Udemy Inc. Q1 2023 Earnings Call
Ah stemming from Jos founded the composition gauged employees reached eight trillion in 2021.
That's a staggering amount, which has accelerated in recent years.
So you don't feel engaged there'll be less productive, making it more difficult organization to grow or achieve goals.
Third these investments increase employee retention, which translate into significant cost savings.
Studies have shown it can cost $1 five annual salary to replace the skilled employees.
When companies invest in career development employees are likely to be happier in a role.
To be more productive and stable.
The result is an upscale loyal workforce to better meet the evolving needs of the business.
Sure.
Upskilling and Reskilling employees generate high long term ROI.
And economic downturn presents an opportunity to invest in learning programs to help companies stay competitive and agile.
Some companies are taking advantage of this temporary slowdown to upskill and reskill employees to prepare for an eventual improvement in the macroeconomic shock.
And usually we provide clo's and heads of large ongoing support for developing the skills necessary within their workforce to achieve desired organizational outcomes.
And hiring employees with platform capabilities and learning content is now a strategic imperative for organization.
To enable learning growth and development.
This is essential not only to meet todays needs, but also to prepare for future needs as technology continues to evolve rapidly and an increasingly competitive environment.
We hear this from existing and potential customers every day.
Not only do we offer a learning platform that is fundamentally different from any other offering.
We also provide strategic support with our customer success organization to help customers established can achieve their goals.
This combination contributes to our strong win rates across all geographies and industries.
During Q1, we welcome many new valued customers and expanded relationships with existing customers.
Cisco systems Ericsson.
Gamba and strike to name a few.
Ultimately, we ended the quarter with nearly 14400 global customers or 24% year over year increase.
Our pipeline is robust the macroeconomic conditions continue to present short term headwinds.
Like last quarter, we experience longer sales cycles.
For the first time, we saw upsell and expansion yield elongate and all geographies and with companies of all sizes as businesses close to reevaluate their staff.
During Q1, we continue to make progress on our international expansion through our partnership strategy, particularly in the Asia Pacific Region, where unit business is gaining meaningful traction in Japan, South Korea and Vietnam.
For example, <unk>.
<unk> expanded its influenced LG electronics through our strategic partnership with <unk> in Korea.
LG you chose you need to empower employees because it provides the organization with the most comprehensive learning platform to upskill their global workforce and stay competitive in the category.
It has become increasingly critical to companies offer an integrated approach to learning and professional skills development.
Any forward thinking companies are seeking more immersive learning modality to promote greater employee engagement and to enhance the learning experience.
In fact during Q1, we won a seven figure vendor consolidation deal with a fortune 100 company.
The organization selected <unk> to Upskill and Reskill their workforce based on the breadth and quality of our content catalog.
So the technical immersive learning experiences, we deliver with our euro.
<unk> provides an immersive personalized learning experience to accelerate skilled development across key roles in IP development and data analytics.
You Pro enabled technology professionals to achieve those learning outcomes professional certification more effectively through past assessments workspaces and less.
In the past year customer adoption of <unk> has increased nearly six yes.
<unk> primary focus skill development professional nerves and organizations across the globe.
Customers come to us because we provide next generation large block.
We offer a vibrant marketplace that fueled the growth of <unk> business, and we measure that privacy and three with.
Robert of course creation and instructor.
Traffic has held steady with approximately 34 million visitors coming to usually each month.
Even on significantly lower performance marketing spend.
This provides a massive opportunity to drive engagement and increase conversion into individual forced purchases as well as personal <unk> business plan subscriptions, particularly as we increase our investments in generative AI.
And personalization.
Of course creation remains strong.
Given the instructors added more than 16000, new forces to our marketplace during Q1.
We also generated more than 1900 integrated forces into our unity business catalog during the quarter.
Of course, there is related to artificial intelligence and John TPG are in high demand from our <unk> business customers.
Our instructors are incentivized to create content to address those demands.
Which contributed to the strong horse creation, we saw this quarter.
As engagement increases on our platform. So this construct ernie.
Last year, we cannot close to $200 million of instructors.
Instructors no. They can build a great business on you'd need to see create compelling and in demand content and are incentivized to update existing content offered to optimize their traction with a massive global audience.
We are proud of the platform, we built and are even more bullish about the future.
We're excited about the possibilities for AI to transform learning.
We plan to be a leader in the category.
Due to me is harnessing the power of AI to supercharge, our instructors learners and organization to improve lives through learning.
We are dedicated to providing high quality relevant learning that is driven by the collective talent for our instructors and our ever evolving learning ecosystem.
Our network of nearly 75000 instructors who shared their expertise of our platform are the core of the future.
There are extra guidance remains at the heart of our concept model and now with the support or they are they can more quickly translate their unique knowledge and instructional thought into effective manner.
This year, we will be launching in platform tools to assistant structures with the creation of active learning experience.
For example.
We just released a new AI enabled tools to assist constructors with software development courses with creating job Python and <unk> plus coding exercise.
What used to take instructors an hour or more to create can now be done in just a few minutes.
This is the first in a number of innovations that we'll be launching this year.
In the second half of the year, we will bring AI assistant active learning the topics beyond software development and introduce tools to help instructors create questions for assessments related to the content in there for us.
There are more than 200000 courses on units representing over 1 million hours of content on thousands of jobs.
Given a content discovery has traditionally focused on 2000 learners to entire force.
Recently, we introduced new AI capabilities. The recommend specific video lectures within of course based on their occupational goals were.
We were excited to see that access the bite sized learning that's a meaningful increases in engagement.
And the next few months, we will rollout new smart search capability and make it even easier for subscription learners to locate specific learning content.
<unk> will be able to describe their goals or ask questions in simple language.
And this new smart search capability will display relevant forces and specific videos actual result, and most directly address with the <unk> one solar.
These new capabilities will enable learners to more effectively access the breadth of information within <unk> core status.
As change accelerates organization space, an enormous challenge to identify and close skill gaps in the workforce.
We are helping organizations understand skill gaps within their workforce and growing their employees effectively and strategically.
Recently, we partnered with a one <unk> consortia to bring open badges to the unity platform.
Open batches.
Which are used by a number of popular industry certification, providing transparent industry set the standard for representing the specific learning objectives that must be met for a learner to demonstrate proficiency and our scale.
In the second half of this year, we will launch new capabilities to help learners self assess their proficiency on skills and more easily find content to help close those gaps.
These features will point learners through targeted learning content based on the results of assessments that measure preparedness.
We're leading third party industry certificates based on open badges.
Given managers a few into the Badging and certification within the organization.
We will also help customers identify skills available within their teams and address any gas.
AI is evolving and the way we use it to drive learning will evolve.
As more people turn to you'd need to learn about it.
We're excited to use it to make learning more efficient personalized and powerful than ever before.
Before I turn it over to Sarah I wanted to provide an update from my first few months in the CEO role.
As I mentioned before our long term strategy is not changing.
As we lead the transformation of the online learning category, we're taking action today on near term priorities that we believe position us for long term sustainable and profitable growth.
For example.
We are reinvigorating, our internal operations and culture to drive our operating plant for greater speed and agility.
This includes a heightened focus on accountability and results at every level in our organization.
As we work towards delivering exceptional performance and outcomes.
Specifically, we are ensuring that all teams are equipped with well defined tangible objectives or goals that are fully aligned with our broader corporate strategy.
