Q1 2023 Coursera Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Coursera is first quarter 2023 earnings call.
At this time all participants are in a listen only mode.
Please be advised that this call is being recorded.
After the Speakers' prepared remarks, there will be a question and answer session.
If you'd like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
He would like to withdraw your question again press Star one.
I'd like to turn the call over to Cam carry head of Investor Relations. Mr. Carey you may begin.
Hi, everyone and thank you for joining our Q1 earnings conference call.
With me today is Jeff Maggi and call that of course, there is chief Executive Officer, and Ken Hahn, Our Chief Financial Officer.
Following their prepared remarks, we will open the call for questions.
Our press release, including financial tables.
Was issued after market close and is posted on our Investor Relations website, located at Investor <unk> Coursera Dot Com, where this call is being simultaneously webcast and more versions of our prepared remarks and supplemental slides are available.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP measures, which are the most directly comparable GAAP measure can be found in today's press release and supplemental presentation, which are distributed and available to the public through our Investor Relations website.
Please note all growth percentages refer to year over year change unless otherwise specified. Additionally, all statements made during this call relating to future results and events are forward looking statements based on current expectations and beliefs.
These forward looking statements include but are not limited to <unk>.
Statements regarding the potential impact of trends affecting our industry and uncertainties in the current economic and educational environment, our ecosystem platform content and partner relationships are anticipated plants and the anticipated benefits thereof, our strategy and priorities and our business model nation opportunities outlook and future intentions.
Actual results and events could differ materially from projections due to a number of risks and uncertainties discussed in our press release SEC filings and supplemental materials.
These forward looking statements are not guarantees of future performance or plans and investors should not place undue reliance on them.
We assume no obligation to update our forward looking statements and with that I'd like to turn it over to Jeff.
Thanks, Kim and good afternoon, everyone, it's great to be with you all.
Last month, we had the opportunity to see and speak with many of you at our first Investor day.
It provided an excellent opportunity to reflect on the amount of progress that we've made executing on our vision expanding our ecosystem and deepening our platform's advantages and it reinforced my confidence in our strategy, including our vision for the future of higher education.
This division includes a globally connected ecosystem of learners educators and institutions that is redefining the future of learning and work and two weeks ago I had the privilege of bringing together thousands in the Coursera community at our annual conference to discuss what we believe this feature will look like.
A highly personalized and more engaging learning experience with technology like generative AI and virtual reality.
A stronger link between college degrees and industry micro credentials.
And the globalization of the world's workforce that allows employers to expand and diversify access to skilled talent around the world.
As we make progress on our long term opportunities. We are also delivering on our near term results.
In Q1, we grew revenues, 23% over the prior year to $148 million, which was driven by our consumer enterprise and degree segments Ken.
Ken will cover each in more detail during the discussion of our financial results. So I'd like to spend my time today briefly discussing the structural trends driving our business along with a slate of announcements. We recently made to better serve the changing needs of individuals institutions and our educator partners.
Let's start with our first major trend, which is digital transformation.
The forces them technology, and globalization had been accelerating the transformation of every institution in our society.
In recent decades, the microprocessor the Internet cloud computing mobile computing and social media have profoundly reshaped businesses and society.
We believe that AI represents the next major technological disruption that will dramatically change, how we work and how we live and this impact will go far beyond the traditional boundaries of automation.
Of course, there is founder Andrew Inc has said.
As the new electricity.
Just as electricity was quickly and widely integrated into homes and factories, we believe that generative AI will be integrated into applications software and platforms that employees are already familiar with.
This integration is happening quickly and we believe it will increase the importance of digital transformation and talent Reskilling and businesses.
And this brings us to our second trend, which is skills development.
Four years employers had been rapidly digitizing work processes and jobs that are repeatable and predictable.
And generative AI has the potential to impact an entirely new class of knowledge workers unleashing, a new wave of Reskilling and Upskilling imperatives.
AI will amplify and accelerate the change already facing universities.
Pushing them to enhance curriculums.
The learning experience to make trusted education more accessible personalized and relevant.
Hey, I will amplify and accelerate the change already facing governments driving them to deliver job training programs at the speed and scale needed to keep pace with job dislocation and unemployment challenges.
And AI will amplify and accelerate the change being felt by individuals.
<unk> every one of us in every job to keep learning in order to stay relevant.
And this leads me to the third trend driving our business the transformation of higher education.
The traditional higher education system has not kept pace with the changing whose skill requirements driven by technology and automation.
Academic institutions must evolve more quickly to better serve the needs of students governments and businesses in an increasingly digital and distributed labor market, let's discuss a recent example, the.
The Republic of Kazakhstan is facing a skills gap crisis, and rapid population growth and we are expanding our partnership with the new nationwide scope that encompasses both coursera for government and Coursera for campus.
Our partnership began with the success of our workforce recovery program back in 2020 now the Ministry of higher Education, and science is using <unk> to up level its public higher education system to empower students and faculty nationwide with the skills and credentials needed to thrive in the digital economy.
<unk> is integrating over 650 courses on Coursera into 'twenty five public universities for credit in their degree programs we.
We are able to pursue partnerships like these largely because the world class brands of our educators and the breadth of our content, especially the job relevant professional certificates that prepare learners for digital careers collaboration.
