Q4 2022 Udemy Inc Earnings Call

Good day and welcome to the U D me fourth quarter and full year 2022 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like to turn the conference over to Dennis Walsh, you deem is vice president.

<unk> of Investor Relations.

Please go ahead.

Thank you and welcome to your enemies fourth quarter and full year 2022 earnings conference call.

Joining me today are you to me as Chairman and Chief Executive Officer, Greg Carey, President Jimmy business, and incoming CEO , Greg Brown, and Chief Financial Officer, Sarah Blanchard.

During this conference call, we will make forward looking statements within the meaning of federal Securities laws.

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

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

Our forward looking statements are based upon information currently available to US we caution you to not place undue reliance on forward looking statements and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements, except as required by applicable law.

In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to by the Securities and 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 in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earning release.

A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release.

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 with that I will now turn the call over to Greg.

Thank you Dennis and good afternoon to everyone on the call.

You can be completed its first full year as a public company with results that met our expectations on the topline.

And exceeded the high end of our range for adjusted EBITDA margin.

I am proud of these results and our overall performance, despite a very challenging macroeconomic environment and unfavorable FX headwinds.

As you know after four years as CEO I will retire at the end of the month.

This has been an exciting opportunity and the most rewarding rolled up my career.

Yeah.

I am thrilled to pass the baton to Greg Brown.

Who has served alongside me as president of Mi business for the past two years.

Yeah.

Greg steep executive leadership in enterprise sales experience has been an invaluable asset from the start.

He has quickly scaled our enterprise business and felt a powerful go to market engine that has more than doubled our E. R. R. In two years.

Greg is passionate about learning and our mission.

Confident that he is the best executive to lead you to move to the next stage of growth.

Yeah.

It is a bittersweet moment, however, since we shared with our employees yesterday that we are reducing our global workforce by 10%.

We are taking steps to better align our cost structure with our expectations for revenue demand and profitability.

This decision was extremely difficult since the talented team members that were impacted all contributed to get them a success.

Is with a heavy heart that we wish our departing colleagues all the best.

We are committed to supporting them as they transition to their next opportunity.

Looking ahead, we believe this action positions us well to balanced growth and margin expansion in a challenging environment.

Yeah.

Going forward the company is in good hands with Greg and the rest of the year to my leadership team as I plan to stay on for a year as an advisor to support a seamless transition.

Yeah.

Since this is my last call I want to send a warm. Thank you to the analysts and Investor community that supported me you to me and our entire team as we took the company public.

Our customers are learners around the world for choosing <unk> to me is there a learning platform.

Our instructors for creating the impactful content that sets our company apart.

And finally to my colleagues at <unk> to me for your hard work in advancing our mission and building this great business.

With that I'll now turn the call over to your enemies next CEO Greg Brown.

Yeah.

Thank you Greg.

I am tremendously grateful for your leadership and for Entrusting me to run your business for these past few years.

It's been an opportunity of a lifetime and I'm honored to step into the CEO role.

Greg leaves behind an amazing legacy, which I'm excited to build upon.

He said to me on a clear path for long term sustainable growth.

And his accomplishments allow me to assume the CEO role with the company already positioned as a global leader.

Under Greg's leadership, we grew revenue by nearly 180%.

We accelerated the growth of Yummy business and delivered strong net dollar retention.

We built an exceptional leadership team and talented global workforce.

And we successfully took the company public in 2021.

I think we can all agree Greg truly earned this retirement.

Thank you for your service Mentorship and guidance, Greg We wish you all the very best.

As a final point on the transition we're fortunate to have a strong leader like Stephanie Stapleton Sedberry take the reins as president of <unk> business.

Stephanie was identified long ago as my successor and during her time, leading our customer success team. She helped shape your enemy business as product customer and go to market strategy.

She had solid relationships with our largest customers and is directly responsible for consistently driving our best in class retention.

And understand our customers' needs better than anyone.

I am extremely confident stephanie's ability could take <unk> business to the next level.

Now I wanted to take a moment to touch on some of the trends, we're seeing in our business and set the stage for 2023.

The unit business segment continues to be our main growth engine and our pipeline for new business is strong.

We're encouraged by the continued strength of that business, which is supported by an accelerating shift from offline to online skills development.

Companies everywhere I'm looking for more efficient and timely ways to reskill and upskill their employees.

You didn't provide a solution that enables customers to stay ahead of the pace of change driven by advancements in technology.

While also investing and retaining the best talent and increasing productivity.

To illustrate this point a recent study conducted by IDC confirmed that <unk> business customers experienced meaningful business gains, while also realizing platform costs and hiring efficiencies.

Study participants reported nearly five X increase and skilled employees.

Approximately 30% higher productivity.

And significant hiring and recruiting cost savings.

In this environment. We are also benefiting from vendor consolidation that is happening as companies tighten their budgets.

<unk> offers the most comprehensive learning solution, allowing customers to reduce their vendor load and costs.

Our broad high quality and fresh content is a distinct competitive advantage.

As you've heard from us before our solution also drives higher learning engagement.

This improves stickiness as our customers frequently use employee adoption and engagement as key metrics to validate their training and education budget.

To that point, we recently closed a multiyear deal with Capgemini, a global technology services company.

