Q2 2023 Coursera Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to <unk> second quarter 2023 earnings call.
At this time all participants are in a listen only mode and please be advised that this call is being recorded.
After the Speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one.
I'd like to turn the call over to Cam Carey head of Investor Relations. Mr. Carey you may begin.
Hi, everyone and thank you for joining our Q2 earnings conference call.
With me today is Jeff imagine Calder, Coursera, Chief Executive Officer.
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 Doc Coursera Dot Com, where this call is being simultaneously webcast and reversion stuff for 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 to 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.
These forward looking statements include but are not limited to statements regarding the potential impacts 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 advantages and benefits thereof, our strategy and priorities our share.
This program and capital and cash allocation and.
And our business model mission 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 for clients 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. We appreciate you joining us today.
I am pleased to share the Corsair had a strong second quarter with momentum in several key growth initiatives that provide us with confidence as we enter the second half of the year.
We grew revenue 23% over the prior year, we delivered double digit growth in each of our segments. We welcomed $5 7 million new learners to our platform and today, we're raising our outlook on revenue and adjusted EBITDA for the year the macro environment remains dynamic, but one thing that has not changed is our one <unk>.
To navigate given our diversified platform of course, there is prominence as a global destination for individuals looking to start switch or advance their careers continues to grow.
Our coming of course, there are from around the world seeing the skills branded credentials and pathways that can transform their lives and.
In particular, we continue to see strong demand for our entry level professional certificates a strategic asset that has been created in collaboration with the worlds best known companies.
And despite challenges in the corporate spending environment institutions are looking to provide their employees citizens and students with job relevant skills and training that make them more relevant in a rapidly changing workforce. We believe the long term structural trends driving our business are proving sustainable for.
For today's call I'll discuss our latest views on these trends digital transformation skills development and the transformation of higher education.
I'd like to share several key findings from a recent world Economic Forum report as well.
In June the World Economic Forum or West published the latest edition of their future of jobs report.
The report brings together the perspectives of more than 800 companies employing more than 11 million individuals across 45 global economies.
The analysis focuses on the impact of current labor market disruptions and rebuild the outlook, where technology adoption jobs and skills over the next five years.
Coursera was a key data contributor alongside companies like indeed, and Linkedin due to the scale of our global learner base and skilling data.
Let's start with our first trend digital transformation.
The forces of technology globalization and automation have been accelerating the transformation of every institution in our society.
But compared to the historical adoption of general purpose technologies, it's clear that what we're experiencing now is an unprecedented rate of change.
For example, it took decades for innovations like the telephone electricity in the automobile to reach 100 million global users.
Today, we're witnessing this time horizon compressed dramatically from several years with the Internet and mobile computing to a matter of just months, which at GBT.
We believe that AI will be a general purpose technology, representing the next major technological shifts that will profoundly change how we live learn and work.
Not surprisingly the WAF report reinforces technology adoption as a key driver of business transformation and it also highlights an increased urgency amongst companies looking to address the gap between worker skills and the future needs of their businesses.
And this leaves me to the second major trend skills development.
Several key findings in the report express the scaling challenges faced by companies and governments globally.
Employers estimate that 44% of worker skills will be disrupted over the next five years six.
Six in 10 workers will require training before 2027 and.
And the skill sets the company see increasing in importance. The fastest are not always reflected in corporate upskilling strategies or in the skills. The individual learners, commonly associated with in demand careers. For example, cognitive skills like analytical thinking and creative thinking as well as leadership and social influence.
<unk> is equally important as technical skills in AI and big data.
And I hear these challenges directly from our customers over the past nine months I visited more than 45 cities and more than 25 countries hearing from business leaders government officials and campus presidents.
As institutions struggled to navigate change and disruption and taken advantage of the opportunities that they create.
As a greater emphasis on building organizational agility into the existing and future workforce at.
It requires a combination of technical and human skills in order to harness the capabilities of these new technologies.
And this leads me to the third trend driving our business the transformation of higher education.
We believe the future of education is the collaboration between universities and industry.
Critical thinking coaching and community are all hallmarks of the University experience that higher education institutions do exceptionally well.
Whether the pace of digital transformation, many universities and colleges lack a connection to industry.
Fast changing skills landscape and evolving employer demands.
<unk> this accelerated pace of change required institutional collaboration between academic institutions industry leaders and government to meet the needs and pace of this new digital world and the West findings report that 45% of businesses see funding for skills as an effective intervention available to governments seeking to.
Connect talent to employment.
This ranks ahead of traditional methods like flexibility on hiring and firing practices tax and other incentives and changes to immigration laws.
Last quarter, we highlighted our partnership with the Republic of Kazakhstan, where the Ministry of higher Education, and science is using <unk> to up level is public higher education system.
I wanted to provide an update on the speed and scale of what national implementation can drive when these institutions are working together.
Since launching in March.
20000 students and faculty have signed up spending nearly 100000 hours learning amassing 40000 enrollments and completing more than 25000 courses.
And the most popular courses include a combination of technical and human skills like programming in physics, as well as entrepreneurship leadership and communication.
This is the promise of Coursera has three sided platform and examples like these provide a powerful blueprint for the types of innovation that will be required to keep pace with a rapidly changing world.
We are able to pursue partnerships like these because of our strategic assets and platform advantages, which include our leading educate our partners who have created a broad catalog of trusted and branded content and credentials.
Our global reach to individuals and institutions, which include businesses governments and campuses.
As well as our data technology and advance that we leverage across our platform now lets cover our recent progress for each.
