Q3 2022 Udemy Inc Earnings Call
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Raise your hand during Q&A, you can dial star one one.
[music].
Welcome to you what I mean third quarter 2022 earnings conference call.
There will be an opportunity to ask questions. After the prepared remarks.
I ask a question during the session you will need to press star one one on your telephone.
Now I'd like to turn the call over to <unk>, Vice President of Investor Relations Dennis Walsh.
Thank you and welcome to the <unk> third quarter 2022 earnings conference call joining.
Joining me today are <unk>, chairman and Chief Executive Officer, Greg Mcgarry.
Financial Officer, Sarah Blanchard, and President of <unk> business, Greg Brown.
During this conference call, we will make forward looking statements within the meaning of federal Securities laws.
<unk> 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.
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.
Asking 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 paired in accordance with U S. Generally accepted accounting principles referred to by the Securities Exchange Commission as non-GAAP financial measures.
I believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period to period results of operations.
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 measure is included in our earnings press release.
These reconciliations together with additional supplemental information are available on the Investor Relations section of our website a replay of today's call will also be posted on the website.
That I will now turn the call over to Greg.
Thank you Dennis and good afternoon to everyone on the call.
<unk> delivered another strong quarter as we beat expectations on both top and bottom line.
Total Q3 revenue came in at $158 million.
Up 22% year over year.
Driven by solid execution and healthy customer demand.
The business had another impressive quarterly performance and continued to serve as our leading growth engine.
Revenue in <unk> grew 67% from 59% year over year, respectively.
On the consumer side, we continue to see encouraging signs of resilience of both our traffic and monthly average buyers increased on a year over year basis.
Right the challenging macro environment.
It is clear that customers across the globe are seeing the value of getting this platform, where theyre upskilling and reskilling.
I'd like to take a slightly different approach for our call today, it's been one year since you had with IPO.
Celebration of this milestone.
<unk> got some of our major business achievements.
Our team has a lot to be proud of including first.
Made significant progress toward establishing <unk> as a leading global provider for high quality loading.
As of Q3.
We have more than 70000 courses rated four stars or higher out of five stars.
Second we continue to recruit expert instructors to produce best in class elevate causes impact.
Yes.
Usually it's home to nearly 74000 instructors.
With the high quality courses that giving me has become more important.
<unk> added an average of almost 5000, new courses each month, and even more updates that existing quarter Baker.
Sure.
We are attracting and retaining a growing community of learners worldwide to our platform.
Since our IPO, we've added more than 13 million, new consumer and business learners.
Our total learner base of $57 million globally.
Before.
We have dramatically expanded our international footprint.
Our vast international presence and localized experience are a clear competitive advantage.
We now have nearly 90 non English courses across 75 languages.
14 curated international language collections available to you to meet business customers and numerous new partners in APAC in sub Sahara Africa.
Yes.
We have continued to deliver strong unique business growth.
Since our IPO either business annual recurring revenue grew by nearly 70% to $350 million as of Q3 2022.
Year to date business now has over 13000 customers around the world.
As forecasted the mix of revenue surpassed consumer revenue this quarter.
And finally, we consistently delivered strong financial results for you to meet first four consecutive quarters as a public company.
As you can see we've accomplished a lot, but we are still in the early innings of a market and growing market opportunity and overall year to our journey as a public company.
There is still much more to do to help instructors learn as an organization.
All the best and most engaging global learning experiences.
I'd be remiss, if I didn't acknowledge the team effort here at <unk> to meet that makes this all possible.
We have some of the brightest talent in the industry I would like to point all of our more than 400 units across the globe for their hard work and dedication to our mission.
Before I conclude I wanted to highlight a few exciting events that we have coming up this month.
Next week <unk> business, we'll host our annual forward event.
Thousands of decision makers, including CLO.
And people leaders for some of the world's largest companies will attend the conference virtually to get inspired about new learning strategies.
It will be a day packed with key insights and tips from utility meters with customers to help companies Upskill and reskill their workforce.
And lastly.
We hope all of you will be able to join us for our first Investor day on November 17.
During this virtual event, you will hear about year to mix long term growth strategy.
<unk> partnerships financials and future expectations.
Look forward to diving deeper into our business.
Our team is sharing more with you about given this vision.
With that I'll now.
Now I'll turn the call over to Sarah to summarize our financial results.
Thank you Greg.
You didn't you had a strong first quarter and we exceeded expectations for revenue and adjusted EBITDA margin.
Total Q3 revenue of $158 million came in above the high end of our guidance range of 153 to 157 million.
The 22% year over year increase was driven by continued momentum and execution in our <unk> business.
Which consistently performed well across a broad range of verticals and geographies.
The recent strength of the U S dollar against major International currencies has reached levels, we have not been in decades, and our diverse geographic footprint exposes us to foreign exchange or FX headwinds.
As a result, the year over year increase in total revenue includes the negative impact of five percentage point from changes in FX rates.
As we move down the P&L note that all financial metrics are non-GAAP unless stated otherwise.
Q3, gross profit was 92 million up 27% year over year.
Gross margin was 50% or an approximately 220 basis point improvement from Q3 of 2021.
This margin expansion resulted from the continued revenue mix shift to you to meet that.
Content cost as a percent of revenue are lower for that segment.
Given this shift we also experienced an increase in customer success costs to support a growing roster of <unk> customers.
Total operating expense was 109 million four six net revenue compared to 57% in Q3 of last year.
During the quarter, we continued to invest in key focus areas as well.
We will further operational efficiencies.
We're employing a disciplined approach to managing costs across the entire business, while keeping an eye towards achieving profitability.
Sales and marketing expenses were 43% of total revenue compared to 39% for the same quarter last year.
Q3, we continue to shift our marketing investment tw.
We're experiencing strong growth and ROI by extending our global go to market and enterprise marketing capabilities.
As always we are committed to disciplined and efficient marketing spend while also investing where we see clear sustainable growth opportunities.
R&D expense was 14% of revenue compared to 12% in Q3 2021.
We're making strategic investments in areas that will be most impactful and that we believe will generate an attractive return for our business.
This includes continuing to build out our comprehensive learning platform for corporations.
That platform is powered by highly rated content proven product features and machine learning models from our consumer marketplace, which also provides powerful data and insights in terms of the robust lead Gen engine and.
In addition, we are rolling out <unk> and personalized learning experiences, including Latin assessments and also investing in the ability to guideline us through their journey.
For example, last year, we launched <unk> com.
This new offering enables customers to evolve their technical skill development within our planning experience, thus far and funded.
<unk> features the repack skills assessment, Workspaces and hands on labs across the most critical and sought after scale and cloud computing software development data science.
We continue to build hands on labs with real World scenario increased our total number of flat I nearly 50% since last quarter.
Most of our enterprises segment or are you going to be business. We grew to three revenue to 84 million or an increase of 67% a year, which includes a negative four percentage point in past from changes in F X rays.
And Greg mentioned at the start you mean business accounted for 53% of revenue in two three.
Surpassing the consumer segment is majority share of total revenue.
We ended the quarter with over 13400, <unk> business customers, a 40% from a year ago and annual recurring revenue of $350 million of 69% year over year.
You can read this is proving resilient against the challenging that for environment.
Pretending to be continuous getting massive <unk>.
Around the world are speaking to fill and refill their employees.
She's business outcomes more effectively by leveraging you to make platform.