Cap Gemini chose <unk> business since its learning content partner, primarily to support the launch of their new cap Gemini engineering and industry academies.

You didn't give a selected for the breadth and depth of our content collection and.

And the flexibility with which we could meet their content needs for cutting edge business and technical skills.

Our speed to market and agility.

The marketplace model, where the key reasons, we were chosen.

The partnership and services, we offer and our strategic customer success approach. We're also influential and establishing this scaled enterprise contract and ensuring the successful rollout of <unk> business and cap Gemini.

We continue to see a trend of longer contract lengths materializing, particularly with our larger customers.

In fact quarterly revenue for multiyear deals increased 129% year over year.

And now accounts for over 42% of Uni business revenue.

That being said we.

We're not immune to the macroeconomic impacts we.

We did experience some elongated sales cycles as customers are taking more time to closely assess their vendor options and can make budgetary decisions.

We first saw this from our smaller customers in Q3.

So by the second half of Q4, we started to see the same trend emerge with larger customers.

We expect customers to continue to leverage your enemy just at a slower pace over the near term.

On the consumer side of the business, we continue to track instructors to our platform who are producing a massive amount of high quality fresh content to our marketplace.

The best of which is curated into our <unk> business catalog.

More than 80% of our total revenue comes from courses that are accessible on both our marketplace and the <unk> business catalog.

That means the majority of our revenue comes from exclusive content.

We now have more than 200000 courses available on our marketplace with more than 4700, new courses added on average each month.

The speed in which new content is created for our marketplace provides us with a competitive advantage over others in our space that use a traditional publisher model.

A great example of this is that we now have more than 150 courses available on chat GPT.

Which just launched two months ago and has become the fastest growing search term on both <unk> business and our marketplace.

So those courses.

Nearly 20% are non English and 11 had been approved and added to the <unk> business catalog thus far.

To date, we've only seen one course published by our competitors.

Before I turn the call over to Sarah.

Wanted to set the stage for 2023 by sharing our strategic priorities for the year.

Although it may be a challenging year.

There are many trends that we expect will be favorable for unit <unk>.

Including the continued shift from offline to online.

Increasing digital transformation.

Greater work from home flexibility.

And renewed investment and continuous skill development for Workforces.

With all that in mine unit 2023 strategic priorities include.

One.

Establishing <unk> as the platform of choice for professional learners and increasing skill development through new learning modalities.

We plan to continue partnering with our instructors to launch more immersive hands on learning experiences.

We will also leverage AI to create more engaging personalized learning experiences.

And help instructors maximize the value and quality of their content on the platform.

Sure.

Introducing validation of skills acquisition through Badging and professional certification.

To support you'd any learners and advancing their careers and to help companies assess existing talent.

We're partnering with major technology companies to develop professional badges and certification as an official endorsement that a learner has demonstrated acquisition of the required skills.

Three.

Accelerating global scale of the business outside the United States.

We plan to continue investing in strategic partnerships that either extend our marketing reach or the capabilities and reach of our global sales go to market.

Through our relationships with key brands and local market leaders that have reach and scale.

We expect to continue driving awareness and adoption of our offering.

For <unk>.

Increasing company wide operational efficiency and progressing towards profitability.

We will continue to prioritize efficient investments in our highest growth opportunities as.

As we accelerate our path to becoming a profitable company.

We plan to deliver a profitable second half of 2023.

And full year 2024 on an adjusted EBITDA basis.

As you can see it's going to be a busy year for you to me and I'm optimistic about the future of this company.

The opportunity available to us is massive well beyond 2023.

I look forward to leading the company as its new CEO I am committed to delivering long term sustainable growth and building shareholder value overtime.

Now I'll turn the call over to Sarah for a financial review and outlook.

Thank you Greg.

We had a solid quarter and ended the year considering the current macro backdrop.

Total fourth quarter revenue increased 22% year over year to 165 million and for the full year revenue increased 22% to 629 million.

Ladies were within our guidance range, including the negative impact of FX.

Since nearly 60% of our revenue is from outside of the U S. The year over year increase in total revenue includes the negative impact of four percentage points from changes in FX rates in both Q4 and the full year.

We also exceeded the high end of our Q4 and full year 2022, adjusted EBITDA margin guidance ranges as we continue to focus on operational efficiencies and driving towards profitability.

Q4 revenue growth was driven by the strength of <unk> business.

The segment accounted for 50% of total full year revenue for the first time well ahead of the call. We sat at the time of our IPO.

That being said, we did experience some along heating sales cycle, Washington deals into Q1.

At the same time, the consumer marketplace remains healthy.

Other segment revenue was down year over year in Q4, driven by the negative impact of FX.

To meet the marketplace continues to produce a steady source organically and serves as a powerful content creation engine that provides fresh high quality courses that ultimately feed.

Content Library.

As we move down the P&L note that all financial metrics are non-GAAP unless stated otherwise.

I will keep my remarks focused on our fourth quarter results.

Our news release, which can be found in our Investor Relations website includes the financial tables with results for the three and 12 month periods ended December 31 2022.

Q4, gross profit was 94 million up 29% year over year.

Gross margin was 57% a 320 basis point improvement from Q4 of 2021.

And by the continued revenue mix shift to you to meet business since content costs as a percent of revenue are lower for that segment.