First our educated partners.
We believe that in a world where machines are increasingly capable of producing content that scale trusted institutions will play a valuable role in education as learners look for quality and accuracy.
The strategic focus of our content engine centers around the in demand skills in branded credentials that can unlock or opportunities for our learners and.
And because of our global ecosystem in our platform, we are able to build differentiated value around our catalog with advancements like career pathways using coursera hiring solutions.
American Council on education, or AC credit recommendations technology solutions like hands on projects I'd verification and academic integrity and performance based admissions from open content to college degrees.
Our catalog is created by a combination of more than 300 trusted University and industry experts, which are attracted the coursera for many reasons, including our mission.
Our global distribution to individuals and institutions.
And our record of being a trusted steward of the world's best brands.
These partners continue to rapidly expand our catalog and I'd like to start with recent updates on our growing selection of entry level professional certificates.
In Q2, we introduced 11, new entry level professional certificates from new and existing partners.
Rolls from New partners include retail customer service from Cvs Health.
Call Center customer service also from Cvs health.
Network engineering from Akamai.
Customer consulting and support also from Akamai.
Human resource associate from HR certification Institute.
Cyber security analyst from Microsoft and powered by data analysts also from Microsoft.
We also launched additional job roles from two of our earliest and most successful partners, including cyber security from Google as well as project manager it.
Project manager and front end developer all from IBM.
The entry level professional certificates and Coursera are able to be leveraged across every segment of our platform. They forge new pathways to well take digital jobs in our consumer segment.
Allow our students to begin and earn credit towards a college degree in our degree segment.
They enable governments and campuses to upgrade entire systems of higher education, and our enterprise segment.
Now, let's discuss degrees.
Last quarter, we announced 10, new programs, many of which take full advantage of the pathway capabilities of Coursera to make these degrees accessible and well suited for working adults.
Several of these pathway degrees, including program from the University of Colorado, Boulder, Illinois Tech and ball State will welcome their first student cohorts starting this fall.
And in Q2, we announced two new degree programs and artificial intelligence from international universities, including a bachelors program from the Indian Institute of Technology grew a hearty a top tier engineering school in India.
As well as a master's program from <unk> University <unk> Sundays in Colombia.
Finally in addition to the degrees in artificial intelligence are leaving educate our partners have been focused on creating new projects courses and specializations to meet the demand for generative AI learning content.
This includes both industry and University partners like deep learning Dot AI, Google Cloud and Vanderbilt University.
Our new content supplements hundreds of existing courses in skills that help equip learners to work with AI more broadly like machine learning linear algebra Python and more.
So that's an update on our catalog and educate our partners now let's move to our second major advantage the global reach of our platform.
In Q2, we added $5 7 million new registered learners growing our global learner base to $129 million by the end of June .
Learner growth continued to be broad based with double digit percentage increases across all regions.
We also grew the number of paid enterprise customers to nearly <unk> hundred with recent additions driven by momentum in our campus and government verticals.
Finally, I'd like to provide some updates on our third advantage, which is the ongoing product innovation across our platform and I'd like to start with our efforts in generative AI.
Coursera conference in April we unveiled Coursera coach.
Coach is a virtual learning partner powered by generative AI and grounded in our expert content.
It is designed to allow learners to ask questions and receive personalized explanations and answers.
Get personalized evaluations and feedbacks on their submissions.
Received context relevant examples and practice questions.
And discover quick video lecture summaries and resources to better understand a specific concept.
We launched the beta version of coach to millions of course, there are plus subscribers during the quarter and continued to be excited about the early feedback from these technologies when paired with a trusted authoritative content from our partners on Coursera.
Additionally, we introduced a coursera chat GPT plugin for enhanced personalization and discovery across the coarse ore catalog.
<unk> academic counselors, the chat GPT plug in allows learners using GPT for to identify recommended content and credentials based on the subject are career field. The learner says they're interested in exploring.
It's one example of initiatives, we're working on related to degenerative AI and re imagining the personalized discovery experience.
Finally, we continue to make progress on our machine learning translation initiatives.
As a reminder, our strategy is to use technology to dramatically reduce the time and cost of producing high quality trusted content at scale, including localization.
In Q2, we delivered the first milestone with subtitled translation for 2000 courses in seven different languages.
In the coming quarter, we will begin to rollout the full course translations to learners around the world.
We believe that high quality education from the worlds, leading experts and brands should be accessible to learners anywhere in the world No matter what language they speak.
To wrap up my opening remarks, let me remind you of several key priorities that we're focused on in the years ahead.
First we are broadening our catalog of entry level professional certificates, including new partners roll languages, and credit recommendations to support degree pathways.
Second we're sourcing and launching new degree programs, especially those tailored to meet the unique needs of working adults, including flexibility affordability and clear pathways set our open content and industry micro credentials can count as credit towards college degrees.
Third we're focused on growing our enterprise segment across business government and campus customers seeking to address their needs in this fast changing environment.
And we are deepening our advantages, while driving more scale and leverage over time, including the opportunity to use AI technologies for the benefit of our learners educators and customers.
And now I'd like to turn it over to Ken Ken. Please go ahead.
Thanks, Jeff and good afternoon, everyone.
Our strong second quarter results demonstrates the differentiated value of our branded job relevant credentials to millions of learners around the world.
As a growth company, we continue to benefit from a diversified platform model, including our ability to deliver high quality learning through multiple channels.