Our product team is prioritizing resources towards initiatives that will deliver the highest returns and at the most long term value for our business.
This includes launching skills validation later this year as well as incorporating AI and deep learning throughout our platform.
And finally in order to achieve our profitability targets on an adjusted EBITDA basis, while also driving topline growth. We are laser focused on efficiently managing our cost structure and maintaining flexibility to invest in high return opportunities.
Although the macroeconomic backdrop continues to present some uncertainties in the near term or long term tailings remains.
Including the shift from offline to online.
Renewed investments in R&D.
An increasing prioritization of skill development.
It's still early days in this transformation of the online learning category, but I am excited as ever about <unk> future.
Now I'll turn it over to Eric for a financial review.
Thank you Greg.
I will focus my comments on the key financial highlights and then provide our outlook for full year 2020.
You can find the complete financial chemo.
Which is available on our Investor Relations website.
Yes, let me to elaborate.
Hum.
And we provided for both revenue and adjusted EBITDA.
Total first quarter revenue increased 8% jump in here.
Two $196 million, including the negative impact from foreign exchange or FX.
Five percentage.
Hey, Randy investments driven.
Are you to meet.
We still have our Q1 revenue of $95 million.
The increase of further.
Year over year.
Included in this growth with a three percentage point headwind from changes.
The year over year was driven by an increase in unit business customer and expand.
Activity compared with the same period last year as organizations around the world continue to recognize the value.
You bet.
Integrated partners.
<unk> development program.
This is also reflected in our annual recurring revenue or <unk>.
With respect to <unk> hundred 96 million at quarter end up 42%.
We ended Q1 with a consolidated net dollar retention rate of 112.
Three it was 120.
Are those with 1000 or more employees.
While we did see some pressure on net dollar retention.
We continue to see stable growth Telerik has general profile and low churn.
We anticipate that our net dollar retention rate will remain pressured as company yet another key economic challenges and closely.
Great.
This chart with me that this trial was somewhat offset by geography.
Year over year decline.
Great.
Which included a negative six percentage point impact.
As we move down the P&L note that all financial metrics non-GAAP unless stated otherwise.
Q1 gross margin was 50.
The 100 basis point improvement from Q1 of 2022, driven by the continued revenue mix shift.
This content cost as a percent of revenue are lower for that.
Does this accounted for 54% of total revenue in Q1, which represents a meaningful mix shift from 43%.
Yeah.
Total operating expense was 100 question Julien, our 54% of Rep 100 basis points lower than Q1 of last year.
Sales and marketing expense represented 41%.
It was flat year over year.
R&D expense was 14% compared with 13% last year.
G&A expense was 9% compared with eight 9% of revenue.
And the bottom line net loss for the quarter was negative <unk> 8 million or negative <unk>, 7%.
Adjusted EBITDA loss was <unk> 6 million or and I guess more contractual or 400 basis points higher than the high end of our guidance.
This margin expansion demonstrating that our efforts to drive more efficiency in our cost structure and then attack.
We're also maintaining the flexibility to make opportunistic investments and will help to accelerate our longer term goal.
Including AI credential and personalization.
Moving on to key cash flow and balance sheet.
We ended the quarter nearly $450 million of unrestricted cash cash equivalents restricted cash and marketable securities free.
Free cash flow for the quarter was <unk> 23 billion, a two day increase in DSO and changes in working capital.
Now turning to our outlook for Q2 and full year 2023.
During the first quarter the uncertain macro environment.
And uncertainty resulted in larger sales cycle and additional land for Gail and critical for many companies.
We do not anticipate these trends will meaningfully change in the near term and our guidance for the year assumes no material improvement or deterioration.
With that in mind, we expect Q2 revenue between 100 and 174 million.
Assuming foreign currency exchange rates remaining constant FX is expected to negatively impact Q2 year over year total revenue.
By approximately 4%.
As we shared on our Q4 call, we expect E&P business segment revenue.
Net earnings for the ERP here and that consumer finance revenues will decline sequentially from Q1.
On the bottom line, we anticipate Q2 adjusted EBITDA margin.
Thank you.
Looking further ahead, considering the uncertain macro environment, we are cautiously optimistic about the rest of it.
Given the strong Q1 results were bringing up the low end of our revenue.
We now expect full year revenue to be between 700 to 700.
Our 14% every aircraft estimate.
That growth includes an estimated two percentage points.
Assuming no further changes in rates.
Our outlook assumes the healthy demand.
<unk>.
Our continued cost efficiency initiatives translate into our full year 2023, adjusted EBITDA margin.
Between negative three.
And the Atlanta.
And improvements breakfast, our previous guidance of negative 4% negative.
Adjusted EBITDA for Q1.
<unk> also made on your margin improvement in Europe .
Please.
And so for adjusted EBITDA, we are now I could modestly Q3 towards breakeven.
<unk> can be slightly positive.
In closing, we believe dedication executing execution.
And our focus on efficient expense management in this challenging macro environment allowed us to deliver our Q1 results that exceeded expectations.
And we are well positioned to navigate near term headwinds and emerge as a more durable business.
We are excited for Uni <unk> product as we continue to drive towards profitability and build shareholder value.
So with that well open up the call for your questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your 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.
Our first question is from Ryan Macdonald with Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a really nice quarter and start to the year.
Starting with Sarah just given the outlook commentary and maybe a little bit Greg as well just curious as you look out through the rest of the year, obviously cautiously optimistic but macro environments, obviously still volatile maybe where do you see the most potential for variability as you look across <unk> versus the consumer.
<unk> for the rest of the year.
Hey, Brian Thanks for the question.
So listen I think there's a few things the first system more.
The mix shift in revenue move toward you'd need a more visibility we have.
As you know we're sitting in a pretty strong base of revenue. So I think they're there.
There is some uncertainty just globally, especially around SMB. So we're still seeing a lot of uncertainty.
Smaller business from the macro enterprises continue buying although at a slower pace.
We do continue to see those elongated sales cycles.
<unk> is strong.
It's just the timing of when that comes in.
Consumer side as you know we're not focused on the comprehensive team are really focused on the marketplace vibrancy. So while we're happy to see that with the way the consumer business is performing well, we're really happy to see all the new courses that were added.
Coming on.
I think listen we're going to continue to see macro pressure, we're feeling good about the guidance that we've put out and the work that the team is doing to deliver a strong 2023.
Super helpful.
Alright, let me ask you then we can not just move a little more color.
As I mentioned, our pipeline does remain strong where over 40%.
Where we were last year with respect to our U R Q3 pipeline so.
Now as she mentioned, we still have to convert and <unk>.
Pressure on sales cycles, yes.
As you alluded to it is going to be bumps throughout the year, but we're very encouraged by at the top of the funnel feeling very very strong and healthy.
Couple of the other macro trends that we talked about on prior calls are playing out.
In a significant way one is consolidation we just mentioned that we had a seven figure consolidation with the large multinational.
We're seeing a number of these across our customer base in a couple of them I'll. Just highlight one was the large financial services organization that went through a round of layoffs and subsequent to that Roundup layoffs made the decision that they were going to lead into a wall to wall deployment with a focus on ensuring that they could bridge skill gaps.
Either they have as a result of the way off as well as ongoing pace of change in addition to keeping engagement across our employee base. We saw similar one with mid sized software company, where there's two rounds of layoffs.
Subsequently decided to go wall to wall and expand the relationship for similar reasons.