Total operating expense was $119 million or 72% of revenue compared to 75% and Keith Park last year as we continue to focus on driving companywide operational efficiency.

Within Opex sales and marketing expenses were 47% of total revenue compared to 50% for the same quarter last year.

We typically experienced some seasonality during the fourth quarter, when we ramp up our marketing investments around Black Friday.

Due to the current macroeconomic environment, we reduced spend on consumer marketing this year in order to maintain a reasonable ROI and also shifted the balance of spend toward you to be a business, where we see greater long term growth potential.

R&D expense was 14% of revenue compared to 12% in Q4 of 2021.

We're investing in areas that we believe support learner outcome and increased ROI, such as immersive learning modalities business scale AI and machine learning.

And finally, G&A expense was 11% of revenue versus 13% a year ago.

And the bottom line net loss for the quarter was $23 million or negative 14% of revenue.

Adjusted EBITDA loss was 20 million or negative 12% of revenue well ahead of our guidance range of negative 17 to negative 15% driven by our continued focus on efficient expense management.

Moving on to key cash flow and balance sheet items.

We ended the year with 465 million of unrestricted cash cash equivalents and marketable securities.

Increasing DSO changes in working capital timing and a one time payment to settle our instructor withholding tax return resulted in a negative $34 million in free cash flow for Q4.

Now turning to our results by segment, starting with our enterprise segment argued to be business.

We grew Q4 revenue to $91 million or an increase of 57% year over year, which includes a negative four percentage point impact from changes in FX rates.

Segment gross profit for the quarter was 60 million or 67% of segment revenue roughly flat year over year.

Annual recurring revenue was $372 million at the end of Q4 up 55% year over year.

We saw a bit of a deceleration in aircrafts, primarily due the reasons, Greg outlined earlier, but ended the quarter with nearly 14000 you'd meet business customers up 32% from a year ago.

We continue to see strong adoption and retention across all geographies, particularly with larger companies, but that is being somewhat offset by softness in smaller businesses and elongated sales cycles.

In many cases, we are landing with meaningfully higher deal sizes and contract lengths and continue to gain traction with our newer products, usually business pro and cohort learning.

Those trends impacted our customer retention, resulting in Q4, usually business net dollar retention rate of 115% alright.

Alright, 200 basis point decrease from the prior quarter.

However, net dollar retention for you to meet business large customers are those with at least 1000 employees was 123%, which was flat with the prior quarter.

Not only are we seeing solid retention of our existing customers, but those larger customers are looking for the most efficient solution to partner with to achieve their long term companywide learning and development goal, which is driving an increase in seat expansion and contract line.

Turning to our consumer segment, although Q4 revenue was $75 million were down 4% year over year that includes the negative five percentage point impact from FX.

Taking the FX impact into consideration it is encouraging to see the continued resilience of our marketplace even in this challenging environment.

Segment gross profit was $37 million or 50% of segment revenue approximately 240 basis points higher than in Q4 of 2021.

The year over year expansion in consumer segment gross margin was primarily driven by the timing of revenue recognition relative to instructor payments.

Our marketplace continues to be vibrant and healthy.

During Q4, our platform saw nearly 35 million monthly average unique visitors up 6% year over year and more than $1 3 million monthly average buyers purchased of course, the subscription down approximately 2% year over year and meaningfully lower consumer marketing spend.

Now I'd like to introduce our outlook for the next quarter and full year 2023, we are cautiously optimistic about 2023 as we balance the momentum we're seeing in our main growth engine with the macro uncertainty.

Many of the positive trends that we experienced at the end of 2022 are expected to continue this year, including the shift from offline to online learning and vendor consolidation.

We believe that growth may be somewhat offset especially in the near term by smaller corporations, reducing their learning and development budgets and companies in all geographies closely evaluating vendors with may translate into sales cycle elongation across the board.

We also expect our consumer segment revenue decreased slightly year over year due to the FX impact and shifting our spend to be eating meat business growth engine.

For modeling purposes, while we do not plan to provide segment guidance going forward, we wanted to share some high level insight on our anticipated any business and consumer segment quarterly pattern with our outlook. So you can better understand how we're thinking about their respective businesses.

With all that in mind, we expect Q1 revenue to be between 168, and 172 million with you to meet business segment revenue as a percentage of total revenue remaining relatively flat with the prior quarter due to our Q4 2022 consumer promotion cycle and revenue recognition.

Assuming foreign currency exchange rates remain constant FX is expected to negatively impact Q1 year over year total revenue growth by approximately six percentage points.

For you to meet business, while we expect Q1 year over year growth to moderate as compared to Q4, we believe a year over year growth rate in the mid Forty's is achievable.

For the rest of the year well you didn't meet businesses growth may slow a bit we believe that we can sustain mid <unk> year over year growth each quarter, including the negative impact of FX and continued macroeconomic pressure.

By year end, we anticipate it'll be business revenue will grow to approximately 60% of total revenue.

Turning to consumer we expect segment revenue to be up slightly in Q1 compared to Q4.

However, we anticipate consumer revenue to be down low double digits year over year on a percentage basis in Q1, including the impact of FX.

Similar to last year, we expect consumer revenue to be down sequentially in Q2, as a result of our most significant promotions occurring around yearend, which benefits Q1 due to the timing of revenue recognition.