That model is also helping us produce financial leverage while we grow with the three segments, providing each other competitive assets and operational leverage in Q2, we generated total revenue of $153 $7 million, which was up 23% from a year ago growth was driven by double digit increase.
<unk> across all three of our segments with particular strength in consumer.
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, I'd like to remind you that our results, particularly the year over year comparisons in gross profit and operating expenses continue to reflect the shift in income statement line items associated with the beginning of year contract extension with our largest industry partner, which we have discussed thoroughly in our prior two earnings calls.
Cutting through that shift and P&L geography year over year, we are driving strong bottom line EBITDA performance cost of revenue increased by 11 points as a percentage of revenue while total opex decreased two two points compared to year ago results.
As we will discuss in a minute we are raising our 2023 annual EBITDA margin target.
For the second quarter gross profit was $81 9 million slightly up on dollar basis from a year ago, and a 53% gross margin, which was down 11 points from the prior year.
Total operating expense was $88 8 million or 58% of revenue down 22 points from 80% in the prior year.
Looking at the P&L line item components of Opex sales and marketing expense represented 29% of total revenue down nine points from 38%.
Research and development expense was 18% of revenue down eight points from 26%.
In general and administrative expense was 11% of revenue down five points from 16%.
Net loss was approximately $300000 or 0.2% of revenue and adjusted EBITDA was a loss of $2 $9 million or one 9% of revenue.
Our adjusted EBITDA performance was better than anticipated due to a combination of factors, including overall revenue strength operating expense discipline and a one time $2 $3 million benefit associated with the contract amendment with an educated partner.
We have a track record of delivering growth with leverage including each of the past five years and I am pleased with our ability to invest and execute on multiple growth initiatives, while also demonstrating scale and leverage in our operating model.
Turning to cash performance in the balance sheet free cash flow was a use of $11 $5 million during the quarter compared to a use of $3 2 million a year ago. We ended the quarter with approximately $717 million of unrestricted cash cash equivalents and marketable securities with no debt.
With regards to our share repurchase program that we announced last quarter is a direct reflection of our confidence in our business and the value we place on shareholder equity I am happy to report that during the second quarter. We bought back four 5 million shares at an average price of $12 and <unk> <unk> per share for a total repurchase of <unk>.
<unk> $54 $5 million, including commissions.
The program and $95 million authorization amount was designed to reduce the impact of dilution from one time talent grants issued in the prior year.
Importantly, our views on capital allocation remain unchanged in.
In the context of our belief that we have the right assets and market position to win in our early large growth markets. Our capital management focuses on both investments and organic growth and the resilience and strategic Optionality provided by our strong balance sheet.
We believe our cash which we hold dear is a considerable asset that will enable us to execute on our long term vision for the benefit of our shareholders.
Next let's discuss in more detail the financial results and progress in each of our segments.
Consumer revenue was $87 million up 25% from the prior year on strong demand for our entry level industry partner professional certificates as Jeff discussed we introduced 11, new certificates this quarter, including new job categories from new partners as well as additional titles from several of our most successful industry.
<unk> brands.
We believe we are seeing the benefits of our strategic focus which emphasizes job relevant credentials created by world class brands.
Distinguishes our learning platform the value of our offerings to learners and ultimately our consumer performance.
And it also enhances our top of funnel traffic with $5 7 million new registered learners coming to Coursera in Q2.
Segment gross profit was $45 1 million or 52% of consumer revenue compared to 73% a year ago, reflecting the impact of the industry partner contract extension mentioned previously.
Moving to enterprise.
Enterprise revenue was $54 $2 million up 24% from a year ago and continued growth in our business government and campus verticals.
Segment gross profit was $38 7 million or 71% of enterprise revenue, which was slightly higher than expected due to a onetime benefit of a contract amendment with one of our educated partners, which had the effect of increasing our enterprise segment margin by four percentage points for the quarter.
The total number of paid enterprise customers increased to 1291 up 35% from a year ago.
And our net retention rate for paid enterprise customers was 97% with ongoing pressure in our coursera for business vertical during the quarter.
We continue to see corporate learning customers exercise caution in their spending priorities as they navigate tighter budgets amidst macroeconomic uncertainty.
And finally, our degree segment.
The group's revenue was $12 $5 million up 10% from a year ago and increased student enrollments the toe.
Total number of degree students grew 9% from a year ago to 19068.
As a reminder, there is no content costs attributable to the degree segment. So degree segment gross margin was 100% of revenue.
We remain encouraged by our progress and degrees and the early momentum and programs. Some partners like the University of Colorado, Boulder that leverage our platforms unique capabilities and scale.
In our discussions with current and prospective universities. It is clear a more accessible affordable and relevant modeled education is required for college degrees and we look forward to welcoming the first student cohorts for several of these newly sourced pathway focused programs starting this fall.
Now onto our financial outlook.
For Q3, we're expecting revenue to be in the range of $156 million to $160 million.
And an adjusted EBITDA loss in the range of $9 million to $14 million.
For full year 2023, we are increasing our outlook for both revenue and adjusted EBITDA.
We now anticipate revenue to be in the range of $617 million to $623 million, representing approximately 18% growth at the midpoint of the range.
Our full year revenue outlook has increased by $20 million since start of the year and $15 million since the prior quarter driven by our increased confidence in the durable demand we continue to see in our consumer segment.
For adjusted EBITDA, We're now expecting a loss of 19% to $24 million or negative three 5% adjusted EBITDA margin at the midpoint of the revenue and EBITDA guidance ranges.
As you know our consistent practice, both pre public and as a public company is to set an annual EBITDA margin target at the beginning of the year and work within that plan to maximize growth based on the trajectory of the business.