Ration between government and universities enables implementation across entire education systems at unprecedented speed and scale.
This is the kind of forward thinking approach required to ensure that higher education is more accessible to over $1 billion young adults between the ages of 15, and 24, who need to be scaled for this new era.
So those are some of the key tailwind that are driving the opportunity we see in front of us now.
Now, let's talk about three key advantages that allow us to compete differently to seize this opportunity.
First our leading educator partners, who created a broad catalog of trusted and branded content and credentials.
Second our global reach to individuals and institutions.
And third is the data technology and innovation that we leverage across our platform, let's cover each of these categories and the recent progress that we've had in each of them.
First our educated partners.
Of course, there is catalog of content and credentials is created by more than 300 of the world's trusted universities and industry leaders.
And we're proud to have welcomed 15 new partners. These.
These include universities located in the U S and around the globe such as unlock University in Mexico, London Business School, and SP, Jane Institute of management and research in India.
We're also broadening our set of industry partners and feels like health care consumer goods and real estate with new partners like Epic games Keller Williams, Madonna Novartis Unilever and more.
These university and industry partners continued to rapidly expand <unk> catalog of branded credentials that are sought by learners looking to unlock or opportunities and I want to provide updates on two categories that create value for learners entry level professional certificates and college degrees.
The entry level professional certificates on coursera create new pathways to secure well paying digital jobs and also earn credit towards a college degree.
We believe that industry micro credentials will play an increasingly prominent role in the transformation of higher education.
Which is why we continue to pursue rapid expansion of this catalog with new partners new job roles additional languages and credit recommendations.
At our recent Investor day, I shared that we expect 50 certificates on the platform by the end of the year.
To date, we've announced more than 40%, including six new certificates unveiled at <unk> conference two weeks ago, including solution architect from Akamai data science specialists from fractal analytics real estate agents from Keller Williams and three additional certificates from IBM in.
Project management.
Mobile App developer and front end development.
And we are excited about our pipeline of partners and job roles that we will continue to announce as the year continues now.
Now, let's take a look at the most valuable and recognized credential in the World The College degree.
We believe that higher education and in particular the college degree.
Needs to be more accessible affordable and relevant to students and employers alike.
And innovative universities are adopting the best capabilities of Coursera to provide degrees that are designed especially to meet the needs of working adults.
At our Investor Day, we demonstrated our early success with the University of Colorado Boulders Masters in data science and outlined the attributes of this degree program that are resonating with learners, including first the ability to start the degree at any time by taking open courses for $49 a month.
Second affordable pricing with tuition at $15750 for the full Masters degree.
Third no application during a mission students earned admissions based on their performance in the open courses.
And fourth integrated industry content that counts as credit towards the degree.
We spent much of the last year better understanding what our learners want from an online degree and the types of transformational partners, who are willing to help us unlock this opportunity.
I am excited to share that we added 10 degree programs in Q1, which is twice the number that we announced in any prior quarter.
And many of these programs expect to take full advantage of the capabilities that <unk> offers to make these degrees, particularly well suited for working adults.
The newly announced degree programs include a masses of computer science from the University of Colorado Boulder.
Four degrees from the Illinois Institute of technology, including three Masters and one Bachelors program.
Two degrees from ball State University, and three international programs from universities in the U K, India and Peru.
To date, we have announced more than 50 degree programs in Coursera and we look forward to building on our early momentum as the year continues.
So that's a bit of an update on our educator partners.
Now, let's shift to our second major advantage, which is the global reach of our platform.
We have a large growing learner base that attracts educators looking to teach individuals and institutions around the world.
In Q1, we added $5 5 million new registered learners growing our global earner base to $124 million by the end of March.
<unk> growth continues to be broad based with double digit percentage increases across the majority of our largest countries like the U S India, the U K and others.
We also grew the number of paid enterprise customers to more than 250 with the additions across all of our enterprise verticals, including new business campus and government customers.
This brings me to our third advantage that I'd like to talk about which is the ongoing product innovation that we leverage across our platform.
I'd like to start with our efforts in generative AI.
<unk> conference, we unveiled two new AI powered innovations, including one for learners and one for educators first is coursera coach for learners.
Coach is a virtual learning partner powered by generative AI that allows learners to ask questions and receive personalized explanations and answers.
Get personalized evaluations and feedback on their submissions.
Received context relevant examples and practice questions.
Discover quick video lecture summaries and resources, such as recommended clips to better understand the specific concept.
And finally get career counseling support an interview prep to land the right job for them.
Critically coursera coach Leverages, the trusted authoritative content and instruction from our world class universities and industry experts, providing learners with confidence that the time and money that they're investing in learning is going to be worth it.
Next in a world where machines are increasingly capable of producing content at scale. We believe that trusted institutions will play an increasingly valuable role in education as learners look for quality.
And to support our educator partners, we are piloting AI assistant course building.
This new set of AI powered features can auto generate course content, including an overall cost structure readings assignments and glossary is based on a few simple inputs from an author.
It can also recommend relevant video and modules from the broader coursera catalog to consider including in the course.
And it will enable enterprise customers to upload internal videos that can be automatically transformed into smaller clips and integrated into well structured private courses.
Our goal is to use technology to dramatically reduce the time and cost of producing high quality trusted content at scale.
