Q3 2022 Coursera Inc Earnings Call

It has been the growing relevance of industry micro credentials across our business in.

In 2018, we had initial success with the launch of our first two entry level professional certificates.

And in the time since we've grown this category in both breadth and depth, adding new partners and job roles, while creating stronger connections with career and degree pathways.

This year, our catalogs expanded scope became the foundation for career Academy and institutional offering that brings together our professional certificates and guided projects into a solution that businesses governments and campuses can deliver at scale to help individuals with no cost degree or prior work experience.

A new career or switched careers into an entry level digital job.

As we navigate the trends shaping higher education, we believe that industry micro credentials provide a turnkey way for higher education systems to upgrade their curriculum and produce graduates who have the skills and abilities that employers are looking for.

Let's discuss our latest views on the trends at play and their potential impacts on the reinvention of higher education and adult learning.

The first trend is digital transformation.

The forces of technology and globalization have been accelerating the transformation of every institution in our society requiring businesses to retool the systems processes and talent required to stay competitive.

Pushing campuses to modernize their curriculum and make quality education more accessible.

And driving governments to deliver job training programs at the speed and scale needed to keep pace with job dislocation and unemployment challenges.

The pandemic served fast forward these trends, but we believe it's lasting impact maybe define and how it has reshaped both the supply and demand for jobs globally.

The expansion of online learning has enabled more equal access to higher quality education for millions of learners around the globe.

And with remote and hybrid work learns that acquired the knowledge skills and credentials to unlock these job opportunities are met with the supply of digital careers no longer confined to a specific city state or even country.

Simply put we believe that the rise of remote work digital jobs and broadband connectivity has increase the ROI of education.

And this benefit extends beyond individual learners.

Forward thinking institutions, including businesses governments and campuses are harnessing the opportunity to adapt to the fast changing skills landscape and to build workforces and economies of the future.

This leads me to my second major trend skills development.

In times of rapid change I find it critical to stay close to the needs of our learners customers and partners understanding how their needs are evolving and how we need to evolve to better serve them.

That's why over the past several weeks I spend time with Coursera for business government and campus customers across the U S. Europe , the middle East and Central and South East Asia hearing how these institutions are adapting to a changing skills landscape.

This is what I'm hearing.

Businesses are investing in their human capital to address a diverse set of needs using online learning to deliver measurable ROI based skill development programs to support strategic transformation initiatives.

And they are increasingly positioning learning programs has a career development benefit in order to attract and retain talent in a competitive labor market.

Governments said that reducing unemployment and underemployment and building a more resilient workforce, where key priorities and that they're looking to help higher education systems create more employable graduates.

And campuses are telling us that they need to bridge the gap between evolving employer needs and students skill set upon graduation, recognizing the value of offering industry micro credentials alongside their core academic curriculum.

Each of these use cases will require a flexible affordable and scalable system of higher education and workforce development designed to keep pace with changing skill requirements as they evolve.

And this leads me to the third trend is driving our business the transformation of higher education and adult learning more broadly.

As technology and automation accelerate we believe a new an inclusive lifelong learning model is required to meet this challenge with rapid speed and scale.

In the past quarter, we conducted a third party survey of over 2400 students and recent graduates as well as 200 employers across eight countries, including Australia, India, France, Germany, Mexico, Turkey, the U K and the U S.

We learned that students like their parents are thinking more critically about the ROI of traditional three and four year degree programs.

89% of students in recent graduates agree or strongly agree that earning and entry level professional certificate alongside their diploma will help them stand out to employers and secure jobs when they graduate.

And 88% said that including industry micro credentials and an academic program would make them more likely to enroll in that program.

From employers, we heard the industry micro credentials.

Hiring decision makers solve their top two challenges identifying and validating apple can skills.

92% of employers are greater strongly agree that a professional certificate strengthens a candidate application for an entry level job role and on average three quarters are more likely to hire a candidate who has earned a professional certificate.

Platform like Corsair are able to address both of these challenges side by side by linking skills based learning to skills based hiring our ecosystem was designed to foster institutional collaboration between academic institutions industry leaders and governments that is required by students and employers and.

Recently digital World.

We believe that the Coursera platform has three distinct advantages that we continue to reinforce.

First our leading educator partners, who have created a broad catalog of branded content and credentials.

Second is our global reach and distribution and third is the data and technology that powers our unified platform.

Discuss recent highlights for each of these first our educator partners.

<unk> Global learning ecosystem includes the powerful combination of both University and industry partners universities play an integral role in durable skills critical thinking collaboration and community are all hallmarks of the campus experience.

But with the pace of digital transformation industry partners can often complement traditional learning with practical hands on learning align with specific job roles.

More than 175 World class universities and more than 100 industry leaders continue to expand our catalog of content and credentials.

In September we announced our first Bachelors degree program from an Indian University.

The Birla Institute of Technology, and science or <unk> is a premier engineering institution that is re imagining they're highly sought after computer science program to expand access for Indian and international students.

This includes broad learner eligibility with no entrance exam or background in science or mathematics.