And then we've also seen a lot of really strong momentum around our <unk> pro product, which gives us a lot of confidence in the back half of the year that we're going to see a continued expansion. There. We are one of the large fortune 100 multinational expand <unk> from what was an initial deployment of 10000 feet to 40000 seats.
As a result of <unk>.
Validated pilot, we can significantly increase the pace by which technical certifications.
Were being completed in the organization, which had a direct correlation to their ability to actually increased billings associated with those individuals acquiring a certification.
We're seeing some very strong very positive trends.
It is choppy and its still somewhat difficult macro environment. So now a lot of encouraging signs.
And in the back half of the year is going to.
There is going to hold firm.
That's extremely helpful color I appreciate that Greg answer maybe just given those comments because it does sound like that.
Opportunity for additional expansion is pretty strong given the consolidation trend when we look at the <unk> number at $1 12, and $1 20, respectively, obviously understandably come down because of the elongation, but where would you expect that to stabilize or what are you seeing in terms of the trend line there.
Yeah, So listen we're proud of that 120% large customer net dollar retention in this environment.
As you just said we are experiencing downward pressure and we do expect to continue to see that we don't we don't give out guidance on net dollar retention.
The macro is impacting our propagate well, we're happy to see it as a percentage of bookings is coming from our existing customers and our sales continued to grow and it was the highest quarter ever in Q1. So there is overall pressure, but we continue to expand with our customers because they really see the value of our products.
Our gross dollar retention remained stable we continue to have low churn with our larger customers and there is a huge opportunity to expand with existing customers over time, we just think it's going to be a little harder this year and taking a little longer. So with you. We do think there is going to be continued pressure.
I'll now put the long term.
The long term forecast for that it's good and thats because the conversations we're having with our customers is that.
Scaling and upscaling and partnering with someone like E&E is it's not a benefit is a strategic imperative.
We're going to keep their employees.
Has the skills that they need to deliver on therapy.
Super helpful. Thanks, again for the great color and congrats.
Thank you. Thank you.
The next question is from Rob Oliver with Baird. Please go ahead.
Great. Thanks, good evening thank.
My two questions Greg one for you first and then Sarah I had a follow up for you.
Greg I'm curious.
Just wanted to ask about January of AI chat GPT I mean, you guys were really.
Quick and I think your model really demonstrated its strength and its ability to kind of get these chat GBT courses out.
In to the hands of your customers really quickly you said 1900, new courses from UV in the quarter I'd just be curious all of those like what you saw in chat GBT and how that like drove utilization.
So a lot of software developers.
Number one focus.
And then also would love to know.
Bigger picture, what that's doing.
The land and expand and cross sell and upsell motion because I have to believe that this could serve as a catalyst for many enterprises that might have hit the floor, but on defense and.
I have a follow up after thanks.
Yeah.
Hey, Rob Thanks for the question.
I'll answer the last one first.
Our ability to leverage our marketplace, which as you. All know is very unique in that it enables us to keep up with the pace of change.
And in a very different way than anybody else in the category and that our instructors and developing contracts in many cases ahead of the release of some technologies, along the wife, Jackie <unk> and others and it really is y.
You see the breadth and depth of content on <unk>, both in our marketplace as well as in our UV Dot long and we're winning business as a result of it and give you. An example, a large.
The currency company.
As you can imagine the pace of change in their category as high as any other categories.
We serve.
And after they do their analysis on us.
Competition makes a decision that we were the right platform for them based on that specific analysis and they were looking at strategy generally.
And inside that was going to give them confidence that we're going to enable us to continue to upskill and reskill their employees at the pace of change of their business.
While also being able to impact with the amount of folks that they are hiring in that organization.
The learning experience other emerging theater. So they went in and invest in our leadership Academy to continue to evolve and develop the leaders and emerging layers in the organization as well as support innovation either was going to be needed along the lines of GBT and the pace of change and we've got a number of these types.
Some examples.
And I'll just say yes.
At the macro level, if you wouldn't mind can we comment on AI in general and how we view.
Yes.
We view it.
It is not only not a threat we view it as a massive opportunity for our business that we just talked quite a bit about that but learners come to us to acquire critical skills necessary to be successful in their careers and an ever changing environment.
And we're harnessing the power of AI to.
To redefine the next generation of learning and we couldnt be more excited about and we touched on some of those examples and I'll hit on it briefly in terms of what we're doing now.
Have a significant impact for instructors.
We're building tools and add defined capabilities on our platform that can enable them to develop content faster.
More efficiently and deliver a more effective learning experience overall and for learners, we're making that experience more personalized and engaging through AI, we wouldn't be talking more about that in quarters to come and.
And for customers, who are providing data and insights and so enabling us to identify and address skill gaps that without question are apparent today and theyre going to be more apparent as.
And it continues to disrupt.
There are many jobs and.
Kind of career trajectories that are currently.
Influx and organizations, including arms, and we're rethinking that as well so look we're going to go into effect.
Structures learners with customers in a significant way going forward.
The coding exercise tool, we highlighted as well as smart search are just the first of many capabilities, we're going to be releasing this year that are going to enable us.
Again redefine the next generation of Onboarding, It looks like <unk> Corporation.
That's really helpful. I appreciate that Greg Hi, sorry, just a quick one for you just you guys.
Vendor consolidation is a theme I know you guys have been calling that out and if there is it is it has been gaining traction youre also.
Doing well internationally with some really large global enterprises I think in the past you've said that got it deal.
The multi year deals.
<unk> been in the 40% as a percentage of revenue I'm, just curious if youre seeing any chip there as you.
Moving this vendor consolidation phase and towards these larger international deals if youre seeing more on the multiyear deal side. Thanks again.
Thanks for the question Rob.
Thank you.
Gary.
Creek are recorded this quarter is no exception and so our customers really are across the globe leaning in and really looking at.
Entre partner to keep their employees.
The skills that they need.
I'll just add briefly that in addition to having the strongest quarter we've had.
With respect to multi year deals from new business. We also saw an 80% increase.
The deal was over $100000 value annual recurring revenue value.
Again, all trending in the drive through or actually a lot of strength and what our sales organization is delivering with respect to <unk>.
Strategic relationships, then are adding meaningful value.
One of our experienced within our customers and as a result of that customer's being continent, signing long term strategic contracts with us and large scale.
The next question is from Terry Tillman with Truest. Please go ahead.
Yes, hi, good afternoon, Greg Sarah and Dennis.
Nice job on the results that also I think the Investor engagement series is great and in fact, I think one of the ones you all talked about or that you. All had presents it talks about the import develop the budgets and then they plot.
<unk> in the press release today in terms of an important new customer expansion deal. So I like that theories and I'm looking forward to hearing more on that.
So Greg as I just go through my clumsy preamble, we've got good soundbites now for the E mails, we seemingly get every.
Half hour on AI, and how it's going to impact businesses, such as yourself. So thanks for the like real life data points.
Contrary.
Finally to my questions. The first question Greg for you is.
As it relates to generative AI and chat GBT do you see more of a benefit whether it's tactically or strategic or not on the consumer side or the <unk> side kind of more on the near term and then the second part of that question is do you think that generative AI actually if we looked out over the next 12 months is more impactful to the revenue.
And a good way or actually more operational excellence, whether it's helping your instructors, whether it's R&D quicker pace our go to market optimization.
I'll answer the last one first look in terms of.
