half.

With that outperformance in Q2, just said minus 5% margin in the first half and then guidance is for minus <unk> 13 in Q3, and then that implies minus 20 I believe in Q4.

So like maybe going.

Leaning back into direct marketing spend.

We've heard about the R&D investments.

Anything else broadly too.

And.

As far as investment areas or any other moving pieces just surround that.

Decline in <unk>.

Margin.

Yes, the other moving pieces.

Go to market teams. So had some great success in Q2, bringing on talent across the regions that we're still seeing more demand than we can handle.

Those expenses are hitting in Q3.

As those teams are ramping up.

But nothing unusual on the R&D side, where we were able to bring in some key staff that we have been looking for in the second quarter.

Okay. Thank you.

Thanks Ross.

Our next question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is now open.

Hi, guys. Thanks for taking my.

Two for me first I know you guys added five new currency their support and find new currencies in the quarter can you talk about where you initially see when he announced support for those currencies.

For companies to pay in their local currency and maybe you see an uptick in demand.

Yeah.

It's really on the consumer side.

We're adding the currencies. So when you add currencies what you see is an uptick in the conversion rates. So that's why you keep we keep added currencies.

When we add it its fairly simple math, we can see we can see the conversions are what we can see new payment methods. If we can add 5% conversions.

Our country, we will do that so this is a never ending story, we've been working on currencies for over a decade and we just actually those teams have gotten bigger because of the opportunities there are.

Of course global.

Understood that makes sense and then on one of the largest deals you guys flagged to replace a competitor.

Some insight into the customer's decision there was it price driven or is it better now.

Accommodate both.

And I guess broadly speaking have you seen any changes in the competitive landscape are you still waiting a similar amount or fair share.

Yes, we haven't seen a lot of change in the competitive landscape.

We typically don't win on price is not usually the answer either its engagement.

When we when we go head to head and it's the quality of the content. It's the depth of the current status is the 13 local languages.

We add we add over 400 courses amongst the European business. So it gets bigger and bigger fresher and fresher, better and better and and that's why we would.

Typically we have people that are underpricing us and so we're winning and we're winning our fair share thoughts are.

Our close rates are if anything a little bit better.

Awesome. Thanks.

Thanks, guys.

Our next question comes from Ryan Macdonald with Needham. Your line is now open.

Hey, this is Matt Shea on for Ian Thanks for taking the question wanted.

I wanted to start on the consumer segment, so going back to the currency and pricing and promotion update how do those changes impact the gross margin within the consumer business.

So.

The biggest piece of our <unk>.

Cost of revenue are the instructor costs and those are take rate and so I was wondering pricing changes and promotion changes.

Does that take rate it doesn't really impact gross margin too much.

Got it that makes sense, Okay, and then appreciating all the updates around <unk> business and the tailwind that you guys have behind you.

Kind of impacts are you seeing from the potentially weakening macro that could cause fee base declines either because of layoffs or tightening budgets, just kind of trying to get a sense of what negatives are built into the guidance.

We haven't seen a lot of impact.

The fact is we are only 10% of the seats are potential seats are our current customers. So our land and expand strategy is working very very well.

And you can see that our net retention. So we think that there is.

This environment that gets more difficult.

Factors is because we have a very effective efficient high ROI product that that we will do fine in this environment.

Yeah.

Got it congrats on the quarter guys.

Thank you.

Okay.

Our next question comes from Arvind <unk> with Piper Sandler Your line is now open.

Thanks for taking my question.

Yes, I just wanted to ask about the overall strengthened.

And our business segments certainly.

You've provided some color, but I wanted to re ask.

Sort of what are you seeing in terms of your overall pipeline now versus six months ago and secondly, if there are any sort of.

Tien Tsin conversations you've had with clients now versus six months ago, and then I have a follow up after that.

We're seeing continued strength in our <unk> business.

We are adding why we keep adding more people, while we keep adding more go to market teams. Our pipeline is bigger than it was six months ago. So it continues to grow as we keep adding go to market people and to keep scaling well.

Our pipeline keeps building.

The business looks very strong at this point.

Terrific and then.

Yes.

Some companies looking to save costs.

Certainly we've seen a lot of like layoffs.

We focus on on an updated operating efficiency are you already benefiting from consolidation, where a particular client maybe maybe using two or three.

Irrigation providers and.

They're kind of like consolidating their spend with with one provider or you're seeing any benefit.

Any headwind from that consolidation.

We really haven't seen that at this point I think it's too early for us to see that kind of an impact.

There is we really haven't so our close rates continue to be very high.

Our net retention kids, ladies and gentlemen. This concludes today's call. So we really haven't seen a huge effect at this point.

Perfect. Thank you.

That concludes today's question and answer session.

Ladies and gentlemen, this concludes today's conference.

For participating.