This strategy also underpins our approach to localization, which we discussed at our Investor day last month.
Historically, one of the challenges with producing content at scale with languages dependencies.
Educators tend to produce in their local language, while learners come from all around the world speaking many languages.
We believe that high quality education from the world's leading experts should be accessible to learners anywhere in the world No matter what language they speak.
And recent advancements in the quality of machine learning translation can now translate courses at a fraction of the cost of using conventional human translation.
Our team has been focused on building a scalable translation framework for the coarse ore catalog in.
In the coming months, we intend to translate more than two full courses in the seven key languages benefiting more than $35 million registered learners, who speak Spanish Arabic, Portuguese French German Indonesian and tie.
Next we continue to expand our efforts in immersive learning with new virtual reality enabled course experiences.
In collaboration with Duke University, Peking University University of Washington, and University of Michigan, We recently launched courses that allow for a deeper level of engagement.
For example, the public speaking of course from the University of Washington allows learns to immerse themselves in a simulated auditorium or conference room to practice their presentation and delivery skills and a realistic setting.
We also announced two new credentials for meta, including a professional certificates and specialization in augmented reality for learners considering careers focused on these exciting new technologies.
Finally, we launched in Q1, a product that we've been working on for quite some time Corsair.
Coursera hiring solutions to connect learners to jobs.
Rapid technological shifts have created a shortage of qualified talent, causing employers to look beyond traditional talent pools to fulfill open roles.
And our recent <unk> survey of more than 500 employers across 11 countries.
More than 97% said that they are using or considering adopting skills based hiring approaches to expand their talent pools.
This includes eliminating the college degree requirement for many positions in order to attract candidates from wider more global pools of emerging talent.
Meanwhile, more employers are considering skills based hiring to address talent shortages verifying a candidate skills is difficult, especially for entry level roles, where a career startup or switch or may lack a college degree or relevant prior work experience.
This challenge has coincided with growth in online learning, which in combination with remote work digital jobs and broadband connectivity has led to a globalization of talent that is reshaping the supply and demand for jobs no longer confined to a specific city state or country.
Coursera hiring solutions is how we plan to use our three side of the platform to bridge learning opportunity and economic opportunity by connecting learners to employers even if they lack a college degree or relevant prior work experience.
Job seekers coming to Coursera can develop in demand skills and earn branded credentials that they need to be considered for entry level digital jobs. They.
They can also build hands on projects with the digital tools used by professionals in the field.
These projects not only developed skills, but also lead to a portfolio that demonstrates these skills to an employer.
And learners can showcase their job readiness with the skills profile that includes credentials assessments and their project portfolio.
From the employer's perspective, they can expand and diversify their candidate pool by gaining access to industry trained job relevant talent.
Recruiters can use a talent dashboard from coursera to identify prequalified talent and filter candidates that meet their unique sourcing requirements, including skill proficiency levels based on <unk> assessments.
Hiring solutions is currently in beta with thousands of learners in a select number of employers in India and we are excited to start testing with U S customers in the coming months.
Before I turn the call to Kevin for a closer look at our financial performance and outlook.
We remind you of several key priorities that we're focusing on in the years ahead.
First we are broadening our catalog of entry level professional certificates with world class industry brands, expanding with new roles, New partners, New languages and credit recommendations.
And we are working with the accrediting bodies around the world. So that learners can receive academic credit for college degrees for the learning that they complete in these professional certificates on coursera.
Second we're expanding our portfolio of degree programs, especially those tailored to meet the unique needs of working adults, including flexibility affordability and stronger pathways from our open content and industry micro credentials into college degrees.
Third we're focused on growing our enterprise segment across business government and campus customers.
Looking to address their needs in this fast changing environment.
And we are focused on deepening our advantages, while driving more scale and leverage over time we.
We are especially excited by the opportunity to use generative AI to make learning more personalized and interactive for learners.
And to make content production faster and cheaper for our educator partners.
And now I'd like to turn it over to Ken Ken. Please go ahead.
Thanks, Jeff.
Good afternoon, everyone.
Im pleased to report on our solid first quarter.
In Q1, we generated total revenue of $147 6 million.
Which was up 23% from a year ago, driven by strong growth in our consumer and enterprise segments.
Additionally, our degree segment returned to growth demonstrating nice progress to start this new year.
It was a modest increase at 1%, but critical for a growth company. Most importantly in a market as large as degrees.
As we discussed at our Investor Day last month, we believe we are resuming progress on our strategy to fundamentally transform access two degrees.
Please note that for the remainder of the call as I review, our business performance and outlook I will discuss our non-GAAP financial measures unless otherwise noted.
Additionally, as a reminder of our prior communication on last quarter's call the changes associated with a multi year contract extension with our largest industry partner, we're in line with our expectations.
Specifically this shifted expense from operating expense to cost of revenue as this partner chose to receive a more standard revenue share going forward, which we remain excited about given more closely aligned incentives around growth reach an opportunity for learners around the globe.
Gross profit was $79 6 million.
Slightly up on a dollar basis from a year ago, and a 54% gross margin, which was down 12 points from the prior year period.
Total operating expense was 91 $4 million or 62% of revenue down 15 points from 77% in the prior year period.
Sales and marketing expense represented 30% of total revenue down eight points from 38%.