Job relevant curriculum designed with input from industry experts and a flexible affordable structure that allows students to pursue the program while they're working.

We continue to see demand among working adults for degrees that are affordable have convenient admissions and flexible schedules and to develop knowledge and skills that are in high demand from employers.

Next I continue to be impressed by the progress and pace at which our partners are expanding our catalog of entry level professional certificates.

Since launching the category in 2018, we've announced 35 of these certificate training programs, including nearly 20, new titles. So far this year from new and existing partners.

Yeah.

Recently, we announced our first entry level professional certificates from industry partners in India.

Cytosorb learners and our second largest market for.

The three job roles include Pwc, India goods and services tax executive TWC, India direct tax executives and tally bookkeeper. Additionally, we continued to enhance some of our most popular certificates with nutrient language translations launching version in Arabic Spanish finally.

<unk> in partnership with Google, We announced an exciting new offering that brings the benefits of university and industry collaborations where entry level professional certificates.

Google has collaborated with five of our University partners to pair several of their most popular certificates with specializations from leading academic institutions and high growth industries, including data analytics and finance from the University of Illinois.

Data analytics in the public sector from the University of Michigan.

Project management and construction from Columbia University.

Project management, and sustainability from Arizona State University and healthcare.

From Johns Hopkins University.

Historically collaboration between industry and academia has been slow in piecemeal.

But by integrating industry expertise into University curriculum, we are beginning to witness what our ecosystem can make possible.

The future is not universities or industry. It is the collaboration between universities and industry, which is increasingly taking place on of course, there is platform in multiple forms.

This includes entry level professional certificates the stack in the degree programs, especially with AC credit recommendations. It includes degree programs like this or northeastern and Mayo clinic to incorporate training and expertise from industry leaders in the college degrees.

And career Academy delivered through the Coursera for campus program, where industry micro credentials are offered alongside and incorporated into core University curriculum.

Yeah.

Our second major advantage is the global reach of our platform.

We have a large growing learner base that attracts educator partners looking to teach both individuals and institutions around the world.

We added more than 6 million new registered learners growing our global learner base to $113 million by the end of September .

<unk> growth continues to be broad based with double digit increases in all regions and the fastest growth coming in the Asia Pacific region.

Additionally, we've grown the number of paid enterprise customers by 53% this quarter to 1086, which includes new additions across course, there for business Coursera for campus and Corsair for government customers.

The final advantage is the ongoing product innovation on our unified platform and I'd like to provide updates on two recently announced offerings.

The first is clips.

There are more than 5400 courses on Coursera today and these courses are comprised of more than 200000 individual video clips, which are typically five to 10 minutes long.

Our new clips feature enables enterprise learners to directly access clips and of course without having to take the entire course.

The videos and lessens our surface in the context of our longer courses. So learners can quickly access clips and then continue to the full course for deeper skills development.

Our initial data show that over one third of learners that viewed clips for immediate needs have gone on to enroll at least one course.

We launched in May with over 10000 clips, primarily focused in business technology and data.

In September we expanded the offering with a more comprehensive library of content, including including nearly 200000 short videos and lessons.

Customers like Google Bosch in the New York State Department of Labor or early adopters, and we look forward to bringing our expanded clipped offering to more enterprise customers.

I'd like to also provide an update on career Academy.

We announced career Academy at our annual conference earlier, this year and continue to see promising signals from our early customers.

We are academy Leverages, our entry level professional certificates benefiting when our industry partners create and launch new job roles.

For example in Q3, we launched five new certificates from meta, allowing us to expand the scope of roles offered with new additions in software engineering. These roles include front end developer backend developer database application developer iOS mobile developer and Android mobile developer professionals.

Tickets.

Additionally, we are bringing the nuclear discovery benefits to our learners to help them better understand the prospects and ROI of their education decisions. For example, individual learners in the U S. Using career Academy see key economic data alongside the career choices, including the median entry level salary the number of job openings.

And the recommended professional certificates that are aligned with specific careers.

Before I turn the call over to Ken Let me remind you of several key priorities, we're focusing on in the coming years.

We're focused on growing our enterprise segment across business government and campus customers, including new customer acquisitions and expanding existing relationships.

We're focused on expanding our portfolio of degree programs, especially those tailored to meet the particular needs of working adults.

We are broadening our entry level professional certificate catalog, expanding with new roles and partners and additional languages.

And finally, we are deepening our advantages, including expanding our educator partners and their content and credentials and improving and broadening our global scale and reach and the technology and data that underpins our platform.

And now I'd like to turn it over to Ken Ken. Please go ahead.

Thanks, Jeff and good afternoon, everyone.

We are pleased with our third quarter results, which continue to reflect diversified business model that benefits from its exposure to multiple levers of growth.

In Q3, we generated total revenue of $136 $4 million, which was up 24% from a year ago with strong performance in our enterprise and consumer segments.

So our enterprise consumers, including businesses governments and campuses, we are helping our learners adapt to a SaaS changing skills landscape and evolve with employer needs as well as producing job ready graduates.