Operationally I think it's also sort of operational efficiency and this can enable us to enable our structures to be a lot more efficient and developing is the learning experience that they're delivering through the content that they are putting on the marketplace that were then extending into the UV catalog qualified that so.
Velocity, there is going to enable us to be in a lot more efficient effective as partners with our instructors.
Not only keeping up with the pace of change, but improving the overall experience for learners within corporations large and small so we're excited about that and from a revenue perspective.
Absolutely I believe it is going to have an impact it is today because customers now paying a lot of attention.
Two.
The vendor selection process with respect to the content that is enabling them to stay ahead.
Whenever innovation coming out.
Yes.
With the pace of change I should say.
We're doing a great job of that in our marketplace facilitates gotten way is very difficult for us.
For those that are out there competing against the match so that does enable us to win more business, which affects our topline revenue and so we're seeing that today and the expansion deals as I mentioned some of the new business that I mentioned.
As well as I'll give an example, and I won't be called Boomerang, a customer that it was working with multiple vendors.
One of them decided to go with the other vendor based on price quality was for content is it wasn't.
Delivering as expected came back to us.
One wall to wall and that interestingly enough was through our partnership with Amazon. So we've talked about our relationship and growing partnership with Amazon. So this was the largest partnership yearly flows with Amazon multi six figure deal and fuel got down fast as a byproduct of that customer having that relationship with Amazon and that was.
Again coming back to us paying more because of the quality of experience and our ability to keep up with the pace of change. So I think without question affect top line.
Productivity of our instructors and affect our ability to deliver a higher quality experience and Margaret.
I appreciate the color and I guess, Sarah just a quick follow up for you I didn't write this down fast enough for <unk> did you say mid thirties for UV or enterprise and then what did you say sequentially and what I'm curious if you would buy it on the full year question anything Directionally in both segments. Thank you.
Yes, I think that yes, you could say <unk> 38 for the second quarter and that we expect to consumer which is typical seasonality would be down quarter over quarter.
And for the year.
Do you anticipate that we're going to exit the year with <unk> growing in the mid <unk>.
And we saw that strong performance with consumer so it's a little bit of a mix shift, but still been exiting the year Nir with you being here.
Okay, great. Thanks.
Excuse me. The next question is from Brent Thill with Jefferies. Please go ahead.
Hey, guys, it's David on for Brian I appreciate you taking the questions.
Sorry to continue on the AI trend, but just wanted to follow up and clarify and Greg. Thanks for the color and you guys not seeing it as a threat in general, but I think a lot of folks out there are super curious I was hoping we could dive in deeper after obviously another education Tech company got cut in half off of <unk>, but as you think about AI.
I know you said you think of it as a benefit not a headwind, but curious how you think about the idea of potentially folks who might have used your platform to learn about something in the past maybe they were using an AI tutor on the side is that something that you guys could see as a threat. Maybe is that something you guys are working on would just be great to kind of hammer home on the AI strategy.
And then I have a follow up thanks.
Thanks for your question.
We're looking at a number of different ways to leverage and integrate into our platform.
And im not going to comment specifically on any.
Anything with respect to where we're at with tutors and coaching and what you can assume that all of those areas.
We're investing time energy and resource to better understand how that could enhance the overall learning experience at the point in time.
Ready to talk about we surely will.
I think all of US would say right now we have a clear view.
On what we believe is going to enable us to do and I just highlighted that 612 18 months from now.
We're all going to be learning is foregone Brian .
Brian and so whats in our line of sight right now.
It is all opportunity for us as we're looking at how to better enable orange structures to deliver an enhanced experience.
And we do feel strongly.
This instructor experienced batteries a lot, whereas we do not feel that.
Any point in time in the near future that youre going to be able to hit a button and generate content and has experienced its going to mirror the experience that our instructors deliver.
Through the years honing their craft and understanding how to deliver information and assemble information in a way that is going to be best received and digested and learn by lenders on the other side that's it that's it.
There are in there as well.
All around science.
Right now and that's going to evolve over time, we're going to adapt with it.
Paying a lot of attention to that but right now.
The lens, we're looking through it we view it as all those opportunity and we are making investments to better understand how we can look at things like coaching and mentoring and what have you assistance.
Would be additive to our platform and more to come down the road when we were prepared to talk about it.
Yeah, that's helpful and I think the point on content was another one that was going around so I. Appreciate you clarifying on that and then maybe for <unk> I know you mentioned on the churn I know you guys had historically very low churn, but just curious any color you can provide on how churn has trended now obviously you guys are benefiting from vendor consolidation, but curious if maybe the churn metric is seeing any.
Headwinds.
On that same dynamic I appreciate it guys. Thanks, so much.
Yes, the what.
What we're seeing is a little bit of pressure on insurance from desktop businesses.
Ones were really struggling but our brookdale retention has remained stable for a long period of time within our little within our large customers and we continue to see low churn in that population.
The next question is from Josh Baer with Morgan Stanley . Please go ahead.
Great. Thank you for the question wanted to ask one on sort of topline.
And demand, what youre seeing and what you're expecting and maybe do so in the context of the full year guidance I think full year guidance range now.
Now 12% to 16%.
With Q1 in the books and kind of a tight range for Q2 that I think imply something like 9% growth in the back half at the low end and 18% at the high end so pretty different scenarios. There I was hoping you could provide.
Provide some context or commentary on the assumptions behind.
What's at the low end and what's at the high end, what does that look like the rest of the year.
Thanks.
And then question listen I think we're trying to really take into consideration. The fact that we are in a tough macro environment and that while we continue to see it.
Really strong demand Greg spoke about our pipeline growth earlier on how soon that we know that closing those deals is going to take longer if the choppiness.
We are.
Going through more layers of approvals than ever before and everybody is looking at their budgets and revisiting them. So it really is about.
Taking a look at all of this demand and knowing that our customers are looking at.
To be its.
This partner to them to Upskill, and Reskill, which is necessary in this world today, and even more and more necessary each month that goes on in the pace of innovation continues to create.
And at the same time, it's just going to take time and so for US it's about just being realistic that in an environment like that.
You could have significant demand, but it's going to take longer potentially to get to that demand. We are assuming no material.
Improvement or a deterioration in it just in our tenant remains.
Alright, Thanks Sarah.
The next question is from Jason Selina with Keybanc capital markets. Please go ahead.
Hey, Devin on vacation today. Thanks for taking my question want to ask about consumer and just given the outperformance there in the quarter any additional context on kind of the linearity of how conversion and although demand has kind of trended throughout the quarter.
Hi, Kevin Thanks for the question.
Listen we were we were happy to see that remained.
<unk> remained really stable.
<unk> given.
The last quarter, it's weak, but decreasing our investment in our marketing spend.
Consumer side.
It's been great to see we're glad to see that the conversion is strong and for us.
Not making any specific investments in consumer what we're doing is we're making investments in our platform around the learning experience around the things that Greg spoke about it it's going to continue to impact.
The ability for us to deliver outcomes for our learners and so there maybe some of that that is within those numbers there could be kind of cyclicality, it's too early to tell.
We're just happy to see that stability and we're happy to see the vibrancy of the marketplace, which is still us.
Got it thanks for the color and then just one more in.
Sorry to ask another question on AI, but kind of just curious based on your observations.
What specific AI related courses or are you learn or taking on a platform just want to get a little color on what's driving that.
Yes.
Absolutely I wish I could be more specific as theirs.
1000 on our platform right now and we've got.
Well over.
Well.
50 now.
Beyond that in our UV a collection.