As a result, we continue to see an increase of new an expansion deal demonstrating our customers to be the value. So thank you to make platform can bring to their businesses even in challenging times.
During two three we close to most deals over $1 million in our history and wrote me from opening your deal accounted for over 40% of <unk> business revenue, which increased 135% you over here.
In total we added more than 900, new domestic and international <unk> business customers during Q3.
Believe we sent Kia Ora and Samsung Electronics America.
Many of our existing customers are increasingly send over time driving compelling L. T V.
Are you in the business and that that'll retention rate was 117% of course Ah slight 100 basis point decrease from the prior quarter.
The decline in N D. R is primarily due to the smaller businesses that are taking a more cautious approach to external spending given the challenging macro environment.
When you look specifically at night dollar retention for enterprise cohort our customers with at least 1000 employees. It was even higher at 123% and that cohorts net dollar retention has remained consistently about 120% for the past several years.
This level of retention demonstrates both the quality of our contact and the continued success in Orlando next strategy.
For example during C. Three we close several large expansion deals with global corporations, such as Taka consultancy services, a little later in I T consulting.
Permanente medical growth the largest medical group in the United States and Gale part of Cengage group, a global provider of educational resources that acts as a reseller for you to me.
You can read business segment gross profit for the corner with $56 million or 67% of segment revenue, which represents a roughly 200 basis point increase year over year.
The increase was primarily driven by broken a reset my apartment program, where we record revenue on a gross basis inclusive of reseller fees.
And our consumer segment Q3 revenue with $75 million.
Yeah, almost 6% year over year, which includes a negative six percentage point impacts from changes in F X Ray.
In spite of those macro headwinds were encouraged by the continued resilience we're seeing on our platform.
<unk> with strong the third quarter with an industry, leading $35 million monthly average unique global visitors of 7% year over year.
The $1.3 million monthly ever fires purchase decor are subscription on our marketplace or in Q3, an increase of 4% year over year and.
And we were talking thousands of instructors that regularly at high quality fresh content.
All of this supports the powerful flywheel effect now we get from having a vibrant marketplace, which amplifies you'd any business growth.
Yeah. The system of these two parts of our business is a differentiated model that we believe will continue to drive total companies help line growth over the long term.
Consumer segment gross profit was $39 million or 52 per cent of segment revenue approximately 120 basis points lower than in Q3 2021.
The slight year over year decline in consumer segment gross margin was primarily driven by higher mobile transaction and hosting fees.
No turning to our our.
Consistent with the last few quarters, we continue to face a volatile and uncertain macroeconomic environment and increasing FX headwinds.
Like many other companies, we're also seeing a greater impact on our small and medium size customers.
Although these forces that are beyond our control may I have a short term impact I need to be business revenue, we have an increasing conviction that these factors are driving many larger organizations to prioritize cost effective training rescaling, an upscaling of their workforces.
You mean business provides clear value for our customers as rapidly deployable and deliver a strong employee engagement demonstrating the immediate impact of our learning platform.
Together, we believe these factors pro at a certain level of resilience and countercyclicality at our business that physicians with wealth for long term success.
With that as a backdrop, we expect to for revenue to be between $164 million and 167 million or 22% year over year growth at the midpoint driven by continued you'd meet that this momentum.
We expect that gives me business segment revenue as a percent of total revenue will further increase from Q3.
Given the historic rate at which the U S. Dollar has strengthened this year, we continue to expect for an exchange to be a headwind in Q4.
<unk> foreign currency exchange rates remain constant effect is expected to attack total revenue year over year growth by approximately six percentage points in Q4.
In addition, we expect an adjusted EBITDA margin of negative 17 per cent to negative 15 per cent.
As a reminder, we typically experience of seasonality during the fourth quarter, when we ramp up our marketing investments around Black Friday.
With that in mind for the full year 2022, we expect revenue to be between $628 million and $631 million or 22 per cent year over year growth at the mid point.
Lastly, we are raising our full year of 2022, adjusted EBITDA margin guidance to arrange a negative 10 per cent to negative nine per cent.
In conclusion, you to me it has established itself as an enduring platform, serving a clear need for organizations and letters.
Quite a challenging environment you'd any business is expected to continue performing well.
Okay. So you were marketplaces resilient and well positioned to deliver the contact that support sustainable long term from a freedom your business.
We will lead into invest in our biggest growth opportunities, including shipping R&D and marketing spend toward you to be better.
That's always we will be prudent with expenses to ensure we generate the greatest all my possible with a goal of achieving profitability and an adjusted EBITDA basis in the near term.
Ultimately, we are as bullish as ever about the longterm opportunity available to you to me and I Hope you will continue to support us on our journey.
So with that will open up the call first question and as a reminder, we also have great Brown President beauty business joining us today.
Moderator.
As a reminder to ask a question you will need to press star one one on your telephone.
<unk> one one on your telephone to ask a question. Please stand by while we compile the Q and a roster.
Our first question comes from the line, Rob Oliver a bird. Please go ahead.
Great. Thank you guys very much for taking my question and good afternoon.
<unk> My first was for Greg Brown Uhm Greg.
Continued really strong performance.
B and just curious obviously a couple of big countervailing transfer on the one hand economic headwinds would you guys have mentioned nothing Sir mentioned you guys are not immune to on the other hand really seems like companies are buying into the value proposition of you'd be so I was wondering if you could talk will deal with about those two trends what you're saying.
The macro if there was any change in linearity throughout the quarter, particularly towards the end of the quarter and then I had a quick follow up for Sarah.
Sure. Thanks for the questions. So now.
Now as far as.
Surrounds her concern remained pretty consistent with respect.
Further consolidation of enterprise organizations.
Moving more of their spend from offline to online and we saw that again this quarter reflective and.
Then that dollar congestion we saw it at 123% on the enterprise side of the business and.
An example of that is you know one of our large multinational financial services firms went through a consolidation effort multiple vendors.
In in different areas of the business and they went through the consolidators consolidation effort in an effort Jack.
Standardized on one platform to enable them to across will check in business skills more efficiently.
More effective cost per learner.
Drive Upscaling Rescaling and we were unfortunately come come out on the right side of that and Dot net a doctor.
A three year contract or just under a million dollars a year and we're seeing more and more of this type of consolidation as we move further into the recession.
We do expect growth remained durable across our enterprise business and then that's just an example.
Okay, great Yeah, that's super helpful. Callers, Thanks, Greg for that and then Sir just a quick question for you you know you guys.
Outperformed to get on the on the on the bottom line. So.
Really nice job on the cost side.
You will last quarter, you guys had also called out sort of a stabilization and the consumer business.
At a lower spend right there in terms of marketing dollars and is.
Is that consistent this quarter I know more stabilization, but have you guys find ways to drive that consumer business at a lower spend point in terms of marketing. Thank you.
Thanks for the credit question, Rob Yeah. So we're really pleased that we were able to keep guidance again.
EBITDA a few things are going into this match.
Such as closely but as you called out we are being really careful with our marketing spend on it.
Suicide, we raised our ROI targets and even embracing those targets and reducing standby, we're really happy to see traffic up across the board. So just continue to see positive signals or really encouraged by the resilience than we're cautiously optimistic going into the fourth quarter.
Great. Thanks again, guys appreciate it.
Jacob.
Thank you. Our next question comes from Ryan Mcdonald of Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a nice corner. The first one for Greg Corrie consumer.
That's great to hear about the resiliency in the business I'm curious as you look globally in areas or regions that are being maybe more significantly impacted by recessionary pressures.