For consumers, we are increasingly becoming a global destination, where learners can secure the digital skills that allow them to remain relevant in the workforce and acquire the branded credentials that can unlock their next career opportunities.

Please note that for the remainder of the call as our VR business performance and outlook I will discuss our non-GAAP financial measures unless otherwise noted.

Gross profit was $88 3 million, a 64, 7% gross margin up 29% from a year ago.

This margin was approximately three percentage points higher than the prior year period due to the positive changes in our segment content margin rates.

Our consumer segments content margin rate increased from six 8% in the prior year period to 73% this quarter in our enterprise segments content margin rate increased from 67% from the prior year period to 71% this quarter.

The margin expansion, we experienced was driven by learners consuming a larger proportion of industry partner content, which on average can have lower content costs, depending on the partner's goals, sometimes with associated additional spend and promoting partner brands as part of our sales and marketing efforts.

Total operating expense was $98 1 million or 72% of revenue compared to 69% in Q3 of last year sales and marketing expense represented 37% of total revenue up from 35% in the prior year period due to investments in sales force capacity and marketing programs associate.

With the higher margin content.

Research and development expense was 20% of revenue and general and administrative expense was 14% of revenue both were generally in line with the prior year period, our net loss was $9 5 million.

Or 7% of revenue and our adjusted EBITDA loss was $4 9 million or three 6% of revenue.

Now turning to cash performance in the balance sheet. This quarter, we had a positive free cash flow of $1 $3 million compared to $7 1 million in the prior year and we ended Q3 and a strong cash position.

As of September 30, we had approximately $786 million of unrestricted cash cash equivalents and marketable securities with no debt.

We believe the strength of our balance sheet in combination with the modest cash requirements for operating needs is an asset that provides us stability and strategic flexibility to execute against our long term strategy.

Next let's discuss our segments in more detail on consumer revenue was $78 million up 17% from the prior year.

We continue to see strong demand for our portfolio of entry level professional certificates, particularly in North America, which we continue to expand with new partners and job roles at a rapid pace.

Segment gross profit was $57 1 million or 73% of consumer revenue up from 6% to 8% in the prior year, given the higher consumption of industry partner content.

Finally, we added 6 million new registered learners for a total base of $113 million.

Our learner growth continues to be broad based with double digit year over year growth across all regions.

That's turning to enterprise.

Enterprise revenue was $48 million up 51% from a year ago on growth across business government and campus customers. In particular, we continue to see strong momentum within Corsair for government, where our catalog of world class brands and job relevant credentials are well suited for workforce development use.

Cases.

The total number of paid enterprise customers increased to 1086 up 53% from a year ago with the majority of additions coming from Corsair for business customers.

And our net retention rate for paid enterprise customers was 111%.

Segment gross profit was $34 million or 71% of enterprise revenue up from 67% from the prior period due to the content consumption mix similar to our consumer segment.

And finally, our degree segment degrees revenue was $10 3 million down 11% from a year ago on lower student enrollments, which we anticipated in our forward looking commentary provided on the Q2 call.

We believe these enrollment headwinds primarily in our mature U S degree programs, where our revenue is concentrated today are associated with broader macroeconomic trends at play.

The total number of degrees students grew 10% from a year ago to 17723.

As a reminder, there is no content cost attributable to the degree segment. So degrees segment gross margin was 100% of revenue.

Now onto our updated financial outlook for Q4, we're expecting revenue to be in the range of $135 five to $139 $5 million or 20% growth at the midpoint of the range.

Adjusted EBITDA, we're expecting a loss in the range of $13 five to $16 $5 million.

For full year 2022, we anticipate revenue to be in the range of $517 million to $521 million or 25% growth at the midpoint of the range for adjusted EBITDA, We're expecting a loss of $44 five to $47 $5 billion or negative eight 9% adjusted EBITDA margin at.

The midpoint of revenue and EBITDA guidance ranges.

As a reminder, our messaging and annual operating framework with regards to EBITDA margin has been consistently at the beginning of the year, we set an annual EBITDA margin target and we manage within that plan based on the trajectory of our business, which we demonstrated last quarter with our revised outlook.

Following our annual planning cycle, we intend to share our 2023 expectations on our Q4 call.

We remain committed to building viable long term business and demonstrating leverage over time.

<unk> tend to continue pacing, our investments appropriately increasing our focus and aligning our cost structure, including our consideration of current economic trends and uncertainties.

Importantly, we operate from a position of financial strength and the long term structural trends driving our business have not changed.

Individuals and institutions are increasingly turning to online learning to supply digital skills.

We have a powerful combination of the university and industry content that delivers the in demand skills and branded recognized credentials required by learners no matter the stage of their career.

And our three sided platform provides us with global reach and the ability to leverage our strategic assets across our segments to compete differently.

Now I'll turn the call back to Jeff for closing remarks.

Thanks, Ken.

Before we open the call for questions I'd like to expand on an example, I shared last quarter as it demonstrates the progress speed and scale of what is possible on <unk> platform with system wide collaboration.