We think that introduction to AI a lot of it is early days is with introductions. So constant really start to understand what this concept around AI and deep learning.
And understand a little bit more around chat GPT and then GBP four now which has evolved from three.
A little bit of just again context around how it all works too.
Developers.
Posted on the text on the house looking to acquire skills that they can now use to enable AI in their organization. So next level training next level development and all of this is rapidly.
<unk> deployed on our platform as the.
The market continues to evolve at the pace, it's moving folks understand that they have an opportunity to monetize on our marketplaces as well as within UBS the golfing contact literally.
At a pace, we've never seen before.
Right so.
It really is changing day by day week by week in terms of quality.
The quantity as well as topics and then the evolution of those topics in terms of who is engaging in what do they look and learn but everything from introduction to deep learning on how to apply AI specific businesses.
Okay appreciate the color.
Okay.
Again, if you have a question. Please press Star then one.
The next question is from Stephen Sheldon with William Blair. Please go ahead.
You've got pay mckelvey on for Stephen.
First so clearly it sounds like vendor consolidation has continued to serve to your advantage and I just wanted to ask if you've seen any notable change in strategy from.
Any of your peers or competitors in terms of maybe specifically pricing or anything in general.
Yes, thanks for the question.
I wouldn't say any.
I would consider material.
Without question the market is competitive in the wages are.
It appears your competitors are approaching that one and <unk>.
We're reacting to that the way our team always gas, which is selling on value and I mentioned that boomerang deal.
Thrive without quality.
And that's doing exactly that right boomeranging back to the company or the.
A series of companies, who can actually deliver against the outcomes that the organization is looking to achieve and so we are.
We are continuing to stay the course selling on value. We're competing very very effectively as a result of the numbers that youre seeing our team delivering and we're not going to be deviating from that.
And so the pricing pressure that comes out from competition, we're gonna be really leaning into the value and impact we can and will add as a long term partner in helping an organization truly reshape the learning experience. They are delivering as a result of the capability, we're bringing to market via AI as well as the partnership our customer success team delivered.
Since our strategy and delivery against that strategy. So no.
No change in terms of our path and <unk>.
Focus on execution, but yes, we are seeing limited pricing pressure, but nothing materially different.
Got it that's clear thanks, Greg and then given some of the weakness you've seen in your U B end market. So I just wanted to quickly ask how.
Youre thinking about investing in sales capacity there in terms of maybe more heavily leveraging partners internationally and I guess in general just maintaining capacity for potential recovery.
Yeah happy to answer that.
We're investing heavily on a global basis, and our partnerships PSU ventures as well as <unk> already mentioned, the AWS and really around the World Latin America Asia Pacific would be this.
It is an area that we have been investing and are continuing to lean into those investments and we're very encouraged by the.
The results, we're seeing and the impact our teams are having through these partnerships.
And that will continue.
I'm sorry, what was the second part of the question.
The rest is just.
Even.
So the marketing, yes, as far as go to market.
Sure.
I think done a really nice job of highlighting our approach on this which is.
It's aluminum wait and see as soon as we see green shoots in opportunities.
To start scaling our global sales, Oregon organization again, we are going to do so our hope is that going to be in the back half of this year.
The macros.
I'm a large.
Determining factor on if and when that happens this year. Our hope is it without question. It does but again there are some things around our control and we're going to continue to closely monitor.
And react accordingly, serono, if theres anything you want to add to that.
Exactly right. There there are areas that we are still leaning in a little bit where we continue to see over performance.
As we talked about before we lock by segment by region and that's how we make our decision.
And we just keep a close time, we'll put our foot on the gas at the appropriate time, a great area.
Okay.
Got it that's very helpful. Thank you both.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Greg Brown for any closing remarks.
Yes, I'd just like to thanks, everybody for joining us on the call and look forward to speaking with you again in August have a great rest of the day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Yes.
[music].
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Okay.
Uh huh.
[music].
Okay.
Okay.
Okay.
Okay.
[music].
Yeah.
Okay.
[music].
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Yes.
Yes.
[music].
Okay.
[music].
Yes.
[music].
Okay.
Okay.
[music].
Yes.
[music].
Thanks.
Yes.
[music].
Okay.
[music].
Yes.
[music].
Yes.
[music].
Yes.
Yes.
[music].
Okay.
[music].
Okay.
[music].
Yes.
Yes.
Yes.
[music].
Okay.
[music].
Yes.
Okay.
Okay.
[music].
Yes.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Hum.
Yes.
Okay.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Yes.
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
[music].
Okay.
Yes.
[music].
Sure.
Yes.
Sure.
Okay.
Yes.
Yes.
Yes.
[music].
Yes.
Okay.
[music].
Okay.
[music].
Yes.
Yes.
Yes.
[music].
Yes.
Sure.
Yes.
Okay.
Okay.
Yes.
Thank you.
Yes.
Yes.
Sure.
Okay.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Yes.
Sure.
Yes.
Yes.
[music].
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
Yes.
[music].
Okay.
[music].
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Yes.
Sure.
Okay.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Yes.
[music].
Yes.
Thanks.
[music].
Yes.
Sure.
Hey, guys.
Okay.
Okay.
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
Sure.
Sure.
[music].
Yes.
Okay.
Okay.
Sure.
Okay.
Good afternoon, and welcome to <unk> first quarter 2023 earnings 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 telephone keypad to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Dennis Walsh, Vice President Investor Relations. Please go ahead.
And welcome to <unk> first quarter 2020 earnings conference call joining.
Joining me today are Chief Executive Officer, Greg Brown, and Chief Financial Officer.
Yes.
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.
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 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, 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 as management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release.
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 to the website with that I will now turn the call over to Greg.
Thank you Dan and good afternoon to everyone on the call.
<unk> started off the year strong as we beat expectations on both top and bottom line.
Total revenue of $176 million was up approximately 16% year over year and.
So past the high end of our guidance range by $4 million.
We also demonstrated progress toward achieving profitability on an adjusted EBITDA basis.
The Union business segment, we saw revenue increased nearly 47% year over year on another solid quarter.
I am proud of our team for their dedication for delivering such strong results, particularly in this environment.
In the current backdrop organizations increasingly recognize that they must prioritize investments learnings and develop to fully optimize our most valuable resource their talent.
There are a number of reasons for this but I wanted to highlight.
Sure.
Organizations need to bridge skill gaps with fewer available resources.
Ah stemming from Mackenzie found that nearly 90% Ceos of identify the skills gap in their workforce.
It has become a critical priority to have a strategy to bridge that gap.
By building integrated companywide learning progress organizations can upskill and reskill their talent to better position our businesses for long term success.
Second <unk>.
Learning drive engagement and productivity.
Our central <unk> found that the cost of this engaged employees reached nearly <unk> eight trillion in 2021.
That's a staggering amount, which has accelerated in recent years.
With employees don't feel engaged there'll be less productive, making it more difficult for organizations to grow or achieve goals.
Third these.
These investments increase employee retention, which translate into significant cost savings.
Since studies have shown it can cost one five to <unk> annual salary to replace the skilled employees.
When companies invest in career development employees are likely to be happier in their role.
To be more productive and stay longer.
The result is an upscale loyal workforce to better meet the evolving needs of the business.
Sure.
Upskilling and Reskilling employees generate high long term ROI.
In an economic downturn presents an opportunity to invest in learning programs that help companies stay competitive and agile.