And lay offs et cetera are you seeing any pockets of strength or or that resulting in in learners coming back onto the platform to perhaps.
Create a bit of counter cyclicality on the consumer side of the business of sort of driving more reskilling in that environment.
Yep. Thank you for the question.
We've actually seen a lot of strength.
Reached in the world the traffic, which is a leading indicator with a 7%, but it varies by country. We had some pockets of it that look, particularly good Japan was very very strong.
The traffic side. The U S was good Germany was pretty good the UK wished out a little bit so it's a little bit mixed with overall.
Very happy with what we see on the learner side.
Got growth overall growth in our Ah must.
Must be active learners impulse to new and existing so so we're driving more new new bars.
Buyers and we're spending less money so.
Showing some countercyclicality two business.
Really helpful color there, maybe my second for Greg Brown, Greg Great to see the performance on on <unk> business in the enterprise I'm curious clearly.
A nice seat based expansion opportunity as as customers consolidated around fewer vendors, but I'm curious to hear what impact sort of the the newer offerings like you to any business pro feminist enhanced functionality around skills assessment is having on whether that's creating sort of a.
Ah differentiation for you in that consolidation process, and then does that have any impact on sort of price points per seat. Thanks.
Alright, thanks for the question Yeah. So we we really had.
Good solid quarter with respect not only expansion.
Seats that were on demand learning product, but new products I E CT learning.
As long as you're pro and I'll give you. An example, one of our large multinational enterprises that we were currently working with from an on demand learning perspective.
We identified an opportunity to help them with their emerging leader segment.
Give them a platform and leverage to be able to educate and upscale the 3000.
Emerging leaders on an annual basis, and really what that netted out to us.
Two year contract worth roughly $1.6 million, a year and on our cohort leadership platform.
And in combination with her on demand learning.
Engagement, it's already underway. So we are seeing a lot more interest in expansion in our additional products and that momentum continues to build real happy with the momentum.
Excellent congrats again.
Got it.
Thank you.
Next question comes from the line of Steven Sheldon William Blair. Please go ahead.
Something unblock pushing in incentivising through slightly better pricing, when going after new customers or or to consolidate spend for existing customers like.
An example, you gave Greg or just generally what's driving that really notable growth and multiyear business deals.
Hey, Steven as soon as I think you are muted at the beginning of that question. If you could just repeat it alright.
Yeah I was just saying thank you see you guys are the growth and multiyear deals.
So just kind of more detail on that is are you incentivize answer better pricing.
Just more detail on that.
Steven.
The.
We've made a concerted focus.
To lead with multiyear deals as a result of the up leveling.
Both the product platform as well as.
The sales motion selling high for the C suite and and focusing on extended value that we are providing largely in partnership with our customer success, Jane which is really focused on driving outcomes. So.
Our entire sales motion has evolved and changed you know over.
Over the last year and.
And that really is indicative of and supports what you are saying now which is.
Significant increase in multiyear deals both of on demand learning as well as across platform.
So expect that to continue and it's not it's not happening as a result of price significant price incentives, it's much more around value and resources were bringing to bear.
To act as a trusted advisor in long term partner in support of the outcomes of customers trying to achieve.
Great I appreciate that color.
<unk> is a follow up.
Curious heading in the fourth quarter and others, they're huge listen moving pieces on the consumer gross profit of gross margin.
And I think it's usually seasonal weaker <unk> again, some of the promotional activities maybe provide any commentary on kind of what we should be expecting onto the gross margin side, but.
The consumer in the fourth quarter.
I think that question. Thanks for the question is given so you're right. We do have a big promotion around Black Friday, the fourth quarter.
And that can.
Put some pressure on our gross margin.
So as we continue to see this resilience in the consumer business that as traffic adopt and buying enough. We could see some pressure on it and then again, that's a great signal for us because that means for selling a lot and it will say that back to that in the in the first quarter.
Alright, great. Thank you.
Thank you. Our next question comes from Terry Tilman of Truest. Please go ahead.
Oh, great. Thanks, everyone. This is Scott are faster, allowing for Kerry. Thanks for taking my questions and congrats on a great quarter.
Just the first one digging into the demand internationally, particularly in APAC, there's been some really good traction in Japan, and South Korea, and I know, we talked about last quarter.
Pipeline is building in China, just curious as to how that's developing in what may be the key factors will be for determining success in this market, Nevada follow up.
Sure.
Thank you for the question Yeah, as we've talked about before we're building out a pack with a number of different partners in Japan as a market, that's doing particularly well for us we put up with the work we've been to save for a number of years and we're seeing high growth there the other markets relatively new.
In China, we would absolutely not.
Built out the collection, we have over 800 courses and Andrew and today.
About the collection, we are hiring lots of salespeople in training numbers early days, but we're seeing some nice tracks, we've gotten a couple of <unk> totally days, but it's ramping up.
The same things happen in Korea, and then we signed a deal.
Numb with phonics and they are and we actually close the deal or two there again.
Again R building up.
<unk> collection and hiring.
People.
Perfect self of color and then just on a quick follow up so it sounds like I'm strong quarter from both ears feels better continually becoming a larger proportion of total IRR.
Sounds like a lot of multiyear deals are coming from existing customers. Just curious how the typical deal looks like for a new logo and maybe have like bulbs for the past few quarters, a committee or Mandy Moore.
Most of your tears with with new logos. Thanks, guys.
Yeah. This is Greg.
Look we're having success across the board both with existing as well as new customers from both of your perspective, largely for the reasons I mentioned earlier.
Motion that sales motion.
That we're using now is much more oriented around.
Outcomes that organizations trying to drive a line with strategic initiatives.
And strategic imperatives at a corporate level. So as a result of that the relationships we're fostering.
By the nature of that are long term relationships longterm partnerships trusted adviser.
Such status and that comes with the investment we're making early on from our customer success standpoint. So as a result of that customers are going in today the projects with us.
Multiyear horizon in mind.
We're starting to see that reflected in the numbers that were putting a quarter over quarter. So you should expect that trend to continue and both on the new <unk>, new business side as well as existing customer side.
Sounds great. Thank you.
Thank you again to ask a question. Please press star one one on your telephone again, that's star one one on your telephone to ask a question.
Our next question comes from a line of Josh Bear a Morgan Stanley Your question. Please.
Thanks for the question you you mentioned the the SMB impact to net dollar retention rate wanted to dig in there what is the customer behavior is it churn or contraction or just less expansion.
Hi, Josh.
What we're seeing.
Is.
A ah slowdown and deals moving through the pipeline to closure, we're not seeing.
A significant departure in terms of the funnel.
The marketing frontal and or opportunities that we have and five so it really is just SMB organizations.
Scrutinizing spend and budget.
As they're going through their buying process. So we're.
Still optimistic that we're going to have a <unk>.
Positive quarter on the <unk> side, albeit we do have some headwinds. We are we are seeing a little bit of a slowdown but again, it's not as a result of anything other than I think these organizations are being frozen with their spend in assuring that they're.
They are allocating their budget appropriately.
Okay. That's clear and then just to round that back to the larger enterprises, so you're not seeing that same scrutiny.
Or impact as far as slowdown in deals Ah up market is that correct.
What we're seeing up market is.
In many cases, they do have.
Constricted budgets are budget you have to add a 10 million budget last year, maybe $8 million this year.
But they still have the same imperatives to upscale and reskill other employees to again draw.