In July I highlighted our recent partnership with Louisiana Tech University, and the University of Louisiana system.

Our initial partnership with Louisiana Tech started as a social impact initiative with the office of student financial assistance via the Louisiana border regions. It was designed to provide low income high school students and graduates access of course, there is entry level professional certificates from Google in order to prepare them for college or to begin a digital career.

This was followed by Louisiana, Texas Summer programming series opened the faculty and staff that has expanded to include professional development opportunities for our employees across all campuses within the University of Louisiana system.

Now the Louisiana Workforce Commission, a state agency responsible for enhancing workforce growth and well paying jobs for Louisiana residents.

Is partnering with Coursera to launch ready Louisiana.

Statewide workforce development initiative, providing training to thousands of Louisiana.

The centerpiece of the program its career Academy as our entry level professional certificates were specifically designed to prepare workers without a college degree or prior work experience.

Using career Academy Louisianian can explore careers develop key skills and competencies build a portfolio of hands on projects using actual workplace tools and earn industry recognized credentials.

And many of these credentials have ACD credit recommendations, which make it easier for learners to earn credit towards the local or online degree program. When they are ready to continue their education.

Finally in recognition of the connectivity challenges that presents a real barrier today. The workforce Commission is making reliable internet access at nearly 60 sites across the state for learners to complete the coursera courses.

Traditional university degree programs and workforce development initiatives, often lack of solid connection to today is in demand jobs and are often not equipped to adapt to the fast changing skilled landscape and evolving employer expectations.

By leveraging Coursera, an entire system of higher education in coordination with government institutions can foster stronger collaboration with industry by unlocking new development opportunities for students faculty and staff by diversifying and expanding talent pipelines for employers and by building a more competitive.

Ive workforce.

This is the vision of course, there are three sided platform at scale connecting learners educators and institutions in a global learning ecosystem designed to keep pace with a rapidly changing world.

Now, let's open up the call for questions.

Thank you.

As a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.

Your first question today comes from Brian Peterson with Raymond James.

Your line is now open.

Hey, guys. Thanks for taking the questions. So I wanted to start on on the enterprise segment and I'm, just curious kind of how the linearity played out through the quarter.

It sounds like you called out some strength in multiple areas Im curious if theres any one or two that kind of outperformed versus some others in that segment.

Hey, Brian This is Jeff, Yes, generally generally speaking I would say that we are seeing what some of the other companies who've announced earlier in the quarter have also been seeing which is.

A bit of cyclicality on enterprise spend, especially in more developed markets like Europe and to some degree in North America.

What we're seeing as I mentioned in a couple of the examples there we're seeing Gov. The government sector continued to grow pretty strongly I think that there is some counter counter cyclicality there.

And.

We're seeing a lot of interest as well from education institutions, who were just kind of realizing that there might be some counter cyclical cyclicality.

The cyclicality, there and Theyre thinking about how can we upgrade our curriculum.

For better better graduate placement rates so.

It's nice to have some diversification there we are definitely seeing a lot of the same macroeconomic things that others are seeing but I think our our diversified model is helping us a bit.

Understood and just maybe a longer term question on degrees I appreciate that the macro sensitivity here, but.

In terms of a lot of your University partners looking at different ways to do this are.

Are we having the conversations now and where we should start to see significantly more programs come in the next few years.

How should we think about maybe the longer term growth rate in that business. It's hard to say, but just curious to think about the longer term lens. There. Thanks guys.

Yes, my sense of this one is there is an overall question about the relative value and demand for the college degree as it credential.

I suspect.

It will be different by region, we're definitely seeing is different by region and Bangalore right now and spent the last 10 days here in India.

There is a demand.

The government's trying to shoot gross enrollment ratio up to 50%.

By 2035.

$3 3 million more professors to serve $35 million more students and so a lot of the demographics that focusing on the U S is not consistent with what some of the demographic trends are in other parts of the world.

And we are seeing college degrees globally b as revered as they have been historically so when we look at this on a global basis.

I think a lot of it is going to be driven by demographic trends I think that especially when you have rising middle classes, but a real premium on education youre going to see we're going to see a lot of demand for this.

So we're very bullish on the future value of a college degree. Another thing is college degrees are not sitting still there might have been five or six examples in the scripts about university of putting career academy literally into their curriculum. So that when someone graduates. They don't just have a degree they've got a degree and an industry specific.

I think a lot of people think of college degrees is static thing that's not going to change, but really the competition among job seekers is going to be those who have maybe micro credentials.

And those who have.

College degree and micro credentials. So I think it's going to it's going to almost always be worth it.

Affordability side, we see affordability really being driven by technology and frankly competition. So I think degrees are going to come down in price, they're going to be a lot more job relevant will be much more broadly available and especially because their online open up to the working adult population, which is a much much bigger market than just young people who are.

And the ages of 18 and 24.

So we are still very bullish on the long.

Long term opportunity for degrees today.

We do have a concentration in North America, where the labor market continues to be tight it's a few programs, but overtime and as you've seen us announce more and more degrees. There's a broadening catalog that's coming online one final thing sorry, the answers so long, but it's obviously an important an important question.