Some companies are taking advantage of this temporary slowdown to upskill and reskill employees to prepare for an eventual improvement in the macroeconomic environment.
At <unk>, we provide clo's and heads of learning for ongoing support for developing the skills necessary within their workforce to achieve desired organizational outcomes.
Empowering employees with platforms capabilities and learning content is now a strategic imperative for organizations.
To enable learning growth and development.
This is essential not only to meet todays needs, but also to prepare for future needs as technology continues to evolve rapidly and an increasingly competitive environment.
We hear this from existing and potential customers every day.
Not only do we offer a learning platform that is fundamentally different from any other offerings.
We also provide strategic support with our customer success organization to help customers established can achieve their goals.
This combination contributes to our strong win rates across all geographies and industries.
During Q1, we welcomed many new valued customers and expanded relationships with existing customers.
Cisco systems Ericsson.
And gamble and strike to name a few.
Ultimately, we ended the quarter with nearly 14400 global customers or a 24% year over year increase.
Our pipeline is robust the macroeconomic conditions continue to present short term headwinds.
Like last quarter, we experienced longer sales cycles.
For the first time, we saw upsell and expansion deals elongate and all geographies and with companies of all sizes as businesses close to reevaluate their staff.
During Q1, we continue to make progress on our international expansion through our partnership strategy, particularly in the Asia Pacific Region, where union business is gaining meaningful traction in Japan, South Korea and Vietnam.
For example, <unk>.
<unk> expanded its influenced LG electronics through our strategic partnership with <unk> in Korea.
Now, let me challenge you need to empower employees because it provides the organization with the most comprehensive learning platform to upskill their global workforce and stay competitive in the category.
It has become increasingly critical to companies offer an integrated approach to learning and professional skills development.
Any forward thinking companies are seeking more immersive learning modalities to promote greater employee engagement and to enhance the learning experience.
In fact during Q1, we won a seven figure vendor consolidation deal with a fortune 100 company.
The organization selected <unk> to Upskill and Reskill their workforce based on the breadth and quality of our content catalog.
So the technical immersive learning experiences, we deliver with our <unk> offering.
<unk> provides an immersive personalized learning experience to accelerate skill development across key roles in IP development and data analytics.
<unk> enabled technology professionals to achieve their learning outcomes professional certification more effectively through past assessments Workspaces and labs.
In the past year with customer adoption of <unk> has increased nearly six yes.
Given its primary focus is still development for professional nerves and organizations across the globe.
Customers come to us because we provide next generation large platforms.
We offer a vibrant marketplace that fueled the growth of <unk> business, and we measure that privacy and three with.
Robert of course creation and instructor earnings.
Traffic has held steady with approximately 34 million visitors coming to using each model.
Even though on significantly lower performance marketing spend.
This provides a massive opportunity to drive engagement and increase conversion into individual course purchases as well as personal <unk> business plan subscriptions, particularly as we increase our investments in generative AI.
And personalization.
Of course creation remains strong.
Julian instructors added more than 16000, new forces to our marketplace during Q1.
We also generated more than 1900 integrated forces into our unity business catalog during the quarter.
Of course was related to artificial intelligence and <unk> are in high demand from our unity business customers.
Our instructors are incentivized to create content to address those demands which contributed to the strong horse creation, we saw this quarter.
As engagement increases on our platform so the constructor Ernie.
Last year, we got up close to $200 million instructors.
Constructors no they can build a great business on <unk>.
Compelling and in demand content.
Incentivize to update existing content offered to optimize their traction with our massive global audience learnings.
We are proud of the platform, we built and are even more bullish about the future.
We're excited about the possibilities for AI to transform learning.
We plan to be a leader in the category.
Due to me and harnessing the power of AI to supercharge, our instructors learners and organization to improve lives through Laura.
We are dedicated to providing high quality relevant learning that is driven by the collective talent of our instructors and our ever evolving learning ecosystem.
Our network of nearly 75000 instructors who shared their expertise of our platform are the core of beauty.
There are extra guidance remains at the heart of our concept model and now with the support of AI. They can more quickly translate our unique knowledge and instructional thought into effective manner.
This year, we will be launching in platform tools to assistant structures with the creation of active learning experience.
For example.
We just released a new AI enabled tool to assist constructors, the software development courses with creating job Python and C plus plus coding exercise.
When used to take constructors, an hour or more to create can now be done in just a few minutes.
This is the first in a number of innovations that we'll be launching this year.
In the second half of the year, we will bring AI system active learning the topics beyond software development and introduce tools to help instructors create questions for assessments related to the content in there for us.
There are more than 200000 courses on units representing over 1 million hours of content on thousands of jobs.
Unique content discovery has traditionally focused on pointing learners to entire horse.
Recently, we introduced new AI capabilities. The recommend specific video lectures within of course based on their occupational goal.
We were excited to see that access to bite sized learning that's a meaningful increase engagement.
And the next few months, we will rollout new smart search capability and make it even easier for subscription learners to locate specific learning content.
<unk> will be able to describe their goals or ask questions in simple language.
And this new smart search capability will display relevant forces and specific videos actual results. The most directly address with the <unk> one solar.
These new capabilities will enable learners to more effectively access the breadth of information within <unk> got it.
As change accelerates organization space, an enormous challenge to identify and close skill gaps in the workforce.
We are helping organizations understand skill gaps within their workforce and growing their employees effectively and strategically.
Recently, we partnered with a one <unk> consortia to bring open badges to the <unk> platform.
Open vantages.
Which are used by a number of popular industry certification, providing transparent industry set the standard for representing the specific learning objectives that must be met for a learner to demonstrate proficiency and our scale.
In the second half of this year, we will launch new capabilities to help learners self assess their proficiency on skills and more easily find content to help close those gaps.
These features will point learners through targeted learning content based on the results of a substance that measure preparedness.
Our leading third party industry certificates based on hoping batches.
Given managers, a view into the bathroom and certification within the organization.
We will also help customers identify the skills available within their teams and address any gas.
AI is evolving and the way we use it to drive learning will evolve.
As more people turn to you to me to learn about it.
We're excited to use it to make learning more efficient personalized and powerful than ever before.
Before I turn it over to Sarah I wanted to provide an update from my first few months in the CEO role.
As I mentioned before our long term strategy is not changing.
As we lead the transformation of the online learning category. We are taking action today on near term priorities that we believe position us for long term sustainable and profitable growth.
For example.
We are reinvigorating, our internal operations and culture to drive our operating plant for greater speed and agility.
This includes a heightened focus on accountability and results at every level in our organization and.
As we work towards delivering exceptional performance and outcomes.
Specifically, we are ensuring that all teams are equipped with well defined tangible objectives or goals that are fully aligned with our broader corporate strategy.
Our product team is prioritizing resources towards initiatives that will deliver the highest returns and at the most long term value for our business.
This includes launching skills validation later this year as well as incorporating AI and deep learning throughout our platform.
And finally in order to achieve our profitability targets on an adjusted EBITDA basis, while also driving topline growth. We are laser focused on efficiently managing our cost structure and maintaining flexibility to invest in high return opportunities.
Although the macroeconomic backdrop continues to present some uncertainties in the near term or long term tailwind for me.
Including the shift from offline to online renew.
Renewed investments in R&D.
An increasing prioritization of skill development.
It's still early days in this transformation of the online learning category, but I am excited as ever about <unk> future.
Now I'll turn it over to Sarah for a financial review.