We expect growth rates to improve in the back half of a year due in part to the easing of an impact from FX headwinds.

Taking all of that into consideration for the full year 2023, we expect revenue to be between 700, and 730 million or 14% year over year growth at the midpoint, including an estimated three percentage point negative impact from FX.

And finally for adjusted EBITDA margin, excluding severance costs, we expect Q1 margin of negative 10% to negative 8%.

We expect to deliver adjusted EBITDA margin expansion each quarter on a sequential basis with the most significant increase from Q1 to Q2, driven by the cost savings associated with the reduction in workforce.

As I mentioned earlier, we expect to be profitable on adjusted EBITDA basis for the second half of the year.

With Q3 expected to be near breakeven in Q4, it should be positive.

As a result, we expect full year 2023 margin to be between negative, 4% and negative 2%.

At the midpoint. This implies nearly 500 basis point adjusted EBITDA margin expansion for the full year.

Importantly, we remain confident in our ability to deliver full year profitability on an adjusted EBITDA basis in 2024.

As Greg said at the outset, we are cautiously optimistic about 2023 and the opportunity ahead.

The trends we are seeing today, particularly in our <unk> business segment are very encouraging for the long term.

We will continue to make strategic investments in areas of the business that represent the greatest long term growth opportunities.

While committing to continued cost discipline in order to deliver a profitable second half of the year.

So with that well open up the call for your questions moderator.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up the handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Sure.

Our first question comes from Patrick.

Schultz with Baird. Please go ahead.

Yeah. Thank you for taking my question I, just wanted to dig a little deeper into the 2020 through your revenue guidance as it was a little bit below where many of US had expected and I know there are a lot of moving parts given the current macro and I. Appreciate the color you guys provided for each segment, but could you just provide a little bit of additional color on how you approach guidance. This year, how any commentary would be helpful. There.

Sure Patrick Thanks for the question.

So first I think it's important that we disaggregate the numbers a bit to provide context, because I think it's relevant here.

Roughly two thirds.

Of the approximately $60 million is based on expectations, we have for the consumer business.

We talked about the fact that we deliberately reduced spend on the consumer side to accelerate our path to profitability.

That's that's the first point.

Second is on the <unk> side, you know this last year in 2022, we exited.

Roughly 70% revenue growth, which is impressive given the environment are extremely proud of the team and what we deliver there.

Talked about a bit of the elongation in sales cycles as well as some of the softness on the SMB side that we built into the plan for 2023.

But that said, we're still projecting mid thirties growth.

And exit of nearly 500 million in <unk> with 60% of our revenue.

<unk> generated by the <unk> business side of the house so.

Yes.

Definitely cautiously optimistic for the year.

But also feel like what we're going to deliver is.

It's material and significant based on the economic climate, we're facing Sarah I don't know if there's anything you want to add.

I think that's right I think the only thing I would add as you know we do anticipate continued pressure from FX throughout the year.

So more of the same challenging macro headwinds, but again as Greg said, you know you'd be still growing at mid thirties at this scale in this environment.

So we're cautiously optimistic that we can not only deliver that but it's in the back half things.

Things ease that alcohol, but you know it will be in a good position to take advantage of it.

Okay. Yeah I appreciate the color there and just a quick follow up question. I know you spent some time during your analyst day in the fall discussing the international opportunities with partnerships being important parts of this.

Can you just talk about how this has progressed in recent months in light of the macro and maybe what your expectations are for 2023.

Yes, good question as well Patrick so.

It <unk>.

Investment in international expansion via.

We have partnerships as well as organic is one of our top.

Areas of focus and priorities for the year, we continue to be encouraged.

The progress we're seeing out of our partnerships via new ventures, and Vietnam, Korea, and China, but we're not breaking out revenue guidance at this point for that segment of the business, but I can assure you that the.

The acceleration is impressed.

Impressive and we're excited about the prospects of a potential this year and we're going to continue to invest in these areas Latin America as well are very excited about what we're seeing of our partners in Brazil, Mexico and in the region are large.

And we'll also be a continued area of investment. So all said yeah. We're excited about the prospects of potential and we've talked a bit about Amazon in the past and we continue to make really good progress with them as a strategic partner on a global basis.

And I expect to be able to shed a little bit more light.

And in the announcements to come with respect to how that partnership is evolving.

Great. Thanks for the question.

Yes.

Our next question comes from Brett.

No no blatche with Cantor Fitzgerald. Please go ahead.

Perfect guys. Thanks for taking my questions and Greg Congrats on the retirement and hope you enjoy it.

I guess my question kind of comes to your Investor Day, you guys came out with a 2024 and 2025 guidance and I was just curious how the recent head count reductions I guess, one was that anticipated at that time.

And two does that impact your guys' expectations for 'twenty for growth to be call within 23, and 25% and 25 growth to be above 25%.

Fred Thanks for the question.

The first thing I'll say is.

At that time, we didn't have visibility into what the second half of Q4, we kind of look like cross.

So the macro continue to worsen and for the first time, we saw an impact in the slowing of sales cycles.

In our enterprise business, which we had not been seen.