So this is a notable change for us driven by bus topline performance and operating efficiency for our revised guidance improvement of 150 basis points in full year adjusted EBITDA margin.
Furthermore, in addition to a higher profitability target for the year I want to reiterate the comments, we made at our Investor day in March of this year.
We expect to be EBITDA breakeven in the fourth quarter of this year.
And to be EBITDA positive for full year 2024.
To summarize we are operating a diversified growth company with multiple levers across our three sided platform.
We are delivering this growth with increased scale and leverage.
And we've built a strong financial foundation that will afford us the resilience and strategic flexibility to lead our large and early markets.
I'll now turn the call back to Jeff for closing comments. Thanks.
Thanks, Ken.
Michigan is deeply rooted in our business, but this is also the case for many of our customers.
To wrap up today's remarks I'd like to share. An example of an exciting partnership with one of our largest coursera for business customers.
BNP Paribas, Cardiff, a leading insurance and financial services company has had a relationship with Coursera since 2019.
In June we expanded our partnership with a multi year agreement to provide access to online education to all BNP Paribas Cardiome employees as well as over 5 million customers across Latin America.
Their insurance policies now include digital education services.
<unk> uses of course, Sarah as a value enhancement for their customers where insurance not only protects families. But also provides the necessary skills and credentials to help them access new job opportunities increased their earning potential.
It is another example of how businesses are seeing access to quality education as a key strategy to enhance their offerings and their global brands.
And of course here ecosystem and our reputation as a trusted steward of their brands is playing an increasingly prominent role to address the rapidly changing needs of our global economies as employers as educators and as enablers of the future workforce.
In collaboration with our customers we are focused on fulfilling our mission so that talent and opportunity can rise from anywhere in the world.
Now, let's open the call for questions. Thank you.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
We'll now take our first question from the line of Josh Baer with Morgan Stanley . Your line is open.
Great. Thanks for the question I was hoping you could really hone in on the strength that you're seeing in consumer in the quarter and then also in your car.
Commentary for the rest of the year is it you know.
More driven by new professional certificates launched any any sense for like a same store sales type of look at enrollments for some of the existing certificates and also wondering if you're able to quantify in any way the contribution from AI related courses and programs.
Yeah, Hey, Josh this is Jeff.
It's a number of things on the consumer side and broadly I think in three categories. One is quantity of new content that came on from from new partners like Microsoft They put out their first professional certificates on coursera.
For entry level jobs in Q2, but also certificates like the cyber security analyst Certificate from Google that also came in in Q2. So so new content is definitely a part of that but to your point around the same store sales, we do see good growth from existing titles as well. So it's not just new content. It's also apparently.
Higher demand for existing content.
There's another piece too which is affecting the paid marketing. So we don't do a ton of paid marketing, but we just seem to see a better return and this I think in this environment with this product offering.
Seem pretty interested in the stuff.
And I think it's the brands I think that the job orientation I think it's the credentials I think it's the credit pathways toward degrees like a plurality of things about these certificates.
The flexibility of affordability I mean, it's just a lot of the features that we've been building over the last whatever eight years are resonating in this environment.
And then I think finally to that point this sort of environment people, often say that college education is countercyclical I think it might be the case that this as well and whether or not counter cyclicality means for college degree.
Usually you see more enrollments in college degrees when unemployment goes up we're not seeing a lot of higher unemployment right now, but I do think the opportunity new job opportunities is going up and so the way to get into those new opportunities if you're in a career, where you don't have the skills and credentials to do that I think these professional certificates are just kind of.
Resonating as a pathway to a nuclear opportunities that otherwise I just couldnt I Couldnt have had so I think it's kind of a bunch of different factors.
But across the board, it's feeling pretty positive Ken anything you'd say about the economics of these things are or how you see it playing out in future.
Nothing incremental to add no.
They look like the others in the model is pretty well set it's all about growth in this environment as you said.
Great. That's a great summary, if I if I could sneak in one more just thinking about your balance sheet.
It's very strong I was hoping you could review your M&A philosophy, and your strategy what type of assets.
Potentially fit into your platform. Thanks.
Sure. He historically, Josh we had limited M&A activity.
Do believe that the opportunity in front of us.
With the right assets in the right markets and these are huge markets is as I know you agree.
Having that dry powder for strategic flexibility is pretty important.
On the front end.
We've continued to look assets have been expensive as people are aware with the previous environment things are coming down we remain active we're doing some investments today as it results in some various partnerships within that corporate development group and we do continue to look at deals we havent found anything at the right price for the right asset.
In philosophically.
Look to things, where we're not looking to bolt on more revenue I think as you see us announce deals in the future I would expect things that add to the product portfolio, where we actually get leverage on the top line and growth.
As opposed to just buying revenue, yes, philosophically, that's not how we and what I would add to that Josh is sometimes talent comes along and you.
Buying an entity because theres really good talented associates associated with it we've done that in the past we can continue to do that now talent is extremely valuable.
And elements of job placement, where we spent a lot of time on the learning. We just launched course hero hiring solutions. We are building that out I like the way, that's going we might be able to accelerate that with certain assets that have capabilities in job placement.
I don't think anything we buy content, but we might do something in content engine. So it's not so much the current catalog of content, but if theres a way of bringing content on that is novel and complementary to the way that our content engine works I think that would be great.
AI people are talking about M&A NII, frankly, we will probably do more for the talent on the actual technology. Because these large language models are moving very quickly we see early stage companies whole products gets subsumed into.