Research and development expense was 20% of revenue down three points from 23% and general and administrative expense was 12% of revenue down four points from 16%.
Net loss was $5 2 million or three 5% of revenue and adjusted EBITDA was a loss of $7 $5 million or five 1% of revenue.
Now turning to cash performance and the balance sheet.
Free cash flow was $1 5 million during the quarter compared to a use of $42 $2 million a year ago.
This included the remaining cash payments of $4 $8 million relate.
Related to the restructuring charges, we incurred in late 2022.
And we ended the quarter with approximately $780 million of unrestricted cash cash equivalents and marketable securities with no debt.
We believe the strength of our balance sheet is a considerable asset that provides us stability and strategic optionality to execute on our long term vision as.
As we outlined at our Investor day, our approach to capital allocation is primarily emphasized investments in our organic growth opportunities.
We believe that the education technology industry is changing rapidly and having the flexibility to pursue additions to our platform will provide opportunities to accelerate our leadership position and enhance our business model advantages are strong views on that have not changed.
But given the size of our balance sheet and the modest cash requirements for operating needs. We are pleased to announce our board has authorized a share repurchase program of up to $95 million.
Our program is a direct reflection of our confidence in the business as well as the value we place on shareholder equity.
The authorization amount is specifically designed to offset dilution above the benchmark gross dilution rate of companies in their first year. After an IPO based on our market analysis performed by an independent third party adviser.
Our higher dilution in 2022, our first year after going public was associated with onetime equity employee grants made to attract motivate and retain key talent, while providing long term incentives align with shareholder value creation in future years.
We thought it important that investors understand that we consider 2022 an anomaly.
And we are confident we can pursue a repurchase program at this level, while continuing to prioritize cash for strategic opportunities that increase the likelihood of us leading our large early and dynamic markets.
Next let's discuss each of our segments in more detail <unk>.
Consumer revenue was $82 million up 20% from the prior year on strong performance in our entry level professional certificates.
We believe our strategic focus on job relevant credentials created by World class brands is resonating with learners around the world looking to start for switch careers.
Segment gross profit was $44 6 million or 54% of consumer revenue compared to 71% a year ago.
As discussed last quarter, the impacts of the contract extension with our largest industry partner were expected to be most pronounced in our consumer segment margin with a higher cost of revenue, meaning lower segment margin offset by lower operating expense.
Finally top of funnel activity remained strong with another $5 5 million new registered learners coming to Coursera.
Enterprise revenue was $52 2 million up 34% from a year ago on growth in all three of our segments verticals.
Segment gross profit was $35 million or 67% of enterprise revenue compared to 72% a year ago.
Total number of paid enterprise customers increased to 1253 up 37% from a year ago.
And our net retention rate for paid enterprise customers was 104%.
Consistent with our outlook at the start of the year, we are seeing business customers exercise caution in their spending priorities amidst increased macroeconomic uncertainty.
And finally, our degree segment.
The greatest revenue was $13 4 million up 1% from a year ago and increased student enrollments and scaling of new program launches.
The total number of degree students grew 10% from a year ago to 18095.
As a reminder, there is no content costs attributable to the <unk> segment. So degrees segment gross margin was 100% of revenue.
We are encouraged by our early progress in degrees, including our ability to accelerate growth as the year proceeds as well as our recent sourcing successes highlighted by the 10 new programs, Jeff mentioned earlier.
By sourcing the types of high value programs that resonate with our learners with partners that leverage our platforms unique assets and scale, we are able to compete uniquely and execute on our long term vision and more accessible affordable and relevant model for higher education that transforms one of the world's largest <unk>.
Industries.
Now onto our financial outlook.
For Q2, we're expecting revenue to be in the range of $143 million to $147 million.
For adjusted EBITDA, we're expecting a loss in the range of $13 million to $16 million.
For full year 2023, we now anticipate revenue to be in the range of $600 million to $610 million, representing approximately 16% growth at the midpoint of the range for.
For adjusted EBITDA, we're expecting a loss of $26 million to $34 million.
Or negative 5% adjusted EBITDA margin at the midpoint of the revenue and EBITDA guidance ranges.
As a reminder of our operating framework, we set an annual EBIT margin target at the beginning of the year and work within that plan based on the trajectory of our business to maximize our growth opportunities.
We do not optimize the business for any single quarter, and we will strategically invest to position coursera for the long term, while demonstrating scale and leverage over time, including our outlook to be adjusted EBITDA positive in 2024.
I'll now turn the call back to Jeff for closing comments.
Thanks, Ken.
Our mission is deeply rooted in our business.
Is what inspires our team members attracts our partners and enables our customers to make access to high quality education, a growing reality for millions of learners around the world.
To that end I was excited to introduce our first environmental social and governance report last month.
It showcases our progress on several key initiatives like talent development workforce representation and data privacy as well as our learning platforms role in promoting literacy in ESG topics, including more than 200 courses and sustainability and over 100 addressing social justice.
Additionally, we expect to publish our 2023 learner outcome report in the coming weeks, which was conducted in partnership with a respected third party firm.
Learning for knowledge sake is valuable, but learning that unlocks opportunity can be transformative.
That's why we were excited to hear for more than 55000 learners and more than 190 countries about how their online learning experiences on coursera are driving impactful career and personal benefits.