We also pulled back on our marketing spend as we've seen the macro continue which we had resulted in a slower than expected black Friday. Many consumer businesses saw this so there are a lot of things in the back half of Q4 that we didn't have visibility to that.

That being said you know we're reconfirming our targets for 'twenty four 'twenty five and let me dig into that a little bit. So you can understand why.

The first is it it's going to be off of a smaller base you know these numbers a little bit different but secondly, you know.

Our mix of UV continues to increase and as it continues to increase you know that is a the.

The growth engine of this business that is going to continue to deliver.

Journeys gross.

For a long periods of comp we have a large opportunity within our existing base, which we've spoken about for expansion and upsell.

And so we're really focused on what we can control we are committed to 2020 for profitability and back half profitability. This year, we do expect typical seasonality and what that means is it may not be that every quarter in 2000 and for its profitable, but we will be profitable for the year.

So those targets that we laid out we are still.

Committed to delivering.

Perfect. That's extremely helpful. And then maybe on the segment gross margin can you just walk through the cadence of how you expect that to play out throughout the year.

Yes.

It's pretty volatile for the consumer segment quarter to quarter shall we look at 2023 being similar to 2022 is there any any kind of unique instances in the last year that would cause it to stray from that.

So there's two choosing to think about when it comes to consumer gross margin. The first is the timing of our promotional cycle and so when we have the larger promotions like Q4, what happens that youll see gross margin suppression in that period, because we record revenue kind of enough four and a half months. Following if you will.

But the instructor.

Expenses occur in period.

The other thing that happened in Q or in 2022 that we won't see in 2023 is we had some relief from mobile marketing fees in the first half of the year.

And now I'm done.

Marketing fees for having to pay across the board and so you're not going to see that dynamic play out in 2023 in the same way it did in 2022.

Understood perfect. Thanks for taking my question guys I appreciate it.

Thanks.

Our next question comes from Ryan Macdonald with Needham. Please go ahead.

Questions and Oh, I Echo my congrats cigarette Qatari on retirement best of luck in the future.

Good Brown I'm curious about the comment you made about our <unk> business more customers evaluating the current vendors, you're working with and perhaps you can talk about how you feel like you're positioned to benefit from a consolidation trend there and to the extent you have it you know what when rates have looked like in though.

Those are sort of conversations thus far.

Alright, thanks for the question.

Yes, so we continue to see.

For consolidation and vendors looking to maximize maximize economies of scale.

As they move.

Move to working with your vendors.

And we happen to be on the front end of that.

But that opportunity in terms of being positioned to take advantage of it.

We had just this last quarter alone.

Some of our larger fortune 500 customers.

Add respectively, 30000 seats and 20000 seats to standardize on our platform.

Being their preferred provider for learning and development across the organization, both multi year contracts.

And both after as you can imagine deep assessment as to the needs of their organization and their assessment that the depth and breadth of our platform.

Was best suited to their needs long term. So we continue to see that trend.

<unk> I believe it does feel like it's accelerating as we move into 2023.

And we continue to win a disproportionate amount of those opportunities specific.

Well our win rates.

You know as we talked a little bit about the elongation in sales cycles and that you know that as a result of the macro that we're all dealing with.

But our win rates are holding very very strong and we're very encouraged by that in addition to the endear are we're seeing net dollar retention, we're seeing in our large large customer segment, which is customers over 1000 employees remaining very very strong at 123. So our enterprise business remains very healthy we continue to see the <unk>.

Celebration of offline to online and consolidation that you talked about so look we're very encouraged and very confident in our ability to continue to win and win a disproportionate amount of the opportunities Brent on the enterprise side, we just need to navigate with a lot of a lot of care.

Through this downturn, regardless of how long it how long it a chance.

That's super helpful. Thanks for the color there or maybe one for you as we think about the the accelerated path to positive adjusted EBITDA and in some of the cuts you're making you've talked about.

Where those cuts are coming out we're working to optimize as we think about the P&L and perhaps across the two segments consumer versus you'd be thanks.

Sure.

So first as we've spoken about we've been shifting spend from consumer to.

Business and decreasing our overall spend on marketing a bit.

Secondly, we really took a look at the organization and the background environment first you know on the recruiting side when you're you're significantly slower hiring you don't need that much capacity, we looked across our go to market team at the regions and segments that were impacted most by the math.

Or environment and that's you know we pulled back in those areas and then you know we're really focused for this year on our strategic priorities and so from an R&D perspective, you know area that we could slow down a little bit or hold off on for now, but just remain focused on the things that.

Matter of mouth. So you know those investments that are going to impact our learners are organizations our instructors be protected those.

We're focused on the platform and all.

Methods Barney.

Improving our tools for instructor, so really harnessing that global instructor of population that we have and allowing them to continue to build their businesses better and faster I'm doubling down on leadership development and a cohort learning is important for us and increased personalization. So.

We took our time, we looked at the business and the things that are most important for us to deliver we're very focused on that and we reduce serious that we're gonna be very inefficient to operate in and are we just didn't need that capacity.

I appreciate the color there thanks for taking my questions.

Right.

Our next question comes from Stephen Sheldon with William Blair. Please go ahead.

Hey, thanks.

I wanted to ask I guess, a two part question about Chad GBT.

I'm curious why you learner engagement have looked like with the 150 course that you have out there right now.