Thank you Brett.
I will focus my comments on the key financial highlights and then provide our outlook for Q2 fiscal year 2023.
You can find a financial table in our news release.
Which is available on our Investor Relations website.
We delivered Q1 results.
And we provided for both revenue and adjusted EBITDA.
Total first quarter revenues increased 15% year over year to $176 million, including the negative impact from foreign exchange or FX, a five percentage point.
Revenue growth was driven by a better price for you to meet that.
We still have our Q1 revenue of $95 million or an increase of 47% year over year.
Included in that growth with a three percentage point headwind from changes to FX rates.
The year over year for US was driven by an increase in muni business customer and expansion activity compared with the same period last year as organizations around the world continue to recognize the value Investor you got talent through integrated.
<unk> development program.
This is also reflected in our annual recurring revenue or <unk>.
With respect to our 96 million at quarter end up 42%.
We ended Q1 with a consolidated net dollar retention rate of 112% sorry.
101.
Are those with 1000 or more employees.
While we did see some pressure on net dollar retention, we continue to see stable growth Alaric Hudson overhaul and low churn in our lines.
We anticipate that our net dollar retention rate will remain pressured as companies continue to navigate economic challenges and closely.
Donna.
Historically, the business was somewhat offset by 7% year over year decline there were segments.
Segment revenue.
Which included a negative six percentage point in time.
As we move down the P&L note that all financial metrics non-GAAP unless stated otherwise.
Q1 gross margin was 50%.
The 100 basis point improvement from Q1 of 2020, driven by the continued revenue mix shift.
This content cost as a percent of revenue are lower for that.
Does this account for 54% of total revenue in Q1, which represents a meaningful mix shift from 43%.
Yes.
Total operating expense was 114 million or 54% 100 basis points lower than Q1 of last year.
Sales and marketing expense represented 41%.
Which was flat year over year R&D.
R&D expense was 14% compared with 13% last year.
G&A expense was nine.
Compared with 11% of revenue.
On the bottom line now also in the quarter was negative <unk> 8 million or negative $4 seven per contract.
Adjusted EBITDA loss with I guess 6 million or negative.
A 400 basis points.
Our guidance range.
This margin expansion demonstrating that our efforts to drive more efficiency in our cost structure and then attack.
We're also maintaining the flexibility to make opportunistic investments and will help to accelerate our longer term goal.
Including AI credential and personnel base.
Moving on to key cash flow and balance sheet.
We ended the quarter nearly $450 million of unrestricted cash cash equivalents restricted cash and marketable securities <unk>.
Free cash flow for the quarter with a 23 billion a two day increase in DSO and changes in working capital.
Now turning to our outlook for Q2 and full year 2023.
During the first quarter the uncertain macro environment.
That uncertainty resulted in larger sales cycle and additional layer prevail in peripheral for many companies.
We would anticipate these trends.
These late stage in the near term and our guidance for the year assumes no material improvement or deterioration.
With that in mind, we expect Q2 revenue between 100 and 174 million.
Assuming foreign currency exchange rates remaining constant FX is expected to negatively impact Q2 year over year total revenue growth.
Approximately 4%.
As we shared on our Q4 call, we expect E&P business segment revenue.
Mr Neis for any therapy here.
Firstly net revenues will decline.
For Q1.
On the bottom line, we anticipate Q2 adjusted EBITDA margin.
Yeah.
Looking further ahead, considering the uncertain macro environment, we are cautiously optimistic.
Thank you.
Given the strong Q1.
At the low end of our revenue.
We now expect full year revenue to be between 700 to 739.
Our 14% European aircraft estimate.
That growth includes an estimated two percentage points.
Assuming no further changes in rates.
Our outlook assumes the healthy demand.
Great.
Yes.
Our continued cost efficiency initiatives.
To translate into our full year 2023, adjusted EBITDA margin between negative three 5% and negative one.
And improvement breakfast, our previous guidance of negative or perhaps negative due to the <unk>.
Adjusted EBITDA for Q1.
Yes.
This has been ultimately to full year margin improvement in Europe .
Initially.
And thanks for that.
Thank you.
We are now I think modestly Q3 towards breakeven for Q4 to be slightly positive.
In closing due to the dedication executing execution.
And our focus on efficient expense management in this challenging macro environment allowed us to deliver our Q1 results that exceeded expectations.
EMEA is well positioned to navigate near term headwinds and emerge as a more durable business.
We are excited for you.
As we continue to drive towards profitability and build shareholder value.
So with that well open up the call for your questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your 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.
Our first question is from Ryan Macdonald with Needham. Please go ahead.
Hi, Thanks for taking my questions and congrats on a really nice quarter and start to the year.
Charting with Sarah just given the outlook commentary and maybe a little bit Greg as well just curious as you look out through the rest of the year, obviously cautiously optimistic but macro environments, obviously still volatile maybe where do you see the most potential for variability as you look across <unk> versus the consumer segment.
For the rest of the year.
Hey, Brian Thanks for the question.
So listen I think there's a few things the first system more.
Our mix shift in revenue move toward you'd need a more visibility we have.
As you know we're sitting in a pretty strong base of revenue from you to the bad debt.
Inc.
There is some uncertainty.
Globally, especially around SMB. So we're still seeing a lot of uncertainty the smaller business from the macro.
Rises continue buying although at a slower pace.
We do continue to see those elongated sales cycles.
Pipeline is strong.
It's just the timing of when that comes in.
<unk> side as you know we're not focused on the top line, if I'm really focused on the marketplace vibrancy. So while we're happy to see the way the consumer business is performing well, we're really happy to see all the new courses that were added.
So I think listen we're going to continue to see macro pressure, we're feeling good about the guidance that we've put out.
The team is doing to deliver a strong 2023.
Super helpful.
Alright, let me add to that.
We did not just little more color as Stuart mentioned, our pipeline does remain strong where over 40% ahead of where we were last year with respect to argue our Q3 pipeline. So.
As she mentioned, we still have to convert and the.
Pressure on sales cycles.
As you alluded to it is going to be bumps throughout the year, but we're very encouraged by at the top of the funnel feeling very very strong and healthy way.
Couple of the other macro trends, we've talked about prior calls are playing out.
In a significant way one is consolidation we just mentioned that we had a seven figure consolidation with the large multinational.
Seeing a number of these across our customer base in a couple of them I'll. Just highlight one was the large financial services organization that went through a round of layoffs and subsequent to that Roundup layoffs made the decision that they were going to lean into a wall to wall deployment with a focus on ensuring that they could bridge the skill gas.
Either they have as a result of the way off as well as <unk>.
<unk> pace of change in addition to keeping engagement high across our employee base. We saw similar one with mid sized software company within two rounds of layoffs.
Subsequently decided to go wall to wall and expand the relationship for similar reasons.
And then we've also seen a lot of really strong momentum around our <unk> pro product, which gives us a lot of confidence in the back half of the year that we're going to see a continued expansion there.
One of our large fortune 100, multinational expand you're going to be for all for what was an initial deployment of 10000 feet to 40000 seats.
As a result of a valve.
Validated pilot, we can significantly increase the pace by which technical certifications.
Were being completed in the organization, which had a direct correlation to their ability to actually increased billings associated with those individuals acquiring the certification.
We're seeing some very strong very positive trends.
What is choppy and still somewhat difficult macro environment. So now a lot of encouraging signs.
And in the back half of the year.
Yes.
It's going to hold firm.