This is what they told us.
77% of learners seeking career advancements say learning on Coursera benefited their career.
28% of approximately 4000 entry level professional certificate learners got a new job and.
And 30% of a smaller subset of unemployed learners were employed after learning.
It is an inspiring validation of our platform and community's ability to change lives as coursera increasingly becomes a global destination for learners seeking job relevant skills and recognized credentials that can unlock the next phase in their education or career.
In collaboration with the coarse ore community. We are focused on fulfilling our mission so the talent and opportunity can rise from anywhere in the world.
Now, let's open up the call for questions. Thank you.
Thank you.
As a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.
Well yesterday that you limit yourself to one question and one follow up.
And your first question comes from the line of Rishi Galeria with RBC. Your line is now open.
Wonderful guys. Thanks, so much for taking my questions nice to see continued strength in the basis as leases turn back to growth.
One question on generative AI and then a quick follow up on degrees Hollywood Center to AI.
I think it's pretty clear to all of us.
Cannot be accurately tailwind for your business given the spinal applications.
Laid out a roadmap for products sizing it I wanted to understand from your own perspective, how do you think you at Cherokee internally used generative AI to drive greater efficiency or iterate on products that functionality better anything like that that would be really helpful and I've got a quick follow up yes.
Yes, Rishi that's great. So we're.
We're kind of going Crazy these days.
And I think that the impact on the business will be not unique just of course, there are the way we run the business I think there's a few things most of the productivity that we expect to get at Coursera. This is separate from Yo, helping learners get more value and have that helping our educator partners get more value, but internal to the company.
A lot of our costs, our head count and a lot of our head count costs are in R&D and what I'm hearing from our engineers is that the productivity improvements that you can get as a software code or especially at more entry level software cutting jobs is considerable so I think I think software coding and productivity.
<unk> is going to go way up.
All the marketers who are doing language.
Most of our performance consumer marketing teams have been using earlier versions noncash CBD, but like GPT three years I think when it started picking up steam they've been using this to help write articles right marketing messages right E mails et cetera, their productivity and quality.
Quite a bit so engineering marketing on the design side and product side.
Same designers we do this.
But like every couple of weeks, we do these show Intel's, which is like let's show everyone in the company how youre using generative AI if that changed your to change the way you do your job that we have the designer put together.
Sort of a learner journey envision it was like a like a 15 minute video with video.
Grips audio screenshots et cetera, and he did this all time bound that there wasn't when you did the whole thing in eight hours. He said he did in eight hours what would have taken about a week for him to do involve a lot more people. So I think on the design and creative side, the marketing side. The software programs side, it's going to be used and then for all the other positions.
The company like anybody who uses our software to a weather that salesforce or whether it's Google docs or any tool. All these tools are not getting electrified where they are they are just becoming more productive.
I'm pretty sure that by the way not to mentioned services.
Which can provide there was just an article from M. I <unk>, suggesting that services productivity really goes up dramatically. When you started using which antibodies. So I think it's going to be across the board certain positions more than others, but.
I would not be surprised that most ceos are not rethinking.
Org structure, but certainly productivity expectations for how the company runs and what can be done by talented people in our company.
That's a very thorough helpful. Thank you so much quite a follow up just on the degree of segment.
So at the Analyst day, you talked about 25% growth next year.
That was assuming no new news since then announced 10, new business and I know, there's a ramp up time and all of that but was that all contemplated in that or how should we be thinking about how does the new degrees announcements impactful outlets for next year. Thank you.
Yes.
<unk>.
I don't know that we could that we could tease them apart exactly.
Obviously.
Although these degree programs are multi year and you can kind of see the revenue coming in with a bit of lead time.
I don't think we've really parse out exactly how much of that growth will come from existing corpus versus new I wouldn't write a whole lot into the combination of those two points. The 25% and then these 10, Ken would you say anything different on that.
No I'd say I'd say exactly what you said I guess it was.
The software guide the newer again, you referred to reshape the newer programs contribute very little we didnt factor in nothing but it's not a huge driver. It takes a good year to start to see any real input from the new degree. So if we over perform on that over the next time, you will have very little impact.
Alright, you're talking more about getting most enduring.
Awesome. Thank you.
Rajiv.
Your next question comes from the line of Stephen Sheldon with William Blair. Your line is now open.
Hey, Thanks for taking my questions first one here on the revenue guidance.
<unk> grew 23% year over year in the first quarter.
Midpoint of guidance assumes 16% growth in <unk> and I think full year guide would that imply closer to 12% growth at the midpoint in the second half of the year.
Is that conservatism or are there some factors that could be potentially driving a slowdown in the second half relative to the first half because.
From what we can see it seems like trends in the business remained pretty strong at this point overall.
Hi, Stephen So this is Ken.
I would agree that the trends are looking pretty good it's not conservative if you keep saying, it's conservative as part of our view, but to be fair. It's early in the year and we just we want to be careful in an uncertain macro environment as maybe what you are hearing a little bit of caution there, but the business is performing I would not.
I would not look at it as any lack of confidence in the business whatsoever.
Okay.
Got it makes sense.
And then just as a follow up on on Coursera hiring solutions. It seems like a really interesting opportunity given your position with lawyers universities, but there's also some established competition there.