In terms of what models will universities use to put degrees online.

Clearly universities are putting degrees online that's definitely the case because they want to serve working populations growing populations of people who need degrees will they do it themselves with no real help from third parties, where they use a traditional model.

Sort of an OPM model, where 70% of the revenue goes to the provider the OPM or will it be some kind of a blend I think to some degree that depends on regionally, where we are in the world.

North America right now is certainly seeing a trend towards universities, who have the resources at least say, let's try to do this ourselves when we look more globally, we see a lot less of that and so it's going to be a mixed by region as well and I think by playing in multiple regions, we get a pretty good sense.

Of where the opportunities are to help universities, who are going to be bringing their degrees online.

<unk>.

Our scalable platform to help them do that.

I appreciate all the color trouble say Jeff.

Sure.

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is now open.

Hey, Thanks, and nice results here.

Randy on the fourth quarter it looks like your guidance hasn't changed much for revenue relative to the midpoint of prior guidance.

Also assumes a bigger loss so is.

Is that mainly conservatism and maybe factoring in some increased uncertainty and then have your investment plan changed at all.

Maybe ramping investments more than you had previously forecast.

At the end of the year.

Thanks, Stephen Firstly, we were happy with the results.

As we look to Q4 versus the implied guidance last time.

Consistent as we've said with our implied guidance so.

So we havent forecast anything above that.

As you know we've generally done a good job of hitting our guidance. So we're thoughtful in that selection from an EBITDA and profitability standpoint.

We target an annual number as we always remind people and we spend more at the end of a particular year and now we're mindful of costs and especially the operating structure and fixed costs as we enter the new year.

Because we're setting up for the new year always, but where we have opportunities to do things enhance revenue for the future. We tend to keep investing so if you will when we have a beat one quarter you should expect us to guide lower to the same annual target and that's been something we've done consistently but that is a public company. This is I know you under.

And in the statement, but for everybody on the call something we've done consistently since we've been public as well as pre public we've been doing this for a long time, it's the way, we we happen to run the company operationally to try to maximize growth.

And so and to grow and when our markets for the long term. So so thats, what youre seeing there that mechanical action between the current quarter and then still keeping the same annual guidance for the year.

We'll of course update that for 'twenty, three this coming quarter and once again one of the very important things to understand is the way we manage our fixed costs. So that we're set to spend appropriately and have flexibility for the following year at something that's near and Dear to our processes internally.

Got it yeah that's helpful.

And then it sounds like Youre pretty optimistic about the opportunity with career Academy. So just curious what engagement has looked like so far with them although.

And clearly it's early since you just launched it this year and have you seen stronger traction with certain types of institutions.

Relative to others.

Yeah, Hey, Steven this is Jeff.

We're pretty excited about it.

We are we're certainly seeing different levels of traction.

Across different types of institutions.

For the last.

Since we've been public we've seen the professional certificates themselves drive a lot of the growth in the consumer segment I think it just speaks to the basic learner demand for this type of learning products.

And then when we think about institutions, we think about well theyre kind of conduits to deliver that kind of learning experience and credential to learners through a channel when we think about what types of institutional channels have the kind of learn our audience. That's looking to start a career or switch a career it kind of goes governments.

For sure they are really helping.

In workforce development program, but trying to help people.

Get a bridge to all the incredible job and career opportunities that are being created by digital technology, even as that technology is automating jobs and creating dislocation. So I think it's kind of a government, saying well look we're going to have more dislocation, we thought because of technology, but maybe with these types of <unk>.

Does your credentials, we can help more of our people.

Advantage of it and get a share of the kind of opportunity thats coming from that technological change.

The second I would say at campuses where.

Maybe for years, maybe decades employers have been saying to educational institutions and systems frankly.

It would be really nice.

Graduates had some more job relevant skills when they graduated.

But affecting the change of helping these educational institutions have the agility to figure out how might we create curriculum that can help produce those types of graduates.

To some degree career Academy provides a pretty turnkey mechanism to do it. So we're seeing a lot of interest it's still early days and we're kind of creating a market. So it will probably take a little bit of time.

But it seems to be a pretty effective way to help educational institutions bridge that gap between graduate habit and when employers are looking for that but then I think on the course there for business side, it's still earlier days, but what we're seeing in the U S is a number of employers who are saying I want.

To attract more frontline workers and Theyre looking for a career development benefit they are looking for some signal that where to invest in them and we're going to create a career, that's beyond just that frontline retail job or or or being a bruce.

In the coffee shop.

We want to provide something to attract and retain our frontline talent and in Europe , frankly, we're hearing a little bit around the need to reskill and redeploy people, where it's harder to exit employees.

Just some of the regulatory environments. There. So theyre thinking we're going to have to reskill and redeploy people, what's the way to take someone from job, a and train them up and get them productive and a higher value added role job b and it feels like career academies, starting to resonate with that too. So that's kind of the order that I would go.

Alright, great. Thank you.

Sure.

Your next question comes from the line of Tom <unk> with Citi. Your line is now open.