Drive toward.
Strategic initiatives.
These employees need to be prepared for so the way. They are doing that is moving more of their learning from offline to online and leveraging platforms like ours to do so and we are well positioned to take advantage of that of that trends and that's what you are seeing right now in terms of the strength on the enterprise side as I alluded to earlier that consolidation effects and.
There's a few reasons why we are.
One and a disproportionate amount of the opportunities were largely you guys are very well aware of it disappear content we have.
Both quality and quantity in fact I think this was mentioned earlier, but this last quarter, along we added 1900, new courses to the unity business catalog and that is unparalleled and it really is it really just put us in a position of strength.
As we move forward in at 13 of those 1300 of those excuse me where non English. So again, we are investing heavily in our international radio concert that's all localized that gives us.
In a real strong position developed to be.
The premier provider for many of these organizations that are looking to standardize on one platform.
Great color. Thank you.
Thank you. Our next question comes from Jason Celaeno of Keybanc. Please go ahead.
[noise], Hi, Sarah Hi, Greg and Greg.
Actually <unk> on for Jason Tonight. Thanks for taking my questions. Here first one I have is an enterprise I think we've talked a little bit.
Earlier, but just want to add a little bit more color on the pipeline for fourth quarter and enterprise segment any indicators that you're looking at that's giving you.
Level of confidence in may be already seeing more robust pipeline development in certain <unk> our industries.
Hi, John This is Greg Brown.
We exited Q3, feeling very good about our queue for a pipeline.
And lying in fact ahead of.
And what we expected quite candidly based on the macroeconomic conditions that being said.
As was mentioned earlier, we have seen some softness in some slowdown on the <unk> side in terms of deal velocity.
Enterprise business across all <unk> continues to remain robust.
Albeit as mentioned earlier, we're not immune to the macroeconomic conditions. So we're going to be paying close attention to the leading indicators in our business as we progress through the quarter and adjusting accordingly, but right now we feel good about the strength of not only the pipeline, but the opportunities that are in flight.
In the sales organization today.
Okay, Great. That's that's good to hear and then one more question I have is.
Ah.
EBIT margin came in a quarter meaningfully higher and I know that you mentioned benefits.
Benefiting from the English you can mix shift towards enterprise, but whether any sort of dynamics in terms of investment is being shifted towards fourth quarter to left it at outperformance any part of commentary can provide on that.
And thanks for the question. So you know as they spoke about we were we didn't pull back in our consumer marketing standpoint, we're happy to see that that business remain familiar and even with that pullback could stand.
Have been shifting or expand to <unk> as that is our main growth engine and so it wasn't really a shift of sand into that fourth quarter. We do tend to have some downward pressure in the fourth quarter because of our gross margin pressure, we feel with our black Friday cyber Monday promotion that happens, but it wasn't.
And it's just managing or spend carefully and just making sure. We're investing in things that are going to have the most impact.
Got it got it no that's really helpful. Thank you.
Thanks Heaven.
Thank you once again to ask a question. Please press star one one on your telephone again, that's star one one on your telephone to ask a question.
Our next question comes from the line breath novel out of Cantor Fitzgerald. Please go ahead.
Hey, guys, it's Alex on Bret Congrats on the quarter I was just wondering maybe on the consumer side has the strength in two to meet business helped.
Some of the consumer strength you saw this quarter past, maybe people learning using it any business with and then going home and getting their own personal account.
Hey, Alex This is Sarah Thanks for the question you know, there's no way for us to really track tablets, certainly the more access exposure that that individuals have <unk>.
Or to you to me through you to me that that's certainly that probably does have some spillover impact on the consumer side of things I think it is you know you've heard of say a product is really engaging and so you can imagine individuals having access to it.
At work and then going home Alright anything Mark It also works both ways that.
We get a large number of leads for you to make business off Arkansas.
Our consumer platform also so so yeah, there's cross fertilization of both of our businesses and now that we have to scale businesses. It works even better.
[noise] gotcha, thanks incorrect again on a great quarter.
Thank you.
Our next question comes from the line Brent feel of Geoffrey's. Your question. Please.
Thanks, <unk> you be the resiliency any tougher macro downturn, assuming the macro economists are right. In this this gets even stiffer into 2023 with the headwinds can you just walk through how you're feeling about.
Man genes earn during this downturn, what what is giving you that that.
That strength and then I'll also if we could just touch briefly on the consumer subscription business and how that's doing what you are seeing any trends there. Thank you.
Hi, Brian . Thanks for the question is Greg Brown, Yeah. So we spend a lot of time.
With the Clo's within our customer base and.
Right now what we're saying is consistent.
Thread of.
Yeah continued investment.
Through the downturn, albeit budgets will get.
We will get compressed as I mentioned earlier, but.
The need to invest in your employees.
When you're going through a downturn like this when organizations are potentially going flat or even maybe joining some right sizing.
Is it it's a strategic imperative you've gotta be able to continue to develop the talent that you have.
To sustain you through a downturn and we're hearing that message consistently across our cielo. So point as we expect further.
Consolidation platforms, we expect more budget continuing to move offline to online.
And as a result of that in our enterprise business, we do feel that we're well positioned to help organizations.
As they are going through this transition and are well positioned to take advantage of the opportunity, especially now with a.
Portfolio of products.
That is that is unique and differentiated with our.
Our on demand learning, we now have a mercy of learning and we have court based leadership development capability that is unique.
It does give us an opportunity to serve organizations in a way that we haven't necessarily in past years and that other organizations don't necessarily have and then last thing I'll mention is the partner ecosystem that we're developing.
But the relationships with with Amazon and others continues to gain momentum.
Shrank then with the continued investments as we move into next year.
We expect these investments it to give us a continued leverage so yeah, we do feel really good about in our business.
Proposition and you know the viability of us continuing to move into next year and beyond in a position of strength.
Yeah, and I'd like to just add to that.
When times get tough.
Think that companies isn't really focused on operational efficiencies or.
Or would that means it's digital transformation efforts.
That are underway or about to be underway keeler continuing to invest in those to drive those operational efficiencies and because our content is so fresh and is able to keep up with the pace of change of technology that gives us an additional advantage of the market like this.
Okay do you Wanna talk about subscriptions, yes are you asked about subscriptions.
We've discussed before we seek subscriptions are very attractive product opportunity for us.
Today, we are alive in eight countries, we're actually turning on India in the next two weeks so.
Lots of testing testing our annual play we're testing local pricing, we're taking a very.
We're doing it.
It's a very complex process and just taking our time and doing it very methodically and you have to be very careful that our instructors are being taken care of that they're making more money along the way we are making sure that that we continue to get all that you believed.
Really the goal is to make sure that we have a real.
Value for others. So so it's is proceeding well in our expectations.
2023.
Thank you.
Thank you at this time I'd like to turn the call back over to Greg for closing remarks, Sir.
Okay.
I appreciate everybody's time today and thank you for your time and I'll look forward to talking to you in three months.
And this concludes today's conference call. Thank you for participating you may know this 10 minutes.
The conference will begin shortly to raise your hand during Q&A you can dial 911.
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Welcome to you what I mean third quarter 'twenty to 'twenty two earnings conference call.
There will be an opportunity to ask questions. After the prepared remarks to ask a question. During the session you will need to press star one one on your telephone.
Now I'd like to turn the call over to <unk>, Vice President of Investor Relations Dennis Walsh.
Yeah.