And to the capabilities of a new base language model. So we're kind of holding back on that a little bit.
And then broadly speaking technology that makes the content better or the learning experience better is always great whether thats already verification academic integrity, a better assessment design hands on projects, we bought a company a few years ago called <unk> that was a virtual machine technology that enabled hands on projects using desktop software. So.
It was a technology that supported and enhanced learning experience and enhance content because of the technology, we're interested in that kind of stuff.
Okay.
Great. Thank you very much sir.
Our next question comes from the line of Tom Single-hearted with Citi. Your line is open.
Okay.
Taking your question good evening.
No.
Okay.
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Maybe starting with that theme of Kentucky, Tennessee and legacy.
And then we think there's some confusion.
Yes.
And then decline.
<unk>.
I think it's too.
Since the end of the year on year.
I'm interested in.
We'll.
We'll continue.
Quick question.
Thank you.
Because of the 2020.
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Check.
Perfect.
Okay.
Yeah, Tom I think I caught that.
So when it comes to cyclicality and counter cyclicality, we touched on a little bit what consumer, but as you mentioned and enterprise. When we talk about diversified revenue model part of that also is diversified across the enterprise segment businesses are different from campuses are different from governments and they all have different exposures to economic cycles.
We see the greatest pro cyclicality and course, Christopher business, mostly in Europe , and in North America frankly.
Where LNG budgets and even teams are being reduced.
But we don't really see that so much in universities and government and so.
Blended into that enterprise segment are some are some differences, where we actually see some offsetting of the cyclicality of coursera for business with generally I would say counter cyclicality or at least neutral on campuses and governments and as those vertical has become a bit bigger we think it could dampen the exposure to economic cycles.
<unk> of the enterprise segment, and so that's kind of my thinking on that cannot know if you'd add anything to that.
Thanks.
As a follow up.
Okay.
Given the current thing I'm, just interested whether you've had.
You do have pricing, whether you're exploiting pricing power.
Please continue.
Okay.
Yes, I would say that I would say not really.
We theres sort of pricing power, if you will against the learner.
Which basically requires you to be a different solution and then they can get anywhere else. There's a lot of content out there on the Internet. We don't think that we're like the only game in town.
We do think that this career Academy with all these professional certificates is pretty unique but frankly, we are still very much in growth mode. So we're we're not sort of trying to flex anything.
On pricing at this point when it comes to sort of economic sharing between us and our partners. We like our arrangements right now we want to make sure. Our partners are super motivated to create more content and credentials. These are great brands. So we're also not really flexing anything there and we think there might be some opportunities in international markets.
Not so much on pricing, but in payments and currency, that's kind of payment methods and currency, where we think there's still opportunity that we believe that we can unlock probably mostly on the consumer side.
Thanks.
Yes, Thanks, Sean.
Our next question comes from the line of Rishi <unk> with RBC capital markets. Your line is open.
Hey, this is rich calling on for Rishi. Thanks for taking my question, it's great to see the momentum of the Republic of Kazakhstan partnership as well as the expanded partnership with DNP.
Just curious how should we think about the mechanics of these types of deals and how those new learners get monetize and then are there any other similar partnerships to call out or that you'd highlight here. Thanks.
Hey, Rishi this is Jeff.
But I would categorize this generally or at least the way I think about it and we think about it from a modeling perspective is that fundamentally the enterprise segment, we're selling seat licenses and so the question is well, how youre, who buys a seat license and for whom.
<unk>.
What we're seeing is what I think of the sort of system wide deals.
As with the Republic of Kazakhstan, and many other systems, including State Department of Labor workforce development programs and even University systems in the United States in other places oftentimes, you'll find one institution with an intention to up level the educational capabilities of our system of educator.
It could be.
School system, and what country or a school system within a state or municipality.
This sort of the the head institution will buy a certain number of licenses and almost do pilot testing with a number of member institutions. If you will.
What we are really thinking about here is sort of an NRI sort of approach. It. If you can get in with someone who can prove out the model demonstrating use cases on a smaller buy but to many other institutions, where there's a lot more avail.
Availability for upsell of licenses because they are not buying a license for every single person.
We think that could be a really leverage sales model, where it takes a bit more time to when the government, but once you do I mean, you've got access to lots and lots of institutions and with upsell opportunities. So that's kind of how we think about it it's a little bit longer sales cycle, we think its more defensible and we think it should have positive effects on our <unk> overtime.
Thank you that's very helpful. And then just to follow up on that is just that.
You've highlighted good momentum in that campus and government.
<unk> of the enterprise business and just trying to think about like is this the kind of situation, where maybe those businesses become large enough and.
The next economic cycle to make a meaningful difference to offset some of the headwinds youre seeing in the corporate side or or just how should we think about the not only the kind of I guess near term dynamics within the enterprise business. But then also just how you think about like the Tam across like the three seven verticals.
Great question and I think it is not unreasonable to expect that in some future time, that's not way out there they will be big enough they being coursera for campus in Coursera for government will be big enough to offset some of the pro cyclicality of course are for business I will generally say those two are not more of them together.
There are not more than coursera for business, but they're more than 25%.
It's becoming it's becoming a real thing and so it's it's definitely part of our strategy is to say how can you take the same content different credentials. The same technology platform and all the same product marketing sales et cetera underneath it and get leverage across a broader Tam will those terms be bigger than coursera for business.
I don't know.
It's conceivable I mean, when you think about all of government workforce development programs, they can be pretty big.