Yes, Thanks, it's Tom here from Citi. Thanks for taking the questions.

Congrats on the results.

One question and a follow up actually I was going to start with consumer.

Obviously, if it keeps on getting better and better like micro credentials and professional qualification the main driver of that so.

So it's interesting.

Happening.

Hi, Miss with more plain Vanilla universe.

And is it still.

How you would expect is that is there any sort of.

Its cyclicality.

Changes in how the content is consumed in the <unk>.

Approach, it's great and things like that.

Okay.

Yeah, Hey, Tom This is Jeff I'll take this one.

Yeah, I think it sort of depends on the on the segment in the consumer channel. We clearly still have a lot of people, who are coming and taking university courses, but often those are not as career relevant courses and more often taken.

Without paying for it. So you just get the videos, but you don't actually get the don't get the credential most of the consumers I think are more career focused and they are looking for that job training and so disproportionately what they're paying for in the consumer channel as the industry content. When you look at other channels, though notably the course there for <unk>.

Business channel there are a lot more advanced topics in business technology and data science from University. They are a bit more cutting edge and theyre doing pretty well. So I would say that what universities are generally doing what is some of the more advanced content in business and technology and data science and of course they are for business.

And frankly in the Coursera for campus channel. Some of those advanced courses are being used as a standalone electives, where maybe a university doesn't have.

A large data science staff, I mean, imagine a university say in Indonesia.

And they haven't really hired up a really big data science staff and maybe there is nobody on faculty, who understands the intricacies or doesn't offer of course on deep learning well the university courses on Coursera often touch on these.

Sort of advanced courses and they could be pretty handy to offer standalone electrics as part of University curriculum, because they come from a notable university and they are in a cutting edge field.

Not currently part of the course curriculum course offerings of that University.

Okay.

That makes a lot of attention I guess that possibly explains why.

Gross margin.

Seamless tickled about enterprise maybe that.

That's one of the things I think.

I think Thats fair, Tom Yeah, Yeah.

Second question.

On the Green.

I mean.

I suppose the obvious implication is that the sort of relative weakness in degrees is the other sides of the coin of strong growth and as you might be to credentials, especially as it were or at least in the U S.

Because the question is really there.

You made a very adequate pointing about.

The opportunity internationally, which I totally agree with but in in the U S.

Is there any need to sort of pools the rollouts.

Oh.

Degree programs I'm, just interested in whether it's taking up a disproportionate amount of capital.

So if you could put.

Put your shoulder to the wheel on that on the degree side or is that something that can.

Would it be developed without necessarily.

Does it come with sort of.

Secondly in too much capital.

Yes, Tom I think since the time that we have gone public obviously through Covid.

A lot of.

A typical phenomenon and signals being sent its often hard to parse out what's what's going to be more enduring and what's going to be more temporary during that time unprecedented time, we brought a lot of degrees on platform and we are learning about what which ones resonate with learners and which ones don't resonate. So much in what features of degrees are resonating with <unk>.

And frankly, which features of degrees or not.

I don't think that its so much about slowing the pace of bringing degrees on platform, but I do think that there are certain types of degrees in certain types of features that we are understanding our very attractive, especially to working adults.

And in the script, we mentioned bits Bolani and.

The features that we've described there are the kinds of features that that universities are looking for.

Working adults who are looking for in a lot of that has to do with affordability in demand skills integration administered content.

Convenient ability to start to degree. So you can start at any time online the way that you have to go through the application process can it be more performance based.

That's what we're finding is degrees that have those features are performing better than degrees that don't and so what we're really doing is focusing more of our attention on degrees. All of those features currently on our platform.

On changing degrees are on platform to adopt more of those features and then sourcing new degrees that have those features because.

We're hearing learners tell us we've done quite a bit of research on this in the last six months or so.

<unk>.

Yeah.

Working adults are looking for something a bit different than the traditional on campus degree I think we're going to see is that phase one of online degrees with kind of just take what was on campus and put it online.

And I think phase two is going to be add.

Add some additional features that really work better for working adults and as those types of degrees come online I think theyre going to better meet the needs of a large portion of working adults who wanted to get a degree but to do we've got a really kind of work for them.

Ken I don't know if you want to add anything to that.

Yes.

A little bit users more interesting part, but to get to the capital part of the equation, which is very important and a differentiator on our approach to the business, which is that yes, while we're investing in go to market on degrees, it's not that expensive. We believes in the long term outlook to say the least as Jeff was talking about.

But very importantly in the near term, there's not a huge capital burden and there is a misconception out there due to the OPM the traditional OPM industry historically that would have huge capital commitments before implementing these various programs the programs the degree programs.

From a marketing cost standpoint, we are much lower price because we generate our own user 75% of which are free as we've talked about AD nauseum almost since the IPO, but super important to understand that differentiation and secondly, the servicing cost fronts are much lower because we act as a platform we're not doing the production.

And that's what's enabled us to compete the way we do it also keeps it it keeps the degrees program from sucking up a lot of working capital and net capital. So we don't we don't share the problems that some of the traditional rpms did earlier and their existence and perhaps to some degree today.