Thank you and welcome to the <unk> third quarter 2022 earnings conference call joining.
Joining me today are <unk>, Chairman and Chief Executive Officer, Greg Perry, Chief Financial Officer, Sarah Blanchard, and President of <unk> business, Greg Brown.
During this conference call, we will make forward looking statements within the meaning of federal Securities laws. These statements involve assumption.
Subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated.
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.
You should 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 U S. Generally accepted accounting principles referred to by the Securities Exchange Commission as non-GAAP financial measures.
We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period to period results of operations.
Our meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release.
Conciliation of these non-GAAP measures to the most comparable GAAP financial measure is included in our earnings press release.
These reconciliations together with additional supplemental information are available on the Investor Relations section of our website. A replay of today's call will also be posted on our website with that I will now turn the call over to Greg.
Thank you Dennis and good afternoon to everyone on the call.
<unk> delivered another strong quarter as we beat expectations on both top and bottom line.
Total Q3 revenue came in at $158 million up.
Up 22% year over year.
Driven by solid execution and healthy customer demand.
The business had another impressive quarterly performance and continued to serve as our leading growth engine.
Revenue in <unk> grew 67% and 59% year over year, respectively.
On the consumer side, we continue to see encouraging signs of resilience of both our traffic and monthly average buyers increased on a year over year basis, despite the challenging macro environment.
It is clear that customers across the globe are seeing the value of getting this platform, where theyre upskilling and reskilling wounds.
I'd like to take a slightly different approach for our call today, it's been one year since <unk> IPO.
Celebration of this milestone I want to reflect on some of our major business achievements.
Our team that velocity proud of including first we've made significant progress toward establishing <unk> as a leading global provider for high quality learning.
As of Q3.
We have more than 70000 courses rated four stars or higher out of five stars.
Second we continue to recruit expert instructors to produce multiple class elevate causes and practice exercises.
Due to me is home to nearly 74000 instructors that produce the high quality courses that you didn't have become known for.
<unk> added an average of almost 5000, new courses each month and even more updates.
Okay.
Sure.
We are attracting and retaining a growing community of learners worldwide to our platform.
Since our IPO, we've added more than 13 million, new consumer and business learners, bringing our total learner base of $57 million globally.
Okay.
Before.
We have dramatically expanded our international footprint.
Our vast international presence and localized experience are a clear competitive advantage.
We now have nearly 90 non English courses across 75 languages.
14 curated international language collections available to you to business customers and numerous new partners in APAC in sub Sahara Africa.
Yes.
We have continued to deliver strong unique business growth.
Since our IPO ebay business annual recurring revenue grew by nearly 70% to $350 million as of Q3 2022.
Year to date business now has over 13000 customers around the world.
And as forecasted.
Mix of revenue surpassed consumer revenue this quarter.
And finally, we consistently delivered strong financial results for you to meet first four consecutive quarters as a public company.
As you can see we've accomplished a lot, but we are still in the early innings of a multiple growing market opportunities and over one year into our journey as a public company.
There is still much more to do to help instructors learn as an organization.
Through the best and most engaging global learning experiences.
I'd be remiss, if I didn't acknowledge the team effort here year to meet that makes this all possible.
We have some of the brightest talent in the industry will likely.
All of our more than 600 units across the globe for their hard work and dedication to our mission.
Before I conclude I wanted to highlight a few exciting events that we have coming up this month.
Next week to meet business, we'll host our annual forward event.
Thousands of decision makers, including CLO <unk> and people leaders from some of the world's largest companies will attend the conference virtually to get inspired about new learning strategies.
It will be a date pact with key insights and tips from utility meters with customers to help companies Upskill and reskill their workforce.
And lastly.
We hope all of you will be able to join us for our first Investor day on November 17.
During this virtual event, you will hear about year to mix long term growth strategy products partnerships financials and future expectations.
Look forward to diving deeper into our business.
Our team and sharing more with you about <unk> vision.
With that I'll now.
Now turn the call over to Sarah to summarize our financial results.
Thank you Greg.
<unk> had a strong first quarter and we exceeded expectations for revenue and adjusted EBITDA margin.
Our Q3 revenue of $158 million came in above the high end of our guidance range of 153 to 157 million.
The 22% year over year increase was driven by continued momentum and execution in our <unk> business, which consistently performs well across a broad array of verticals and geographies.
The recent strength of the U S dollar against major International currencies has reached levels, we have not been in decades, and our diverse geographic footprint exposes us to foreign exchange or FX headwinds.
As a result, the over year increase in total revenue includes the negative impact of five percentage point from changes in FX rates.
As we move down the P&L note that all financial metrics are non-GAAP unless stated otherwise.
Q3, gross profit was 92 million up 27% year over year.
Gross margin was 50% for an approximately 220 basis point improvement from Q3 of 2021.
This margin expansion resulted from the continued revenue mix shift to <unk>.
Content cost as a percent of revenue are lower for that segment.
Given this shift we also experienced an increase in customer success costs to support our growing roster of <unk> business customers.
Total operating expense was 109 million plus disconnect.
Revenue compared to 57% in Q3 of last year.
During the quarter, we continued to invest in key focus areas.
We will further operational efficiencies.
We're employing a disciplined approach to managing costs across the entire business, while keeping an eye towards achieving profitability.
Sales and marketing expenses were 43% of total revenue compared to 39% for the same quarter last year.
In Q3, we continue to shift our marketing investment Tw telecom when we.
We are experiencing strong growth and ROI by extending our global go to market and enterprise marketing capabilities.
As always we are committed to disciplined and efficient marketing spend.
So investing where we see clear sustainable growth opportunities.
R&D expense was 14% of revenue compared to 12% in Q3 2021.
We are making strategic investments in areas that will be most impactful and that we believe will generate an attractive return for our business.
This includes continuing to build out our comprehensive learning platform for corporations.
That platform is powered by highly rated content through their product features and machine learning models from our consumer marketplace, which also provides powerful data and insights in terms of the robust lead Gen engine and.
In addition, we're rolling out and Martha and personalized learning experiences, including last one assessments and also investing in the ability to guideline us through their journey.
For example, last year, we launched <unk> as a product.
This new offering enables customers to evolve their technical skill development with in depth planning experience, thus far and findings.
<unk> features the repack skills assessments, workspaces and hands on labs across the most critical and sought after scale and cloud computing software development data science and gas.
We continue to build hands on labs with real world scenario and creates a total number flat I nearly 50% since last quarter.
We believe these investments will provide more tangible outcome ultimately increasing engagement and LTV over time.
Finally, G&A expenses were 12% of revenue versus 7% a year ago, primarily driven by an increase in costs associated with operating as a newly public company.
On the bottom line net loss for the quarter was $21 million or negative 13% of revenue.
Adjusted EBITDA loss was $13 million or negative 8% of revenue well ahead of our guidance range of negative <unk> 14 to negative 12%.
Moving on to cash flow and balance sheet items.
We ended the quarter with 494 million of unrestricted cash cash equivalents and marketable securities.
On free cash flow to ongoing growth with you to meet with us, which fundamentally has a better free cash flow margin compared to adjusted EBITDA margin was offset by increased DSO and changes in working capital timing, resulting in negative $19 million of free cash flow for kindred.
Now turning to our results by segment, starting with our enterprise.
We grew Q3 revenue of $2 $84 million or an increase of 57%, which includes the negative four percentage point impact from changes in FX rates.