That's extremely helpful color I appreciate that Greg answer maybe just given those comments because it does sound like that.
Opportunity for additional expansions is pretty strong given the consolidation trend when we look at the <unk> number at $1 12, and $1 20, respectively, obviously understandably coming down because of the law.
<unk>, but would we expect that to stabilize or what are you seeing in terms of the trend line there.
Yeah, So listen we're proud of that 102015 on large customer net dollar retention in this environment.
As you just said we are experiencing downward pressure and we do expect to continue to see that.
Don't give out guidance on net dollar retention.
The macro is impacting your overall bookings while we are happy to see is that the percentage of bookings is coming from our existing customers and our sales continued to grow and it was the highest quarter ever in Q1. So there is overall pressure, but we continue to expand with our customers and thats because they really see the value of our products.
Our gross dollar retention remained stable we continue to have low churn with our larger customers and there is a huge opportunity to expand with existing customers over time, we just think it's going to be a little harder this year, taking a little longer. So we do we do think theres going to be continued pressure.
Now for the long term.
Our long term forecast that is good and thats because the conversations we're having with our customers is that.
And upskilling of partnering with someone like E&E is it's not a benefit is a strategic imperative. It's how they are going to keep their employees.
Has the skills that they need to deliver on therapy.
Super helpful. Thanks, again for the great color and congrats.
Thank you. Thank you.
The next question is from Rob Oliver with Baird. Please go ahead.
Great. Thanks, good evening thank.
Hi, two questions Greg one for you first and then Sarah I had a follow up for you.
Greg I'm curious.
Just wanted to ask about generative AI chat GPT I mean, you guys were really.
Quick and I think your model really demonstrated its strength and its ability to kind of get these chat GBT courses out.
In to the hands of your customers really quickly you said 1900, new courses from UV in the quarter I'd just be curious all of those like what you saw in chat GBT and how that like drove utilization.
So a lot of software developers.
Number one focus.
Type of pattern and then also would love to know.
Bigger picture, what that's doing.
The land and expand and cross sell and upsell motion because I have to believe that this could serve as a catalyst for many enterprises that might have hit the floor, but on defense and all.
I have a follow up after thanks.
Yes.
Hey, Rob Thanks for the question.
I'll answer the last one first.
Our ability to leverage our marketplace, which as you. All know is very unique in that it enables us to keep up with the pace of change.
In a very different way than anybody else in the category and that our instructors and developing contracts in many cases ahead of the releases of technologies alone and wife, Jackie BP and others and it really is why you see the breadth and depth of content on <unk>, both in our marketplace as well as in our <unk>.
<unk> got long.
And we're winning business as a result of it I'll give you an example.
Orange.
Cryptocurrency company.
As you can imagine the pace of change in their category as high as any other categories.
That we serve and after they do their analysis on us yes.
Competition makes a decision that we were the right platform for them based on that specific analysis and they were looking at GBT generative.
And Simon is going to give them confidence that we're going to enable to continue to upskill and reskill their employees at the pace of change of their business.
While also being able to impact with the amount of folks that they are hiring in that organization.
The learning experience other emerging theater. So they went in and invested at our leadership Academy to continue to evolve and develop the leaders in the emerging leaders in the organization as well as support innovation and this is going to be needed along the lines of <unk>.
<unk> in the face of change so we've got a number of these types of examples.
And I'll just say yes.
At the macro level, if you wouldn't mind can we comment on AI in general and how we view.
We view it is not.
Not only not a threat we view it as a massive opportunity for our business, we just talked quite a bit about that but lenders come to us to acquire critical skills necessary to be successful in their careers and an ever changing environment.
And we're harnessing the power of AI.
To redefine the next generation of learning and we couldnt be more excited about and we touched on some of those examples and I'll hit on briefly in terms of what we're doing now to have a significant impact for instructors, we're building tools and as defined capabilities on our platform to enable them to develop content faster.
More efficiently and deliver a more effective learning experience overall and for learners, we're making that experience more personalized and engaging through AI and we're going to be talking more about that in quarters to come.
And for customers, who are providing data and insights to enable them to identify and address skill gaps that without question, our apparent today and theyre going to be more apparent as.
It continues to disrupt.
Many jobs and.
Kind of.
Career trajectories.
Currently.
Influx and organizations, including <unk>, we're rethinking that as well so we're.
We're going to go into effect and instructors learners with customers in a significant way going forward and the coding exercise tool, we highlighted as well as smart search are just the first of many capabilities, we're going to be releasing this year that are going to enable us.
Again redefine the next generation of Onboarding looks like incorporation.
That's really helpful. I appreciate that Greg Hi, sorry, just a quick one for you just you guys clearly vendor consolidation is a theme I know you guys have been calling that out and if there is it is it has been gaining traction youre also.
Doing well internationally with some really large global enterprises I think in the past you've said that got it deal.
The multiyear deals.
<unk> been in the 40% as a percentage of revenue just curious if youre seeing any chip there as you.
Moving this vendor consolidation phase and towards these larger international deals if youre seeing more on the multiyear deal side. Thanks again.
Thanks for the question Rob.
Continued.
<unk> increased our recorded this quarter is no exception and so our customers really are across the globe.
Meaning in and really looking to us.
Is there a long term partner to keep their employees.
The skills that they need.
I will just add briefly to <unk>.
Having the strongest quarter we've had.
With respect to multi year deals from new business. We also saw an 80% increase.
The deal was over $100000 value annual recurring revenue value.
Again, all trending in the drive through or actually a lot of strength and what our sales organization is delivering with respect to <unk>.
Strategic relationships, then are adding meaningful value.
Lunar experienced within our customers as a result of that customer's being continent, signing long term strategic contracts with us and large scale.
The next question is from Terry Tillman with Truest. Please go ahead.
Yes, hi, good afternoon, Greg Sarah and Dennis.
Nice job on the results that also I think the investor engagement theories is great and in fact, I think one of the ones you all talked about or that you. All had presents it talks about the importance of all of the budgets and then the plot.
<unk> in the press release today in terms of an important new customer expansion deal. So I liked that theories and I'm looking forward to hearing more on that.
So Greg as I just go through my clumsy preamble, we've got good soundbites now for the E mails, we seemingly get every.
Half hour on AI, and how it's going to impact businesses, such as yourself. So thanks for the like real life data points.
Contrary.
Finally to my questions. The first question Greg for you is.
As it relates to generative AI and chat GBT do you see more of a benefit whether it's tactically or strategic or not on the consumer side or the <unk> side kind of more on the near term and then the second part of that question is do you think that generative AI actually if we looked out over the next 12 months is more impactful to the revenue.
And a good way or actually more operational excellence, whether it is helping your instructors, whether it's R&D quicker pace our go to market optimization.
I'll answer the last one first look in terms of operational I think it's both the sort of operational efficiency and this is going to enable us to enable our structures to be a lot more efficient.
Developing these learning experience.
We're delivering through the content that they are putting on the marketplace.
Extending into the UV catalog qualified that so.
The velocity there is going to enable us to be in a lot more efficient effective as partners with our instructors.
Not only keeping up with the pace of change, but improving the overall experience for learners within corporations large and small so we're excited about that.
From a revenue perspective.
Absolutely I believe it is going to have an impact that is today because customers now are paying a lot of attention.
Two.
The vendor selection process with respect to the content that is enabling them to stay ahead.
Whenever innovation coming out.
With the pace of change I should say.