That's very clear thank you very much.

Okay.

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

Hi, Thanks for taking my question and congrats on a great quarter, Jeff perhaps to start with you.

Corsair for business.

It was interesting the comment you made about <unk>.

In North America really the platform being focused as a career development benefit or us versus Europe being more of a sort of a re skilling tool I'm curious how that's evolved over the last six months.

And as you think about those use cases, when you speak to <unk>, what sort of level of prioritization are they putting on those types of initiatives, especially given their budget planning process for next year and given the macro we tend to see some budget cuts on the LNG side of things, but what we'd really like to know sort of from your viewpoint and from your conversations.

<unk>, whereas the prioritization lie in terms of.

Investing in expansion of those types of initiatives going into next year and how do you feel positioned wise, if we start to see some consolidations or some sort of tighter budgets.

Brian Great question, and it's evolving it's evolving.

The career Academy offering is fairly recent for us and so.

Pretty new and we're only getting some I'd say early indications of how this this offering will fit into the greater.

Agenda for learning and development departments, I think youre right, though I mean LNG budgets are tightening.

Generally speaking historically, it's been a fairly discretionary spend.

Speaking I think it's continued to be more discretionary and cyclical than other parts of our business. Some of the other segments and at least that's what we're seeing in terms of where their priorities are going to be.

You know it.

It feels to me.

<unk> talked to a lot of <unk> and.

Europe is really holding onto their purse strings, it seems and.

They which is interesting because during COVID-19 I think there was a lot of emphasis on just generally putting a lot of online learning and development programs out there to support Workforces, who are going through the whole shutdown.

<unk> at least the office closures in Europe , I think that what's happening in Europe , now is causing a contraction.

The LNG spend.

When we think about well when they take those extra when they take those dollars that they're going to spend what are they doing with them I do feel like they're there they're focusing on consolidating the fewer players I think is going to make it harder for smaller players and more niche players too.

To be as successful.

And there is competing demand I mean, there's a lot there's a lot of things that LMB folks have to figure out.

Try to put their spend against one is continuing to build tech talent in data science talent, I mean, thats really important and I think thats some of the lease discretionary money that needs to be spent and so I don't see that really going away as much.

The general broad based learning programs that aren't really specific and don't really dial into critical job roles that need critical skills. I think those are on the more discretionary side.

I think LNG is kind of putting the money against.

What what job roles need which skills to drive the business agenda that the CEO and the C suite exactly we're talking about and I think Thats generally data science technology and also some of this workforce reskilling programs and that re skilling is I think they are just starting to see how they might do that at greater scale.

That's really helpful maybe as a follow up.

And this is more focused on.

The collaboration as you talked about between the industry and University partners.

No.

Is the strategy there in terms of is this really a goal of trying to drive sort of more of the professional certification type.

Learners into degree programs over time, and if so how do you think you bridge that gap or it sort of.

Shift that learner into sort of that more longer duration program over time, and if it works what sort of efficiency can this create in terms of their your sales and marketing line item. Thanks.

Yes.

This is the answer that I will provide us a bit of a continuation to an answer that I provided.

Earlier to I think it was Brian when he asked.

When <unk> started 10 years ago. It was all about Moocs massively massively open online courses and and.

And I think that.

What people saw was Oh my gosh. These moves are going to threaten degrees, maybe they'll replace degrees and even today boot camps and all these other types of micro credentials people, often think albeit might replace degrees.

We've always had the opinion, perhaps because we were started by two university professors that there was going to be a much more nuanced portfolio of credentials out there the way that people learn and the credentials that matter to employers is going to broaden its not like one credential is going to beat all the other ones and that's what we're seeing we're seeing.

Not only a portfolio of credentials, some very quick and cheap and have less.

Employability signal and some that are longer and more robust and have more employability signal.

And so not only are there more credentials out there, but I would also say that the way that those credentials stack into each other how one credential say from an industry can count towards another credential from the University. So I think that really its been quite some time really I think since we launched our first real University of Illinois.

This idea that you could go from a to a degree.

Has been something we've been working on quite a bit.

I think that what's happening in the last year or two is that we're just formalizing and building out that capability. So it's not just a move to a degree it's a.

Credential, which is the professional certificates.

That can be integrated with degrees for credit.

Right now 12 of the professional certificates in the career Academy have AC credit recommendations. This is the American Council on education, where the AC. He is recommending to every college and University in the United States that any learners, finishing this professional certificate could be should be awarded credit and mismatch.

Many credit hours towards the degree.

A lot of universities are starting to pick up on this and say Wow. This is not only way to improve the employability of my graduates.

It is actually a funnel where I can get some leads into my degree program. If I can reach out to all those learners, earning industry micro credentials and say hey, you're already on the way towards earning a degree from my institution.

Can improve my curriculum and get a source of new learners, mainly working adults and when you look at the demographics in the U S.

The 18 year old population is getting smaller post millennials.