And Greg mentioned at the start EV business accounted for 53% of revenue in Q3, surpassing the consumer segment as the majority share of total revenue.
We ended the quarter with over 13400, <unk> customers up 40% from a year ago and annual recurring revenue of $350 million up 69% year over year.
This is proving resilient against the challenging macro environment.
Our activity continues to be massive.
Around the world are thinking to Upskill and Reskill their employees.
These business outcomes more effectively by leveraging <unk> platform.
As a result, we continue to see an increase in new and expansion deals demonstrating that customers see the value that the <unk> platform can bring to their businesses even in challenging times.
During Q3, we closed in most deals over $1 million in our history and revenue from multiyear deals accounted for over 40% of Ele me business revenue, which increased 135% year over year.
In total we added more than 900, new domestic and international <unk> business customers. During Q3, notably, we think Kia and Samsung Electronics America.
Many of our existing customers are increasing their spend over time driving compelling LTV.
Our unique business net dollar retention rate was 117% this quarter, a slight 100 basis point decrease from the prior quarter.
The decline in MBR is primarily due to the smaller businesses that are taking a more cautious approach to external spending given the challenging macro environment.
When you look specifically at net dollar retention for our enterprise cohort for customers with at least 1000 employees. It was even higher at 123% and that cohort net dollar retention has remained consistently above 120% for the past several years.
This level of retention demonstrates both the quality of our content and the continued success of our land and expand.
<unk>.
For example, during Q3, we closed several large expansion deals with global corporations, such as Tata consultancy services, a global leader in consulting.
Permanente Medical group, the largest medical group in the United States.
NGL part of <unk> group, a global provider of educational resources that acts as a retailer for Uni.
Yes.
<unk> segment gross profit for the quarter was $56 million or 67% of segment revenue, which represents a roughly 200 basis point increase year over year.
The increase was primarily driven by growth in our reseller partner program, where we record revenue on a gross basis inclusive of reseller fees.
In our consumer segment Q3 revenue was $75 million down 6% year over year, which includes a negative six percentage point impact from changes in FX rates.
In spite of those macro headwinds we are encouraged by the continued resilience we are seeing in our platform <unk>.
Traffic was strong in the third quarter with an industry, leading 35 million monthly average unique global visitors up 7% year over year.
138 million monthly average buyer purchased of course, our subscription on a marketplace. During Q3, an increase of 4% year over year.
And we are talking thousands of instructors that regularly at high quality fresh content.
All of this supports powerful flywheel effects that we get from having a vibrant marketplace, which amplifies theaters business growth.
Yes.
These two parts of our business is a differentiated model that we believe will continue to drive total company topline growth over the long term.
Consumer segment gross profit was $39 million or 52% of segment revenue approximately 120 basis points lower than in Q3 2021, the slight year over year decline in consumer segment gross margin was primarily driven by higher mobile transaction and hosting fees.
Now turning to our outlook consistent with the last few quarters, we continue to face a volatile and uncertain macroeconomic environment and increasing FX headwinds.
Many other companies, we're also seeing a greater impact on our small and medium sized customers.
Although these forces that are beyond our control may have a short term impact on EW business revenue, we have increasing conviction that these factors are driving many larger organizations to prioritize cost effective training and reskilling and upskilling of their workforces.
<unk> provides a clear value for our customers is rapidly deployable and deliver strong employee engagement demonstrating the immediate impact of our learning platform.
Together, we believe these factors proto certain level of resilience and counter cyclicality in our business that positions us well for long term success.
With that as a backdrop, we expect Q4 revenue to be between $164 million and $167 million or 22% year over year growth at the midpoint driven by continued this momentum.
We expect that Youll meet business segment revenue as a percent of total revenue will further increase from Q3.
Given the historic rate at which the U S. Dollar has strengthened this year, we continue to expect foreign exchange to be a headwind in Q4.
Assuming foreign currency exchange rates remain constant FX is expected to impact total revenue year over year growth by approximately six percentage points in Q4.
In addition, we expect an adjusted EBITDA margin of negative 17% to negative 15%.
As a reminder, we typically experienced some seasonality during the fourth quarter, when we ramp up our marketing investments around Black Friday.
With that in mind for the full year 2022, we expect revenue to be between $628 million and $631 million or 22% year over year growth at the midpoint.
Lastly, we are raising our full year 2022, adjusted EBITDA margin guidance to a range of negative 10% to negative 9% in conclusion <unk> has established itself as an enduring platform, serving a clear need for organizations and monitor.
Despite the challenging environment EBIT business are expected to continue performing well.
Our consumer marketplace is resilient and well positioned to deliver the content that support sustainable long term growth freedom the vessels.
We will lean into and best and our biggest growth opportunities, including shifting R&D and marketing spend towards you to be better.
As always we will be prudent with expenses to ensure we generate the greatest ROI possible with the goal of achieving profitability on an adjusted EBITDA basis in the near term.
Ultimately, we are as bullish as ever about the long term opportunity available to you to me and hope you will continue to support us on our journey.
So with that we'll open up the call for questions and as a reminder, we also have Greg Brown president of VW joining us today.
Moderator.
As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Rob Oliver Baird. Please go ahead.
Great. Thank you guys very much for taking my question and good afternoon.
Two my first one for Greg Brown Greg.
Continued really strong performance on U b.
And just curious obviously a couple of big countervailing trends here on the one hand economic headwinds, which you guys have mentioned I think Sarah mentioned you guys are not immune to on the other hand really seems like.
Companies are buying into the value proposition of you'd be so I was wondering if you could talk a little bit about those two trends what youre seeing in the macro if there was any change in linearity throughout the quarter, particularly towards the end of the quarter and then I had a quick follow up for Sarah.
Sure Rob Thanks for the question Joe.
As far as.
Trends are concerned I remain pretty consistent with respect.
Further consolidation of enterprise organizations moving more of their spend from offline to online and we saw that again this quarter reflective in the performance. The net dollar retention, we saw at 123% on the enterprise side of the business.
An example of that is one of our large multinational financial services firms went through a consolidation effort and multiple vendors.
And in different areas of the business and they went through the consolidated consolidation effort and efforts.
The standardized on one platform to enable them to.
<unk> check and business skills more efficiently.
More.
More effective cost per learner.
Drive Upskilling and Reskilling and we were fortunately to come come out on the right side of that that netted out.
A three year contract of just under $1 million, a year and we're seeing more and more of this type of consolidation as we move further into the recession and we do expect growth to remain durable across our enterprise business and that's just an example.
Great. That's super helpful color. Thanks, Greg for that and then Sarah just a question for you.
You guys.
<unk> outperformed again on the on the on the bottom line. So.
Nice job on the cost side.
Last quarter, you guys had also called out sort of a stabilization in the consumer business.
At a lower spend rate there in terms of marketing dollars.
Is that consistent this quarter I know more stabilization, but have you guys found ways to drive that consumer business at a lower spend point in terms of marketing. Thank you.
Thanks for the question Rob Yes.
Yes. So we're really pleased that we were able to exceed guidance again on an adjusted EBITDA. A few things that are going into that obviously, we are managing our expenses closely but as you called out we are being really careful with our marketing spend on the consumer side, we raised our ROI targets.
And even in raising those targets and reducing spend where we're really happy to see traffic up across the board. So just continue to see positive signals. We're really encouraged by the resilience and we're cautiously optimistic going into the fourth quarter.