And maybe just I guess, how do you think about the potential impact to your business and the potential to integrate this type of technology and fit into what you're operating in just just curious on those two pumps.

Thanks for the question Steve.

Yeah. So.

With respect to that.

Chad GPT and what we're seeing on our platform as I mentioned you know we've got over 150 courses on the platform 11 of those courses.

<unk> raised through ratings and reviews and curation been moved into our European business catalog.

And a number of those courses have over 100 reviews and over a four points, you're writing, which is our minimum threshold and so all of those courses have about rating or above so anyway, we are seeing.

Very strong uptake.

And momentum with respect to <unk> as we mentioned it's.

Most widely search term right now on both platforms. So we're very encouraged by the traction and our ability through our marketplace to monetize and look it really is one of the areas that really is at the core we're fundamentally different from any other business in the category.

As we are able to react and stay up with the pace of change whenever new advancements hit the marketplace like in this case Chad G. P J.

And it really is a testament to again the power of the global network that we have because many of these courses on a G P T or not in English right. Their non English courses that are on the platform launched all over the world and international language tone in context locally where those instructors are that really does give us a very unique.

<unk> in terms of how we bring this type of content to life and enable our learners with them now all different sizes and types of organizations to access this content.

And again, enabling them to stay ahead of the pace of change so.

It's a good strong illustration of really how different we are and the advantages we have as a result of the marketplace now as far as chat G. P. G and in terms of how we're thinking about it.

Our instructors and our learning experience you know we've been we've been now testing for over nine months.

In the area of AI deep learning G. P. G III, which is underpinning our platform that supports <unk> and we're very encouraged by some of the testing and the betas that we've been running in terms of our ability to enhance the tool kit.

The capabilities that we can arm, our instructors with to enable them to accelerate the pace by which they develop content increase the level of personalization, which is really exciting and allow the instructors to create.

More engaging content faster I guess is the best way to go to really sum it up and we'll be talking more about this as we move forward, but look again, we've got 70000 instructors around the world that we have the ability through this platform to enable them with tools and capabilities that.

<unk> are very unique in that we've got breadth and depth globally, and we're going to take advantage of that and are very encouraged by it you can expect us to talk more about our investments in deep learning as we move forward.

Yeah.

Got it that's really helpful.

As a follow up just wanted to ask.

And if we continue to see weaker macro trends and I guess, especially if the unemployment rises from here, which seems likely to happen. When you. What do you think the net impact could be on the consumer segment I could I could see it being a little mix, but just curious if you see some puts and takes if you think about the consumer.

Yeah. You know this is the first one I'll turn that this company centers. So we don't know for sure, but we do think that there is a some kind of cyclicality of the business as people are looking for ways to upskill and reskill themselves for their next opportunity.

So you know we're going to continue to keep an eye on it but.

Our expectation is that the consumer business as well fold out it stay stable if not see some benefit due to that.

Okay. Thank you.

Thank you.

Our next question comes from Terry Tillman with Truest Securities. Please go ahead.

Yeah.

Oh, great. Thank you. This is our counterparts are all on for Terry. Thanks for taking my questions. Just on the first one I wanted to dig a little deeper into some of the customer dynamics within you'd be so just for large customer support than a thousand employees. How does that segment fuel from a demand perspective versus small customers and maybe how can we think about the breakdown between the segments.

On the mid thirties gross guidance for this year.

Sure Conor.

So coming out of Q4, it look as we as we entered Q4 and into Q4.

We were really were not seeing.

A significant impact in our enterprise business and what we saw in December as we went through the back half of December with some elongation in sales cycles and that resulted in.

Some deals pushing into Q1 and organizations, we're doing what candidly, what we were doing and I think what most organizations, we're doing which is assessing.

The budgetary concerns that they had in Q4 as well as trying to really get clear on what our budget was going to look like for 'twenty. Three so some of those decisions where we're in a holding pattern and we are starting to see some of the you know those decisions.

You know free up and some of the.

Our budget is starting to be allocated in Q1, we're encouraged by what we're seeing early Q1, but still a long way to go.

As far as buying trends within that segment and I talked earlier.

How about you know what we're seeing from our continued momentum offline to online as well as consolidation.

But we're also seeing that you know as I'm engaging with C. L. Owes you know what theyre, telling telling me and us is that they're.

They're not pulling back on their allocation of budget per employee. They may have you know in some cases reduce their workforce, so maybe not as many employees.

But for most of them, it's as important now if not more important to continue to invest in the scaling via upscaling, our reskilling of their employees to enable them as an organization to reach their strategic imperative imperatives and outcomes as they are now.

Obligating the way through this downturn.

You know as much as we have seen some budgets constrict and go into a bit of a holding pattern what.

What we're hearing is those budgets for the year on a per employee basis are not we're not seeing significant degradation. So it does give us confidence in our enterprise business as we move into 2023, Oh, sorry, if there's anything you wanted to add to that.

So I think that was well said thank you.

Okay perfect. That's really helpful. Maybe just a quick follow up on on the new product side, how has the rollout of the learning assessments been going and maybe there's any important customer feedback you've had here I really appreciate the time guys. Thank you.

So you got a very encouraged.

Some of these upsells that I've mentioned do include our U N V Pro.

Immersive learning capability product and so you know very encouraged about what we're seeing and.