It's early and in beta, but how do you think about potentially differentiating your capabilities versus competitive solutions and also what's the monetization structure look like at a high level yes.
Yes, Sam this is Jeff so so great question.
I'd say, mostly we are trying to create a learner value. So the biggest thing that we're trying to do is give learners a way to keep track of and to showcase what they're achieving one coursera. So that they can show that with the private personal urls that they can share with any employer of friends.
Whoever they want actually so I would say that the first piece of it you can think of as with learners skill profile that is just learner value when it'll it'll allow employers to find them and allow them to connect.
We do think it will be quite a number of years before our network really grows on both sides of the talent supply and the <unk>.
On demand, but to your question around the competitive space.
So it was pretty competitive out there for sure.
But actually monetizing we're not planning in any monetization at this stage of the game certainly about 'twenty three I doubt, but there'll be anything in our 24 models either.
Not what we're focused on right now because it's going to be a longer term play.
And it also gets to how we want to really differentiate this we talk a lot of that.
Emerging talent emerging talent and this can certainly be young people, who are just graduated from college from all around the world I spent a lot of time in the Middle East and Latin America, Southeast Asia, Europe et cetera.
With remote work in digital jobs and ability for employers to really go global with the kind of talent out there and I've seen firsthand when I visit the campuses, whether that's in Bogota earn Riyadh I talked to students and they were really smart students all over the world who are utilizing with online learning and it will be great.
Employees at companies anywhere in the world.
And so what we're really going to be focused on is how do you help someone who doesn't have a long job experience history. They on Linkedin.
Sometimes don't even have a college degree they're switching from a career in one field that maybe doesn't pay as well it was going to get automated and they're trying to switch careers. If you don't have a good degree you don't have a linkedin profile, how does an employer know what you're really capable of and so we are really trying to help those curves.
We are switchers and career starters in emerging talent pools, not only develop talent, but showcase their talent and connect so employment that'll be kind of the niche if you will that.
We go after but it looks like a 1 billion people between 14, and 25 years old that's going to be a pretty big niche getting started in a new career is what we're going to focus on.
Yes, it's really interesting so I appreciate the color. Thanks, yes sure.
Your next question comes from the line of Ken Let me guess linking UBS. Your line is now open.
Yeah, Hi, thanks, so much for taking my question maybe on <unk>.
I'll follow up to the question on the full year guide. So now on the back of the one <unk> performance. When you look at the full year Guide I guess, how should we think about the growth assumptions baked in for each segment. For instance, you can see the enterprise IRR weakening, which I would imagine would have an impact going forward, but at the same time you were happy to see the significant deal.
I think in consumer to in order to get to that full year guide. So are there certain areas that you are being more prudent than others. Maybe you could just elaborate on that and how that might compare to what youre seeing in <unk>. So far.
Hi, Taylor Hi, this is Ken so yes.
Yes. Your numbers are correct of course as you look at it.
Again, as we discuss our response to Steven we're early in the year, so starting to increase the overall targa.
Target is something and given the uncertainty in macro.
Correct of course, as you look at MLR and the implications there we only provide by segment guidance at the beginning of the year to help people shape their models to be perfectly blunt about it we don't like providing input or guidance on each of them because people end up missing in individual segments and then it creates problems for us.
Really looking at the overall mix of the business, especially given the way the business model works with the different the different verticals help each other.
So yes, we haven't given any update on the.
Got it on the button.
Got it and then maybe just asked but I guess in a different way just looking at like the <unk> performance I guess it was outsized relative to what we've seen in some in the past quarter. So was there any one of the segments outside of degrees like rebound that you would point to.
That may be.
Like outperformed your expectations or influence how you guys think about the rest of the year.
Yes.
We said in the prepared remarks, we've been very happy with the consumer.
We think perhaps seeing a little bit of counter cyclicality there.
It's just been a very strong performance over there for some time in the consumer business tends to be particularly durable I think during some tough economic times.
Andrew I would add to that.
Taylor you know a lot of a lot of what we're seeing growth and it doesn't quite show up exactly the same in every segment, but these industry micro credentials.
It seems like a lot of people want these professional certificates and part of it is the content and the skills you can learn but I think increasingly as people think about like how do we get a job having a credential from a trusted institution that says this person knows these things to do this job I think.
Pretty attractive asset that we have on platform and any thoughts on the script like what we're really trying to do is not not only have that provides the portfolio professional certificates, which we call career academy, but to create pathways from that get the AACE accreditation, which now.
14 of those professionals, who didn't have the AUC credit recommendations to make it easier for universities to integrate both certificates into their college degree programs, so creating pathway from those perpetual certificates into degrees and now with the hiring solutions, creating pathways from those certificates to employers.
Typically looking for entry level talent in the job that you've earned that certificate, we think is going to enhance the distinct.
And the value of those professional certificates.
We expect will provide good leverage and good value across all segments of our business.
Great. Thanks, so much for asking my answering my questions sure. Thanks John .
Your next question comes from the line of Josh Baer with Morgan Stanley .
Your line is now open.
Great. Thanks for the question and congrats on the quarter.
Wanted to ask on enterprise I was hoping you could provide some more context on that step down in net retention rate.