And the campuses, obviously spend a lot of money I mean, its basically two trillion dollar market in terms of tuition for all degree granting institutions in the world generally speaking they are about breakeven. So they spend I mean universities worldwide they spend it well.
If a trillion dollars clearly and so that could be a meaningful Tam we think.
Yes.
Wonderful extremely helpful. Thank you.
Sure.
Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thank you so much for taking the question maybe coming back to the topic on the enterprise given the corporate spending environment. You mentioned earlier, how would you characterize your visibility into whether you want to think about it in terms of the acquisition funnel or the rate of customer growth or MLR going forward and trying to match.
<unk> mixtures of sort of visibility into trends versus investing behind the growth you want to achieve in the long term and how we should possibly think about that as an exit velocity for this year. Thanks, so much.
Thanks, Eric Let me I'll give you the very high level, how we think about it maybe Ken you can pick the harder part of the question, which is exit velocity.
As I, usually do to you when we clearly when you look at it or are you say alright, you got new bookings not part of NR well, yes bookings of new customer is not part of MLR. Then you got expansion bookings and then you got your attention of your existing error and we don't see the same characteristics among those three new bookings versus.
<unk> bookings versus retention.
Yes.
A lot more of the pressure has been in customers, who sign bigger deals during COVID-19, especially in Europe, where budgets were very big companies and government institutions really focused on providing support including learning support for workers displaced from the office.
Things arent in Covid times anymore. The budgets are tighter the economy is not looking looking great with the with what's happening there. So.
So there has been more pressure on some of the expansion bookings.
There have been some tightening of the budgets across the board so.
What does that how does that all play into exit velocity, Kevin I'm going to punt that over to you and why.
What's your artful answer yes, no I think the important thing in this this is very much a topic on our minds right now because we are beginning our planning cycle, which feeling quite early.
Jeff said the MLR is the media.
Least lagged a bit.
Because it affects revenue more quickly.
As it relates to renewals, which is immediate revenue impact and expansion deals.
But new bookings and Jeff said it new bookings have remained relatively strong so as we come to the end of the year and we look going forward.
As we start to do our budgeting for next year.
Those bookings as newer bookings will start to flow into revenue and then it's a balancing of salesforce towards opportunity between <unk> and see foresee, which we'll try to do to optimize towards the best opportunity considering where we are from an economy standpoint.
So that's that's how we think about it.
Yeah, and I think we kind of already hinted at it a bit but the big end of our headwinds are in Coursera for business in Europe , and North America.
That's really helpful. Thanks for the color sure.
Our next question comes from the line of Ryan Macdonald with Needham <unk> Company. Your line is open.
Hey, this is Matt Shea on for Ryan Thanks for taking the question and congrats on a nice quarter here.
To start with degrees given your expectation for the segment to grow 25% next year I'm wondering if you guys could talk about what youre seeing in terms of enrollment trends for the upcoming fall cohorts on those newer programs and how that's trending relative to your expectations and then as those enrollment start to come in should we see those hit in <unk> or <unk>.
Or what is kind of your timing expectations around those enrollment numbers.
Great. So I'll talk a little bit about the dynamics of the segment, maybe you could talk about the timing of the impact of the numbers for next year.
We're feeling pretty good about the segment, we're feeling good about what we have told you guys.
At Investor day about the 25%.
Growth in 2024 for the segment.
And when we when we look at the opportunity and say why are we seeing more positive year on year improvements in degree segment revenue that we did say last year. This time.
Part of it is perhaps the economy, but a lot of it is the supply of degrees. We have a broader selection we can find more matches among the lenders on our platform. We feel good about that so long as we do a good job with the matching.
And we really are pushing much harder to a certain kind of new degree. These degrees that are built on pathways, notably pathways from these professional certificates.
What we hear from working adults.
Is they want something more affordable they want something that is more flexible they want something that is more aligned with certain job, especially if they want to transition from one quarter to another.
Idea that you can do one of these professional certificates and while you're earning the certificate from an industry player have accounts as credit towards a college degree that you can also earn online that's affordable and flexible.
People really like that so a lot of our strategy is not just like some more degrees that are now online.
Let's let's offer a product a solution to working adults who are trying to switch careers that frankly isn't really much in the market today, we sometimes think of them as pathway degrees. These pathways to degrees that are really much better suited. So we're in early days, we've talked about university of Colorado Boulder, They add that masters of science and data science.
We continue to see good results there are number of the new degrees coming on the fall has the same kind of pathway characteristics makes us feel pretty positive but at the same time, it's hard to estimate before something really hits the market and you see the learner demand for exactly what the numbers will be so Ken in terms of expectations for Q3 and kind of impact on that.
Sure and you've already set this up with the right highlight of course.
Around the change in strategy with emphasis on strategy on this new pathway degrees, which are at higher volume, we've introduced and we've announced those new degree programs. This quarter over the last couple of quarters, and we build them in building that capacity to fulfill those new student cohorts.
Bulk quarter is when you will see but that'd be the first indication of how well we fulfill and so.
We're looking forward to talking about those numbers as we worked very hard in fulfilling the student cohorts.
And so but you will see that this coming quarter it will be a fairly.
Immediate feedback loop on how well, we're doing and we expect that we gave the 25% guidance for next year back at our Investor day, because we have great visibility on the revenue side.
So.
It's a look forward into next year.
Which will provide an update on as we do our planning going into next year as well.
But once again I would look to the student ads and some more color this coming quarter, which we're pretty excited about.
Got it that is super helpful. And then wanted to touch on one of your newer initiatives you recently.