Most larger organizations are moving with a.

Sequence deployment phase deployment, if you will and those initial phase deployments, we're seeing very very good signs at very good uptick adoption.

And and outcomes in line with expectations. So.

Very encouraged again and again.

The breadth of our platform.

It really does give us.

You have a unique position in the marketplace and that we've got immersive learning capability and our leadership Academy, coupled with you know.

Our market leading on demand library that is it is unique and so we're taking advantage of that and our customers are certainly taking advantage of it as well.

I would just add to that you know we've spoken about our customer success.

G, but how do we really partner with our customers to help them roll out these new features and capabilities and get their teams engaged and see that adoption, so that they're able to get the ROI from the dollars that they're spending with us and so you know there's a lot to be said about having this broad platform. It's great content, but very importantly, also we do.

And with them to ensure that they're seeing that uptick in that success.

Our next question comes from Jason Celaeno.

With Keybanc capital markets. Please go ahead.

Great. Thanks for fitting me in Greg.

Greg Brown, when we think about the longer sales cycle commentary in enterprise are you seeing impact more in any one vertical maybe say intact.

Curious, what you're saying.

Question, Yeah, we have seen it I've been in technology, which is no surprise because that is also where we've seen.

The bulk of the organizational adjustments that have been announced over the last weeks and months. So yes.

Is one vertical that we have seen.

Little bit of the a little bit of a pause pullback, but again starting to see that free up as we move into Q1.

But also bear in mind, we don't have high concentration in any one vertical.

We've got.

If you look at the executive Vice rig counts or boards that we have and.

The the areas by which you know, we're demonstrating very strong and.

Capability to drive organizational Upskilling and Reskilling on a global basis.

Theres no one concentration attack, where we do very very well and faster service as I mentioned earlier as well as professional services consulting healthcare retail and so on and so forth. So that does play to our advantage in that you know if anyone sector does start to see soft nurses is more impacted than other sectors. We do have the ability to.

And in other directions without without really losing a step but.

Initially the tech vertical was an error a vertical that we did see some you know.

Some pullback.

Great. Thank you that's helpful. And then Sarah you know getting to EBITDA profitability sooner. It seems like the prudent decision now, especially non tech I'm curious you know what type of flexibility have you built in you know in case some of these topline business trends, maybe potentially deteriorate further thanks.

Okay. Thanks.

Jason So I think you know that the macro environment.

Q4, we really did see a pretty significant deceleration in elongated sales cycles that we do expect that to continue at the same time as Greg said, you know things do look like they are loosening up a little bit we feel really good about the balance.

We have laid out as far as you know confident in our ability to deliver profitability in the second half even with continued macroeconomic Ah.

Pressure and at the same time being thoughtful about the ability that also.

Step in Ah and put our foot on the gas should things open up and take advantage of the opportunity.

A balanced approach.

We do not expect and are planning right now for anything to improve and it can worsen a little bit and it will be okay. At the same time, we're still investing in the things that matter and we know the stuff that will take a really quickly when things start to loosen up.

Perfect No that's very helpful. Thank you.

Thanks, Jason.

Again, if you have a question. Please press Star then one our next question comes from Brent Thill deal with Jefferies. Please go ahead.

Hey, Thanks, guys. This is David loss Paragon for Brian Appreciate you are asking some questions.

Maybe just thinking about the overall.

I mean enterprise opportunity you know there is a lot of different players out there. It seems like everyone in education tap wants a piece of that pie.

Just just curious how do you think about some of these newer entry and trends being maybe a little bit more price competitive are you seeing any of that.

Just curious to get your thought on the competition standpoint.

Thanks, David.

We're not seeing.

Anything new in terms of competition upmarket and our enterprise segment, what you described as far as new entrants there.

A bit more.

Now price competitive we are seeing that more downmarket in SMB side of our business and that's not a surprise.

And we've seen that for for some time now so.

And we expect to continue to see it.

And we're making the appropriate adjustments, if and where it makes sense to enable our teams to compete effectively in the SMB segment, but on the enterprise segment, not saying not seeing anybody new materially in <unk> and this and don't necessarily expect that to change.

And any.

Rapid fashion that usually happens over time there'll be no surprises as we start to keep our eyes on the landscape.

And and then better understand you know based on the customers' needs whether or not you know there's somebody else that's out there that they can.

Fulfill those needs.

As successful as we can so that's about the best way I can answer nothing material on the enterprise side Santa Downmarket.

Got it that's helpful. And then maybe for Sarah I, just wanted to double down on the comment around the FY 'twenty Guide I believe you said July reiterating what you said at the analyst day, but maybe just provide a little bit more commentary around what gives you confidence that you can get back to that level of growth obviously implies.

Somewhat of a strong acceleration in growth. So I think you pointed out like 23 revenues, obviously Huawei until you have that impact, but maybe walk through what gives you the confidence that you can get back to that mid.

Mid 20% growth in 'twenty four.

Yeah, I think a few things I think the first thing and as Greg mentioned, this a little bit, but even though we're seeing some elongated sales cycles. Our win rate was actually higher in Q4 that was a year ago in Q4.

And so we continue to see the strength in our business, we continue to see that.

Our offering which is fundamentally different from anything else that is out there because of our marketplace.