Great. Thanks, again, guys I appreciate it.
Yep.
Hey, Scott.
Thank you. Our next question comes from Ryan Macdonald of Needham. Please go ahead.
Alright, Thanks for taking my questions and congrats on a nice quarter on the first one for Greg core consumer.
Consumer are great.
Great to hear about the resiliency in the business I'm curious as you look globally in areas or regions that are being maybe more significantly impacted by a recessionary pressures.
Rising layoffs etcetera are you seeing any pockets of strength or that resulting in and learners coming back onto the platform to perhaps sort of create a bit of counter cyclicality on the consumer side of the business is sort of driving more re skilling.
In that environment.
Yes, Brian Thank you for the question.
We've actually seen a lot of strength.
In every region in the world the traffic, which is our leading indicator is up 7%, but it varies by country. We have some pockets of it that look, particularly good Japan was very very strong on the traffic side. The U S was good.
Germany was pretty good the UK was down a little bit so it's a little bit mixed but overall.
We're very happy with what we see and on the learner side, we've got growth overall growth in our outlook.
Reactive learners, but also new and existing so so we're driving more new more new buyers or existing buyers and we're spending less money. So we think it's a we're showing some countercyclical <unk> to the business.
Really helpful color, there and maybe my second one for Greg Brown, Greg Great to see the performance on <unk> business and the enterprise I'm curious clearly there is a nice seat based expansion opportunity is as customers consolidate around fewer vendors, but I'm curious to hear what impacts sort of the newer.
Offerings like <unk> business pro some of this enhanced functionality around skills assessment is having on whether that's creating sort of a differentiation for you in that consolidation process and then does that have any impact on sort of price points per seat.
Alright, Thanks for the question, yes, so we.
We really had.
A good solid quarter with respect to not only expansion.
Seats of our on demand learning product, but new products I E learning.
Learning as well as your pro and I'll give you. An example, one of our large multinational enterprises.
We're currently working with from an on demand learning perspective.
We identified an opportunity to help them with their emerging leader segment and yet.
Give them.
Platform leverage available to educate and Upskill the 3000.
In our emerging leaders on an annual basis, and really what that netted out to us.
Two year contract worth roughly $1 6 million a year and on our cohort leadership platform.
And in combination with our on demand learning.
Engagement that is already underway. So we are seeing a lot more interest in expansion in our additional products and that momentum continues to build real happy with the momentum.
Excellent congrats again.
Got it.
Thank you. Our next question comes from the line of Stephen Sheldon William Blair. Please go ahead.
There's something about pushing and incentivizing through slightly better pricing when going after new customers or to consolidate spend for existing customers like <unk> and <unk>.
Example, you gave Greg or just generally what's driving that really notable growth in multiyear deals.
Hey, Stephen it's Dennis.
You did at the beginning of that question. If you could just repeat it alright.
Yes, I was just saying great to see the growth in multiyear deals.
So just kind of more detail on that is that are you incentivizing it through better pricing.
Just more detail on that.
Yes, David.
So.
We've made a concerted focus.
To lead with multiyear deals as a result of the.
The up leveling.
Both the product platform as well as.
The sales motion selling high to the C suite.
And focusing on extended value that we're providing largely in partnership with our customer success team, which is really focused on driving outcomes. So but really our entire sales motion has evolved and changed over the last year.
And that really is indicative of an supports what youre seeing now which is <unk>.
A significant increase in multiyear deals.
On demand learning as well as across platform.
So we expect that to continue and it's not it's not happening as a result of price significant price.
Incentives, it's much more around value and resources, we're bringing to bear.
To act as a trusted advisor and long term partner and support the outcomes to customers trying to achieve.
Great I appreciate that color.
And then as a follow up.
Curious heading into fourth quarter and others can.
Moving pieces on the consumer gross profit or gross margin.
And I think it usually seasonally weaker given again some of the promotional activity can you just maybe provide any commentary on kind of what we should be expecting the gross margin side.
Consumer in the fourth quarter.
I'll take that question. Thanks for the questions given so youre right, we do have a big promotion around Black Friday in the fourth quarter.
And that Ken.
With some pressure on our gross margin.
So as we continue to see this resilience in the consumer business that is traffic is up.
And buying adopt we could see some pressure on it and again, that's a great signal for us because that means we're selling a lot and we will see the impact of that in the first quarter.
Alright, great. Thank you.
Sure.
Yes.
Thank you. Our next question comes from Terry Tillman of Truest. Please go ahead.
Oh, great. Thanks, everyone. This is caught up after allowing for Kerry. Thanks for taking my questions and congrats on a great quarter.
Just the first one digging into the demand internationally, particularly in APAC, there's just some really.
Traction in Japan, and South Korea, and I know, we talked about last quarter.
<unk> pipeline is building in China I was just curious as to how that's developing and what maybe the key factors will be for determining success in this market and then I had a follow up.
Yes.
Thank you for the question.
As we've talked about before we're building out APAC with a number of different partners and Japan is a market thats doing particularly well for us keeping up with the work with vendors say for a number of years and we're seeing high growth sure.
Other markets are relatively new so in China, we got.
We've built out the collection, we have over 800 courses and engine today.
No doubt the collection, we are hiring lots of salespeople and training now it's early days, but we're seeing some nice traction we've gotten a couple of nice deals are ready.
It's early days, but it's ramping up.
In Korea.
Same things happened in Korea, and then we signed a deal.
Nam with Phoenix and <unk>.
And we actually closed a deal or two there.
Again, our building out the <unk>.
These collection and hiring.
People.
Perfect.
Full color and then just a quick follow up so it sounds like on the strong quarter from both year to year of deals that are continually getting a larger proportion of total IRR Cisco it sounds like a lot of multi year deals are coming from existing customers. Just curious how the cyclical deal looks like for a new logo and maybe how that's evolved over the past few quarters, if maybe Youre Atlantic War.
Multiyear tiers Lasalle with new logos, thanks, guys.
Yes. This is Greg.
Look we're having.
Success across the board, both with existing as well as new customers for multi year perspective, largely for the reasons I mentioned earlier.
Motion that sales motion.
We're using now is much more orientated around.
Outcomes that organizations are trying to drive aligned with strategic initiatives.
On the strategic imperatives at a corporate level. So as a result of that the relationships we're fostering.
By the nature of that are long term relationships long term partnerships trusted advisor.
Such status and that comes with the investment we're making early on from a customer success standpoint. So as a result of that customers are going into the the projects with us with the multi year horizon in mind, and we're starting to see that reflected in the numbers that we're putting out quarter over quarter. So you should expect that trend to continue and both on the new <unk> New <unk>.
This site as well as the existing customer sites.
Sounds great. Thank you.
Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question comes from the line of Josh Baer of Morgan Stanley . Your question. Please.
Thanks for the question you mentioned the <unk>.
<unk> impact to net dollar retention rate wanted to dig in there what is the customer behavior or is it churn or contraction or just less expansion.
Hi, Josh what we're seeing is a <unk>.
Slowdown in deals moving through the pipeline to closure, we're not seeing.
A significant departure in terms of the funnel.
The marketing funnel and our opportunities that we have and so it really is just SMB organizations.
<unk> spend and budget.
As they're going through their buying process. So.
We're still optimistic.
We're going to have a very positive quarter on the SMB side, albeit we do have some headwinds we are seeing a little bit of a slowdown.
But again, it's not as a result of anything other than I think these organizations are being prudent with respect and ensuring that.