To launch more vertical specific industry certifications like in health care with Med <unk> curious on the strategy. There how do you guys increase your exposure to learners in the healthcare segment that might not have previously been engaged with coursera and given the workforce challenges in healthcare market, how large of an opportunity do you think this vertical it could be for coursera over.
Time.
Thanks.
Yes, Matt Great question and I appreciate it because it will allow us to maybe articulate our strategy.
With respect to labor markets.
A really simple thing if it's not obvious of what we're trying to do is find out where there are either on the learner side big job opportunities are on the employer side acute job shortages and then say how can you help people move into those opportunities. If that's not what they had already been educationally you trained and credential is to do well.
Clearly healthcare is a very very large market with acute labor shortages, a very high requirement for credentialing.
As to come from trusted institutions.
And you noticed that we are putting more of these health care related professional certificates has not the full degree, but we you can imagine kind of were talking about pathway degrees. We're putting out. These professional certificate in health you can imagine where we might be going and report. After report is showing that the that the number of job opportunities in health care globally.
It's going to grow because of demographics and the aging of the global workforce and technology's going to change the nature of those jobs.
And those types of jobs will be some of the least.
The least impacted by AI.
So we think it's a really attractive market, especially for coursera given the branded credentials given the whole degree pathways the value of a degree the global key charges and the general resilience in the face of AI I think a lot of people are going to be want to go and change your career start going after health care related jobs, because I think theres going to be a pretty attractive set of opportunities there.
Our next question comes from the line of Taylor Mcginnis with UBS. Your line is open.
Yeah, Hi, thanks, so much for taking my question, So Ken maybe one for you.
The full year.
Guide this year by more than the <unk>, which I think is a little bit different approach than you took last quarter being a little bit more conservative. So I guess, what happened in the quarter or in the environment, that's giving you greater confidence in the back half of the year and is there.
Chance that you may be have a little bit greater visibility is there a certain segment you'd call out something in the pipeline, but love to get a little color there.
Sure. Thanks, Kevin of course, as the year progresses, we get better visibility on the revenue for the year.
But we have really seen some firming up particularly on the consumer segment, which is that that business is really nicely dialed in we think we have a handle on how we're doing on these professional certs.
The machine from a metric standpoint is working so we have greater operational visibility than we did before we've we have some better certainty in some of our marketing programs, which Jeff mentioned previously and so the ability to dial that in and and react to changes in the environment and gives us more confidence as we move forward.
As we get closer to the end of the year, both on the enterprise side, the visibility and degrees, particularly.
Degrees, we can give forecast a year out that a reasonably reliable.
Can increase over time of course, as we fill student cohorts and get more more.
More confident but it.
As we get closer to year end Theres, just the models provide better visibility and so we're more comfortable.
We seek to hit our commitments always of course as a public company, we try not to be too conservative to be very clear.
But.
That's let us recognize more of the over achievement if you will.
Got it thanks, so much and my last question is just on the enterprise side.
On the enterprise business I'd Love to hear you know now that we're into July what you're seeing in terms of trends that you talked about you're seeing a little bit more pressure.
Take bampton any changes on churn that you call out and how those have progressed throughout the quarter to today.
I would characterize it very broadly Taylor as compression on budgets and layoffs of teams of LNG teams I mean, it's.
And what's interesting about this and I wonder what is going to be the.
Sort of.
Response, when clearly everybody agrees that we are entering a time of increasing employment change jobs will be changing generative AI published after publish after public public historical publication, but Theyre all thing almost everybody's job is going to change.
Part of me says well who's going to teach people. All these new jobs I mean, I get it that historically LNG has one of the first discretionary budget cuts, but I personally as a CEO coursera. We are planning on retraining all lot of people and a lot of jobs, because there's mckinsey just put out a study.
Weeks ago, they suggest because it suggests the globally generally I alone generative AI could unlock four four trillion dollars of productivity gains.
What's it going to take what investment needs to be made to get the four trillion dollar return.
Some kind of scaling up obviously, the tools and systems have to be upgraded but people have to learn how to use those so I don't know if I could from a first principles point of view there is a little bit of a in coherence between companies cutting LNG in a time, where people are going to need to be retrained in order to unlock productivity gains.
Awesome. Thanks, so much for taking my question.
Sure.
Okay.
Our next question comes from the line of Robert Simmons with D. A Davidson your line is open.
Hey, Thanks for taking my question I was wondering if you go a little deeper on the.
The color on the net retention number how much of that decline has come from various factors in particular I'm thinking about gross logo churn and pricing pressure and then also kind of what your aspirations are for the metrics.
From here or what it might turn it back up.
Yeah. Thanks Robert.
If you sort of if you did a variance analysis of NRI or by segment and region like hypothetically. If you did that and try to attribute where is the change in in are really coming from in that matrix.
What you would find is it.
It really jumps off the page at Corsair for business in Europe , and North America, and that really explains an awful lot of this and that grid would be see for G. C for CEC for safer be up and then the different regions highlighting the two.
And then and that helps me answer okay, well when is this going to turnaround in at least without giving you. Unfortunately, probably I'll give you a very helpful clarity I can say.
It will likely be related to the macroeconomic conditions and for businesses in Europe and businesses in North America in particular, how two companies view and fund learning and development initiatives.
Okay.
Got it I guess.
Within your metrics, though how are you seeing that show up as it is.
Is it customers turning it off is it are they cutting their usage is there pricing pressure on renewals.
We're driving it down it looks mostly like pricing pressure on renewals.