As we can keep up with the pace of change in that piece of change continues to increase.

It is a different offering.

It is global we have 14 local languages, we continue to see strength in our net dollar retention and over 123 at 123% for customers with over 1000 employees.

And so we have an enormous opportunity for expansion and upsell, we continue to expand and up sell with them and we.

We are increasingly our growth rates are based on <unk> to be better.

We've got stability in the consumer business, we think that stability is going to continue.

We are very focused on what we can control and the things that we're investing in are going to continue to drive increased engagement and retention improved unit economics at all that's going to result in top line growth. So yeah, we feel really good about the targets that we put out there.

I just want to add one thing we mentioned this on prior calls, but we still are only 10% penetrated.

In our enterprise customer base.

And our team is so I, just mentioned and I mentioned earlier our win rates are increasing.

Coupled with.

The trend of consolidation within these larger enterprises gives us a lot of confidence that we've got a lot of runway in our enterprise segment.

At the same time, we're adding new enterprise customers every quarter.

There's more opportunity to expand and grow. So you know we very much believe brought you know we're on the front end.

Have a massive opportunity on the enterprise side of our business Holistically are business specific specific to the question on the enterprise side and we've got the right platform and the right team to go take advantage of them.

The other thing I would add it and we've spoken about this all of it as well as continued traction that we see in <unk> crowd.

And our cohort base leadership.

Offering.

That's additional additional growth that we can take advantage off within existing customers and new customers.

Really helpful. Appreciate the color guys.

Yeah, you got it.

Our last question is from Tom single Hearst with Citi. Please go ahead.

Yeah.

Good evening, it's something that from Citi. Thanks for taking the question just a couple of quick ones. If that's okay.

First one on that.

It's in the sort of enterprise.

So the the elongation of the sales process.

Can you just give us a sense of whether there is a sort of geographic.

Sort of New York, Scott I know some of the other companies exposed to enterprise.

The budget.

Singled out the U K as a market has been weaker than the U S. For example, Sydney.

Color on that would be it would be great and then I've got a follow up if that's okay.

Sure Tom.

So let me make.

To make sure that and I won't answer the question in two parts of it but it make sure you understand that our pipeline on the enterprise side.

It's actually very strong right, we feel very good about the pipeline we felt good about the pipeline in Q4, what we saw with some some of these opportunities slide into Q1.

And we feel very very good about the strength of our pipeline in Q1 as well as what we're seeing for Q2.

That being said yeah, you know the the decisions that the organization's we're making in Q4, it's a hold on buying decisions, while they better understood the macro as it related to their business.

And carrying that forward a bit into Q1 before they were able to lock their budgets and for 2023 is not unlike anything that you know we're not we're doing the same thing and I think you know as Ive spoken with a lot of cielo is within a larger organization.

But that same motion.

It's happening across the landscape and so what we're not saying is we're not seeing anything different than we did we didn't see in Q4, and then to your question around geography and segments.

Our EMEA business I know a lot of organizations have talked about softening with respect to the geopolitical.

No issues at the EMEA space as well as the macroeconomic conditions, our EMEA business and our team.

I can't say enough about our team over there and our business continues to remain very strong vibrant healthy in EMEA.

As it does in Asia Pacific and Latin America, and around the World. So no we're not seeing any one segment or any one region.

More negatively impacted.

Dan.

<unk> done another you know I'd say, our most mature business is North America on the enterprise side. So.

If if anything we're seeing a little bit of that a little bit of slowness that hesitation on the tech side of the enterprise customers as we talked about earlier in North America, but and I think that's.

Sara just mentioned we are starting to see real positive signs of some of that loosening up and decisions being made and in deals getting done. So encouraged by that early move in Q1.

So all to say no geographic.

I would call out.

And feel very good about our enterprise business as we move into the year.

That's great and on the second question is around the cash balance and I suppose.

Use of capital I mean.

You guys well does he have a you know a lot of flexibility there.

I presume some.

Got it.

Multiples are coming down I'm, just interested in whether there's any appetite on your behalf to be more active with regard to M&A in may.

It might be trying to take advantage of.

The current environment.

Maybe maybe.

There's a little bit of inorganic growth.

To what you're doing organically.

Yeah. That's a good question, it's two questions.

Yeah, we do expect there to be further consolidation in the category as well as you know we are looking at.

At opportunities to do exactly as you mentioned potentially layer in some technology.

Capability that we.

We believe would give us.

<unk>.

Yes, the leverage.

And there's a few different areas that we're looking at right now not at Liberty to go into those specific areas, but without question.

We're gonna be opportunistic as we progressed throughout the year and expect there to be opportunities for us to do just that Sarah I don't know if there's anything like that yeah. I think that's exactly right and I would say you know some of the multiples have come down some they're maybe not quite.

Where we want them to be yet, but we think that that's going to continue and so you know we're actively looking at.

Opportunities that might make sense for us.

But we're not quite there yet.

That's very clear thank you.

Thanks, Tom.

This concludes our question and answer session I would like to turn the conference back over to Mr. Ko Carey for any closing remarks.

I want to thank everyone for joining today, it's been a pleasure getting to know all of you. We thank you for your.

Continued support of the company I hope our paths cross again, some time have a good afternoon.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.