They are allocating their budget appropriately.
Okay, that's clear and then just two <unk>.
Wound that back to the larger enterprises, so youre not seeing that same scrutiny.
More or impact as far as slowdown in deals.
Market is that correct.
Yes, what we're seeing up market.
This CLO.
Cielo is now in many cases, they do have constricted.
Constricted budgets or budget, you have to add a 10 million budget last year, it maybe $8 million this year.
But they still have the same imperatives to upskill and Reskill other employees to again draw.
Drive toward.
Strategic initiatives these employees need to be prepared for so the way they're doing that is moving more of their learning from offline to online and leveraging platforms like ours to do so and we are well positioned to take advantage of that of that trend.
What youre seeing right now in terms of the strength on the enterprise side as I alluded to earlier that consolidation effect and.
There's a few reasons why we're.
I think one and a disproportionate amount of the opportunities were in largely you guys are very well aware of the superior content we have.
Both quality and quantity in fact.
I think this was mentioned earlier, but this last quarter alone. We added 1900, new courses to the <unk> business catalog.
And that is unparalleled and it really is it really does put us in a position of strength as we move forward in 13 of those <unk> hundreds of those excuse me where non English. So again, we're investing heavily in our international array of content. That's all localized it gives us.
A real strong position development to be the premier provider for many of these organizations that are looking to standardize on one platform.
Great color. Thank you.
Thank you. Our next question comes from Jason <unk> of Keybanc. Please go ahead.
Hi, Sharon Hi, Greg and Greg This is actually Devin now on for Jason Tonight. Thanks for taking my questions here.
First one I have is on enterprise I think we talked a little bit.
Earlier, but just wanted to add a little bit more color on the pipeline for fourth quarter and enterprise segment.
The indicators that you're looking at that's giving you.
At that level of confidence and maybe are you seeing more robust pipeline development in certain Geos industries.
Hi, Jonathan This is Greg Roth.
We exited Q3, feeling very good about our Q4 pipeline in.
In line in fact ahead of.
While we expected quite candidly based on the macroeconomic conditions that being said.
As was mentioned earlier, we have seen some softness in some slowdown on the SMB side in terms of deal velocity.
Enterprise business across all Geos continues to remain robust, albeit as mentioned earlier, we're not immune to the macroeconomic condition. So we're going to be paying close attention to the leading indicators in our business as we progressed through the quarter and adjusting accordingly.
But right now we feel good about the strength of not only the pipeline, but the opportunities that are in flight in the sales organization today.
Great. That's good to hear and then one more question I have is.
On EBITDA.
EBITDA margin came in the quarter meaningfully higher and I know that you mentioned benefiting from the increasing mix shift towards enterprise, but were there any sort of dynamics in terms of investment is being shifted towards fourth quarter that led to that outperformance any other commentary you can provide on that.
And thanks for the question.
So as we spoke about we were we did pull back on our consumer marketing spend and with that we're happy to see that that business remained resilient, even with that pullback in spend.
We have been shifting our spend too.
And that is our main growth engine and so it wasn't really a shift of spend into the fourth quarter. We do tend to have some downward pressure in the fourth quarter because of our gross margin pressure, we feel with our black Friday cyber Monday.
Promotion that happens, but it wasn't a shift in spend it's just.
Managing our spend carefully and just making sure we're investing in things that are going to have the most impact got.
Got it got it no that's really helpful color. Thank you.
Thanks, Kevin.
Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone to ask a question.
Our next question comes from the line of breast <unk> of Cantor Fitzgerald. Please go ahead.
Hey, guys its Alex on for Brad.
Congrats on the quarter I was just wondering maybe on the consumer side has strengthened due to meet business helped fuel some of the consumer strength you saw this quarter.
Maybe people learning using <unk> business, and then going home and getting their own personal account.
Hey, Alex this is Sarah thanks for the question.
There is no way for us to really track that but certainly the more access.
Closure that that individuals have.
Or to you to make through year to me, but that's certainly that probably does have some spillover impact on the consumer side of things I think as you've heard us say that product is really engaging and so you can imagine individuals.
Having access to it.
At work and then going home.
Anything Mark It also works both ways.
We are.
Large number of leads for your business off our consumer offers of our consumer platform also so yes. This cross fertilization of both of our businesses now that we have to scale businesses. It works even better.
Got you, thanks, and congrats again on a great quarter.
Thank you.
Our next question comes from the line of Brent Thill of Jefferies. Your question. Please.
Thanks, just on U b, the resiliency in a tougher macro downturn, assuming the macro economists are right. In this this gets even stiffer into 2023 with the headwinds can you just walk through how youre feeling about.
Managing <unk> during this downturn, what what is giving you that debt.
That strength and then also if you could just touch briefly on the consumer subscription business and how that's doing what you are seeing any trends there. Thank you.
Hi, Brian . Thanks for the question. This is Greg Brown, Yeah. So we spent a lot of time.
With the close within our customer base and.
Right now what we're seeing is consistent.
Thread.
Continued investment.
Through the downturn, albeit budgets will get.
We will get compressed as I mentioned earlier, but.
The need to invest in our employees when youre going through a downturn like this when organizations are potentially going flat or even maybe joined some right sizing.
It's a strategic.
Comparative you've got to be able to continue to develop the talent that you have.
To sustain you through a downturn and we're hearing that message consistently across our CLO. So.
Yes, we expect further.
Consolidation.
Platforms, we expect more budgets continue to move offline to online.
As a result of that in our enterprise business, we do feel that we're well positioned to help organizations.
As they're going through this transition and are well positioned to take advantage of the opportunity, especially now with our.
Our portfolio of products that has that is unique and differentiated with our on demand learning. We now have immersive learning and we have core based leadership development capability that is unique and it does give us an opportunity to serve organizations in a way that we.
We haven't necessarily in past years and that other organizations don't necessarily have.
And then last thing I'll mention is the partner ecosystem that we're developing.
But the relationships with Amazon and others continues to gain momentum.
And shrank and with the continued investments as we move into next year.
We expect these investments to give us continued leverage so.
Yes, we do feel really good about our business.
Proposition in.
The viability of us can.
<unk> and move into next year and beyond in a position of strength.
Yeah, and I'd like to just add to that.
When times get tough.
Things that companies as they really focus on operational efficiency and what that means is digital transformation efforts.
That are underway or about to be underway people are continuing to invest in those to drive those operational efficiencies and because our content is so fresh and it's able to keep up with the pace of change of technology that gives us an additional advantage in a market like this.
Greg you want to talk about <unk>, yes, sorry, you asked about subscriptions.
As we've discussed before we seek subscriptions are a very attractive product opportunity for us.
Today, we're live in eight countries.
Actually turning on India in the next two weeks.
Country.
So lots of testing we're testing our annual plan, we're testing multiple pricing well.
Taking a very.
We're doing it.
It's a very complex process and we're just taking our time and doing it very methodically and you have to be very careful that our instructors are being taken care of that they are making more money along the way, we're making sure that that we continue to get all the <unk>.
Really the goal is to make sure that we have.
Value for others. So.
It is proceeding well and our expectations that will open up off of the 2020.
Thank you.
Thank you at this time I would like to turn the call back over to Greg <unk> for closing remarks, Sir.
Okay.
I appreciate everybody's time today and thank you for your time and I'll look forward to talking to you in three months.
Yeah.
And this concludes today's conference call. Thank you for participating you may now disconnect.