Universities need to go after working adults well if you can get working adults to start with the Ministry micro credentials and then have that be the on ramp to an online degree that people can take while they're working that's the system that benefits department of labor because they can help retrain their working adult and university. So that they can recruit and serve a population of learners who traditionally.

They just didn't serve before.

Thanks for the color Congrats again.

Thanks.

Your next question comes from the line of.

Saltzman with Morgan Stanley . Your line is now open.

Hey, guys. Thanks for taking the question.

So my question is around Corsair for business and just kind of the go to market motion I'm curious if there's anything that you all can share on how big.

The web enabled sales component is today and if you do you expect kind of the mix of leads to change over time.

And also just anything you can share on how that performance is different from the direct sales effort.

Sure Matt.

<unk> been close to the model to test that Wes.

West has not been a big area of emphasis its a different way to serve smaller purchases departmental. So just to eliminate the hassles often of dealing with bigger companies and so west is something thats kind of a natural offshoot of what we do anyway, we have the platform because of consumer and.

We capture west independently west.

West has been steady for some quarters and years, it's not a huge part of the business. It is a part of the business. It's still important to us. So we continue to serve it theres still ongoing investment to allow that infrastructure, but we keep it to a minimum and it serves as a gateway and ability to upgrade so it can be.

Part of our land and expand strategy, but not something that we hit directly.

As an investment so we enable it but it's a smaller part of the business and service a broader needs.

Got it so just to make sure I'm understanding correctly.

Direct sales you guys are typically go in.

More of kind of the higher level.

I don't want to necessarily say C suite at the higher level of the organization and then at the more departmental call. It HR level that might manage over a separate learning and development.

Budget, that's kind of where web enabled sales can come into place more often yeah. There could be there could be a couple of different possibilities. It's really just smaller departmental when youre doing something for the whole entity that tends to more of an enterprise sale right. The vast majority of the deals are multi 100000 or six figure deals sometimes seven figure west tends to be a much smaller price.

Point, so it could be ahead of the engineering ordering for his group of 12 people or departmental engineer it could be someone in LNG, but the LNG deals tend to be bigger deals or corporate wide, so really more departmental and operational and sometimes their trials are samples. They are looking at evaluating.

Understood. Thanks, so much.

Sure Matt.

Your next question comes from the line of Brett Knoblauch with Cantor. Your line is now open.

Hi, guys. Thanks for taking my question.

The industry content that is higher from a content or segment margin perspective, but it also sounds like you guys. Then has to invest more on the marketing front to drive demand for the industry content I guess, if you account for that incremental marketing investment.

In the margin differential between the industry and.

The University content.

Brett.

It's an important question actually because.

It's something we're very focused on the industry credentials have been great for us across all the different parts of the business. It's part of what Jeff talked about even as it relates to the degree as the stackable portion. So it's something we're focused on it's also been very successful. So the margin profile matters as we've discussed regularly they tend to have a higher gross.

Margin profile, because the objective of the industry partners is often for their publicity purposes for fore.

Pushing forward their platforms their business, how they make money that's what they care about they are not as focused on revenue dollars from learning right. It's not what they do it's not their primary business that said.

The numbers are a little bit across the board, but it tends to even out not far from where they do for the standard media right. They want us to invest at a reasonably heavy level, where we're using their brand.

And to market and promote what they do that's why they're doing it and so the overall economics when you drop it down to say an EBIT line.

Relatively similar that's very broad brush declare it varies quite a bit depending on the partner, but in generalities you can expect we're investing a fair amount below the line as well.

Perfect understood and I guess, what would be the pathway to generate leverage there if theres a constant need for additional marketing spend to drive demand for either the academia or the industry content. I guess broader question is can you just give some longer term thoughts on how we should be.

And about your path to profitability.

Sure well pass the profitability is something we think about it and it's pretty complicated we look at how we're scaling which is part of your question here you do get more scale over time, it's hard to answer your question discreetly just because of the way the expenses do flow. So we invest in the different programs with industry partners and sometimes for the.

A university partners, we also invest even when there isn't a mandated or just being paid as a rev share to maximize and grow those revenues. So it's looking for continued areas, where we get leverage over time as we grow the company as our brand grows. It helps we don't have to we won't have to invest at the same rate.

Going forward and I expect youre going to start to see some of that scaling relatively soon as we've said we focus on EBITDA and we focus on leverage and I think youre going to start to see some more leverage we're not providing guidance for 'twenty three yet, but it consistent with how we've been thinking about it we're getting closer to a point, where we were.

Start to show, some leverage and profitability matters to us.

If you will it's in Vogue right now with Wall Street with interest rates and so that's not how we run our company quarter to quarter, but we're also paying attention. We are also naturally at a point with the company.

Think youre going to see some more drop down towards the bottom line.

Perfect. Thanks, very much guys I appreciate it.

Yeah, Thanks, Brett and that wraps the Q&A for today, a replay of this webcast will be available on our Investor Relations website, along with the transcript in the next 24 hours. We appreciate you joining us take care.

This concludes today's conference call you may now disconnect.

[music].

Okay.