Through churn, how thats trended versus seat expansion SMB versus enterprise, and then business versus government versus campus.
Yes, Thanks, Josh I'll give you sort of a high level, we won't I won't give sort of give specific numbers.
Specific cell, but but generally speaking, it's a combination of the denominator and the new minute numerator I mean, there is there is certainly more pricing pressure as LNG departments want to reduce their budgets it seems to us like companies increasing their thing.
Have some online learning benefit like it's becoming like a pretty standard benefit that you have.
To offer but if you could touch your cost county, a lot of LNG teams are getting cut in terms of number of heads they're cutting their budgets down et cetera. So there's more cost sensitivity and price sensitivity on the revenue retention rates.
And I think that there are a little bit less likely.
Check the box to write a big ticket to expand as well. So it's both pieces of that if you look across regions.
There seems to be when you look at the IRR like across all the verticals of business with government campuses.
Particularly weakness in EMEA Europe Middle East.
That's where we've seen the biggest weakness, although it is pretty broad base to <unk>.
Then if you look at it by what we call vertical which is the business versus government versus campus.
Business EMEA business.
Where we've seen more of the weakness.
We're using this as an opportunity to keep on improving the offer and keep on with the skills profile with more certificates better degrees et cetera.
And all of the AI Bill.
Building more value in.
So that when budgets come back a bit and people are more open on the spending will have the best solution. There, but it is it is pretty broad based I mean, that's what I think tens of your point on the guidance.
It's one of the reasons, we don't want to get too far ahead of ourselves because on the enterprise side, especially with businesses.
It's pretty uncertain out there and theres a lot of pressure to to watch costs.
Thanks, Jeff that's really good context, and then just a quick follow up on that I mean, how should we think about the bottom.
Are we there yet should we expect that to trend lower throughout the rest of this year any context for.
How to think about the future of that thanks.
It's hard to call a bottom, but it feels like things are getting better from a bookings standpoint going forward, but there's still a lot of uncertainty broadly right.
Enterprise spend market. So I think I'd look to how do you feel about the economy is broadly and enterprise market spending that affects us but.
Again, we're starting to see some upticks in the right places and so.
We're not completely negative on it we just we want to be cautious in this macro environment.
Yes, one of the things I would add Josh is there.
There is a difference between campuses businesses I mean on the one hand, you see businesses. If you look across most software SaaS software, they're seeing similar kind of budget budget pressures.
It's not like campuses are swimming in money, but in the U S are definitely dealing with demographic and declining enrollments, especially like a community colleges and the non elite universities out there there seems to be a recognition that offering industry micro credentials that are going to attract more students and help those students get placed into job.
That seems to be resonating pretty well, it's still very very early in this new market that market doesn't really exist today, we're we're sort of creating that market. We're seeing some positive indicators, but it's still pretty early still pretty small, but not really moving the overall NR a ton.
But.
I think there is this whole idea of the industry is going to help reinvent higher education.
Pretty sure that's going to happen is going to happen through the integration of content and credentials from industry into the more traditional degree programs I'm pretty sure that certainly the indications that we're seeing.
Thanks.
Okay.
Your next question comes from the line of Brian Peterson with Raymond James Your line is now open.
Thanks, guys I'll keep it to one so I just wanted to talk about Coursera hiring how do we think about the go to market effort needed for that or any details you can provide there and as you kind of stack rank some of the long term growth sectors, because there's a lot.
How do you kind of stack rank hiring.
Alright, thanks, guys.
Yeah sure, Brian I would say think of it out there a little bit further.
And it's obviously a huge market I mean, any one who can play materially or in some impactful way and the way that talent gets gets placed and theres just a lot economic there.
The way, we're thinking about certainly in the near term like being in the next year couple of years, it's going to enhance quality, it's going to create a better experience for our learners it'll be.
Value proposition it already has been a nice value proposition for college is looking at career Academy like all by students cannot only learn a skill and get credit towards the degree and integrate industry and build these projects. They can now have something that really as a companion to the transcript I got a transcript from my professors courses and we have a skills profile from course.
Sarah one so the more traditional course of study and the grades they got the other shows the hands on skills and the tools that I've learned in the vessels that they are from industry and together.
Pretty compelling graduate.
I don't expect monetization to come early if we really.
Obvious, but if we really crack into this emerging talent market and find an effective way to connect a talent with with employers.
In a way that's not really being conducted today, yeah. We think there's a lot of upside there, but honestly, we're not really putting pencil and paper and calculators to the our spreadsheets to the numbers because it's really big but it's kind of out there and we're not going to count on it right now.
Great. Thanks, Jeff.
Your next question comes from the line of Ryan Macdonald with Needham. Your line is now open.
Hi, Congrats on a great quarter and thanks for taking my questions. Just obviously degrees is coming along quite nicely and seeing strong demand trends in terms of customer adoption are new.
A degree program announcements, but to the extent that maybe some of the Q1 wins, we're already late in the pipeline when the department of education situations come up with the new guidance I'm, just curious and maybe some of your earlier stage conversations our conversations with existing.
Anniversary partners are you seeing any impact in the conversation because of this.
Sort of uncertain situation with the department.
We're really not Ryan at least not not that not that we've seen and I think part of it though is.
Well first of all the part the department of Education.