Got it okay perfect. Thank you very much yeah sure sure.
Our next question comes from the line of Jason Selina with Keybanc capital markets. Your line is open.
Hey, Thanks for fitting me in just.
Just a couple.
Similar to my question I was asked earlier, but can you raising the EBITDA margin guidance.
Definitely nice to see.
I guess, what gives you the confidence to improve the path to breakeven because I think in the past you haven't really guided up on the margin intra year.
Okay.
That's exactly right, Jason we've never done that and its because we intentionally spend to invest because we're a growth company and we believe the markets are big and there is the opportunity to do that.
Frankly, the over achievement on the topline there there's not the opportunity to spend that quick we're already moving towards profitability at the Investor day back in March we committed to profitability for Q4 and to EBITDA positive for 2024. So we've been on that trajectory. We've done that each of the last five years, but it's just a matter of pace of <unk>.
<unk> is the conversation.
But we were outpacing our ability to spend productively in year, and we're not going to waste money. That's for sure and we are simply just seeing more leverage in the model. We've been very focused on doing that and creating leverage within the operating model within the departments and it's at the point, where we needed to raise guidance to be realistic about it.
Jason one of the things I'll, just add it's probably obvious but in every previous year. We did not put any Q4 constraints into that we said look we're going to manage to the adjusted EBITDA margin for the year.
Well in 2023, we added that one constraint we said we're going to manage to this adjusted EBITDA margin and we're going to be adjusted EBIT EBITDA positive in Q4, when you put the constraint on there.
The natural answer that comes out is higher than what we were planning and so that's where we thought.
Lets honor the commitment on the Q4, it'll set us up nicely for next year and we feel by the way that we can still fund growth initiatives and an appropriate level I mean, we would that step one we will not sacrifice growth.
In order to post higher profit if we thought that we were really starving the growth opportunities for the company.
Okay perfect good stuff.
And then really quickly on the enterprise side, just competitively I know.
It's a tough environment for everybody, but I guess, how do you feel youre doing versus everyone else I know one of your private competitors announce some layoffs, but.
Curious on how you think the market as a whole is down.
Well.
I don't know for sure and the information is a bit hard to get clear.
Clearly I would expect that if as I said to Robert pricing pressure on renewals.
As one of the things that we're seeing.
I would be surprised if that were like sort of specific to coursera and others Werent seeing it and then when I think well who would suffer the most from that well we are pretty distinctive premium quality and branded credentials. So arguably from sort of an economist perspective, we had a more differentiated product and others. So you would expect we could resist pricing pressure better than others.
I don't know what they are really experiencing but feels like we should be relatively better relatively better positioned there. We also see as you can imagine that when people are cutting budgets are also often rationalizing providers. If you were a smaller niche player it might be harder so I can't speak directly to.
Our competitors, but what I can say is in a tough environment. I think we have some relatively speaking attractive features that help us whether it relatively better but again I'm not sure exactly what's happening with the competitors.
Okay perfect. Thank you okay. Thanks.
Thanks, Jason.
Our last question comes from the line of Brett <unk> with Cantor Fitzgerald. Your line is open.
Hi, guys. Thanks for taking my question.
Maybe first just on the guide.
Kind of in the back half of the year.
All of it.
<unk>, 16% growth in the third quarter and 13% growth in the fourth quarter and this is coming after we've just seen kind of revenue growth accelerate from Q1.
In Q2, so I guess, what assumptions are you factoring in where we would see call. It a 10 point T cell instead of revenue growth over the back half.
Yes so.
And we're pretty happy we've increased the revenue guide by $20 million since the beginning of the year and just increased to $15 million. This current period.
Along with an increase in profitability for the first time ever in year.
We see continued strength in consumer I think we see trends along the same path.
<unk>, we're seeing right now so we.
We don't provide specific segment guidance during the year, we provided general guide at the beginning of the year just to help people get their models right.
But yes, that's first and we're pretty excited that we're announcing the level of growth that we are we think the investors.
Got it.
And then kind of similar question on adjusted EBITDA I know you guys said that that concern around the core in the fourth quarter.
But we've seen call it.
Research R&D sales and marketing G&A, all decline in absolute <unk> levels in Q.
What should we think about opex growth for the remainder of the year is there a shot we hit positive adjusted EBITDA in the third quarter.
No no.
<unk> did a specific guide of course for the for the third quarter and we expect we'll be within that range of course, because it is the guidance we provided.
There it is.
<unk> harder for us to spend to invest there is some very real investments around translation that we have the opportunity to do now with AI and some other things. We do that we think will lend a hand towards next year again, primarily we're a growth company. So this is a lot of this is a focus on setting us up for 2024 and increased leverage and growth in <unk>.
2024 so.
No I think.
Doing in Q3 would almost be pointless and damaging to the company I am not sure people would appreciate it if we did that.
We committed back in March and we will hit that EBITDA positive in Q4 and important thing is we're setting up for both growth and leverage.
On an ongoing basis, which is something we've delivered for the last five years and so that's our model I think the investors are used to it.
The notable difference I would say is we've increased the profitability target in a year instead of trying to invest in.
It's kind of as Jeff described before a natural outcome of picking a point in Q4 and driving towards that because we think it's important for the street to get that profitability is important to us and so.
Making progress there with the change environment is something we're really excited about.
Understood I appreciate it congrats on the quarter guys. Thanks, Brett.
Thank you everyone 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.
This concludes today's conference call you may now disconnect.
Okay.
Yeah.
Yeah.