The 2011 Dear colleague letter there's no change at this point on that there is the third party services new deer currently letter that they put out with they got more than 1000 comments back.
A lot of those comments were were not positive they were negative.
They pull back from the original position that has pulled back in their possession. They suspended the effects of the Dear colleague letter, it's kind of kind of pending with an indefinite suspension at this point. So there is uncertainty there.
It's not.
Fast on that front and when we think about.
What were hearing certainly in North America, where the regulations would have an impact I mean internationally that it doesn't matter I mean that really most of the companies kind of look to the policy, but for the most part this is in North America and North America.
There is just a lot of colleges and universities, who need to serve new populations of students and that's really.
Really imperative to say.
There are not as many younger people coming to my campus.
I've got a final population served.
Anytime the governors are saying, we've got to Upskill and Reskill, our citizens to make them employable, we got the chips actually we've got the infrastructure. We've got the inflation reduction there is a lot of money going into.
<unk>.
And re skilling, there is a lot more talk about apprenticeships.
So theres a lot of emphasis on schools colleges and education that you got to serve working adults and this degree design I pointed out of University of Colorado Boulder.
A program, where you started three portfolio.
Okay.
Really appeal to working adult so when you see what's coming on the supply side of degrees there seems to be a lot of interest in those kinds of tailored for working adults degrees and we haven't really seen as far as we can tell.
A major friction or headwinds on that sourcing from North American universities looking at department of education potential policy changes.
Alright, Thats really good color and before I follow up with Ken Jeff Sorry for making you go through the quick background on all of that math.
But you summarized it well.
No problem.
On the adjusted EBITDA for second quarter, I apologize, if I've missed it but are there.
Given the strong performance in Q1, we're obviously, taking a slight step back in second quarter, where there any investments that you held off on in the first quarter that are falling into Q2 can you just walk us through maybe one that's a little bit of a shift Bryan.
Brian .
Most importantly, though is we don't focus on particular quarters, it's always how do we get to the annual number right and we were negative 7% last year. As you know the guidance is negative 500 basis points or 5% in this year and then positive in 2004 as well as positive in Q4 of this year, but.
It's really it's an annual basis, and we shift our spending around to maximize growth and future growth within that year within that budget.
Operating cadence it has been for years since well before we were public and so it's really the 5% we always point people to focus on for the year.
As opposed to any individual quarter. So yes, this quarter ended up being better but as we look at it again, we manage the whole business to the year. The quarters are too short and a lot of what we're pursuing has longer term paybacks. So.
We're scaling regularly but we're not trying to do it on a quarter by quarter basis.
Thanks for the congrats a clarification congrats again thanks.
Excellent.
Your last question today comes from the line of Jason <unk> with Keybanc. Your line is now open.
Hey, Thanks for fitting me in just Ken sorry, I've got more enterprise question.
No problem. It appeared it appears the better than expected strength that you saw this quarter is coming from new lands.
Is this the reflection on consolidation benefit I guess, what is enabling you to drive these lands, especially as enterprises try to bring down a bunch of budgets like you mentioned.
Yeah.
I would say.
That youre picking up on something that we sort of see in the numbers, which is there seems to be more weakness and I'll kind of focus on the weakness part of it because.
104 isn't.
All the MLR that we aspire to achieve.
It's lousy.
So when you think about where is there more strength, where there's more where theyre more weakness. It does feel to us like companies are saying I got to have this benefit like online learning is here to stay everybody knows that you've got to have trained up your people are more automation is coming.
The World Economic Forum report, that's coming out and it was in a podcast, which is why I can say that because I don't think the reports actually out yet, but when the world Economic Forum interviewed businesses and ask what the most important thing the government can do to support your business more than tax policy more than regulation. They said trained people.
I need people to be trained so.
I do think that there is there is value add.
In companies just recognizing that they have they've got to be doing this it's really a structural trend for learning.
Fight an environment, where people are trying to really cut their spend like if you do have the benefit you don't have much on it you want to try to Bang down your suppliers.
So there is at once price sensitivity at the same time, a recognition that didn't.
A benefit but I think most companies are going to need so I wouldn't call. It super strong, but I think you've kind of picked up on something which is most of the weakness we've seen the NR.
Okay, Perfect and then maybe just quickly follow up on that so.
I know, it's still pretty early in the year, but if youre going to think about your enterprise pipeline, how does it compare today versus maybe three months ago.
Three months ago, Kevin I mean, I don't know if you want to give any body language on that.
Kevin.
What's that.
It's hard to characterize it.
Again, there is this overall constraint on spending the corporate markets where pipeline. There's always the question on pipeline as have realized and it's hard to tell early stage.
What I would say is there's been no deterioration in the pipeline.
There is some stability there.
Want to make sure we're not being overly negative on it we're just being conservative in this environment, which I think is wise.
And partly we're being conservative because the environment looks pretty doesn't look right, yes, <unk> enterprise spend environment, yes, yes.
Yes understandable perfect. Thanks, guys.
Alright, guys. Thank you, Jason right well that wraps the Q&A a replay of this webcast will be available on our Investor Relations website, along with the transcript in the next 24 hours. We appreciate you joining us.
Yes.
This concludes today's conference call. Thank you for attending you may now disconnect.
Yeah.
Okay.