Q2 2023 Udemy Inc Earnings Call
[music].
Good day and welcome to the <unk> second quarter 2023 earnings Conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on a touch tone phone.
To withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.
Thank you.
And welcome to <unk> second quarter 2023 earnings Conference call.
Joining me today are Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard.
During this conference call, we will make forward looking statements within the meaning of federal Securities laws.
These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated for.
For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.
Our forward looking statements are based upon information currently available to us.
Caution you to not place undue reliance on forward looking statements and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements, except as required by applicable law.
In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures.
We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental supplemental schedules to our earnings release.
A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release.
These reconciliations together with additional supplemental information are available on the Investor Relations section of our website.
A replay of today's call will also be posted on the website with that I will now turn the call over to Greg.
Thank you Dennis and good afternoon to everyone on the call.
You'd need delivered strong second quarter results.
Revenue came in more than $178 million.
Or a 16% year over year increase and exceeded the high end of our guidance range.
That growth was driven by a 36% year over year increase in <unk> business revenue.
On the bottom line, we delivered our first quarter of positive adjusted EBITDA as a public company. Thanks to our continued focus on operational efficiencies and prudent expense management.
We are proud of our team for their commitment and continued execution against our strategic initiatives.
Particularly as we navigate this unpredictable macroeconomic environment.
While the current backdrop presents some near term challenges you to me is well positioned to capitalize on meaningful long term tailwind for our business that are shaping the future of work.
First there is a profound transformation happening right now that impacts every industry.
The rise of the skills based organization.
And second is the continued interest and application of generative AI across customers of all sizes.
I'd like to take a few moments today to provide color on those trends.
In conversations with enterprise customers across all industries and regions. The number one theme we hear from Ceos is that ensuring their work force has the skills required to achieve their strategic objectives is a top priority.
This represents a massive opportunity for you to me to provide the necessary reskilling and upskilling their companies around the world will require for the workforce and that individuals' needs to stand out in the hyper competitive job market.
In addition, the accelerating pace of innovation means that organizations require support to establish learning strategies and objectives for their teams.
And also a way to measure and validate skills acquisition.
While degrees will always have relevance do not validate the practical skills. The individual has mastered.
Which can lead to qualified internal and external talent being overlooked.
For this reason forward thinking organizations are shifting to a more skills based approach.
By focusing on skills not just degrees.
Can vastly expand and diversify their talent pool to fill open roles as well as drive increased internal mobility by Reskilling and upskilling existing talent.
As company shift from offline to online to Reskill and Upskill their workforce.
They realize it is a more efficient and cost effective solution that drives high ROI.
Bruce morale.
And provides significant cost savings.
To give you a sense of besides that the potential savings a recent study found that the average per employee spend on LNG by employers worldwide with approximately $1300 per head in 2021.
Yeah.
The cost for one you to be business license starts at just $360 per year.
As you can imagine the cost savings for a global enterprise are meaningful.
When companies embrace a culture of continuous learning the future proof their workforce.
Demand for technical skills has never been higher with nearly 90% of companies reporting skills gaps within the organization.
And many executives, leaving that finding talent with specialized skills as a major Josh.
LNG leaders must understand the skill level of their workforce, particularly within technology focused areas.
Yet one of their top concerns is that they do not have a reliable strategy for measuring the success of their learning programs.
To help customers address this need you to me is introduced Badging as a part of its integrated skills framework.
Comprehensive skill building approach for organizations.
The framework will enable customers to keep pace with innovation through a series of exciting new offerings.
Working with you to me organizations will be provided with the seamless way to quickly assess their current skills landscape and identify critical skills gaps.
In addition, it provides employees with an effective way to acquire and demonstrate skill mastery through the acquisition of leading certifications and badges.
At the core of our Badging program as <unk> certification for <unk>.
We have made it simple to discover curated learning paths, including labs and assessments to help professionals prepare for certification exams in batches.
This will enable learners to validate mastery of in demand skills, such as AWS Azure <unk> and more.
As of today, our catalog includes certification preparation for nearly 200 highly sought after and reputable batches across more than 160 certification topics and nearly 30 subject areas.
The other meaningful tailwind is the evolution of generative AI and its ability to accelerate change across all industries and geographies.
Professional learners recognize the importance of understanding how generative AI will impact their role and how they can leverage these technologies to be more effective or to land their next job.
On the enterprise side of our business.
Across all industries are asking you to make to help them develop AI and digital transformation strategies to become more agile durable and competitive.
The level of engagement on our platform related to this topic is unprecedented.
And the seven months since <unk> was launched.
<unk> has seen more than 1.4 million enrollments in the more than 1000 courses on the topic on our platform.
Taking that a step further the number of minutes consumed for chat GPT related content during Q2 increased nearly 300% from the prior quarter.
This is a clear indication that people recognize the importance of understanding this technology and are discovering that they can receive high quality skills training via <unk> to me.
During the past few months, we've continued to invest in further integrating generative AI throughout our platform.
We are committed to delivering products and features that support instructors with content generation deliver.
To deliver more personalized learning experiences and help organizations identify and address skills gaps.
On our last call, we shared plans to rollout new smart search capabilities, which is one of the several enhancements that leverage the power of generative AI to provide learners with more personalized bite size learning experiences.
Subsequent enhancements will include skills base guidance that automatically recommends you'd need learning paths based on defined objectives, including badge acquisition and certification.
In addition, we began to incorporate generative AI into our reports for our corporate learning solution leadership Academy.
Admins with increased visibility into learning outcomes.
We have also introduced further automation into the generation of these reports the speed up time to value and ensure leaders can access the right data as soon as they need it.
Our investments in generative AI are expected to provide meaningful tailwind for learned the man.
Enhanced personalized learning.
Deepen our customer relationships and further accelerating the pace at which we can add new relevant and immersive content.
You can expect to hear more updates over time on how we are leveraging this exciting technology.
As you can see we believe that these trends the rise of skills based organizations and generative AI will continue to increase in importance and are expected to present significant opportunities for our business.
As companies embrace a culture of continuous learning with the goal of future proofing. The workforce. We believe demand for you to me we will continue to grow.
Before I turn the call over to Sara I'd like to highlight that we've significantly strengthened your enemies board and leadership team with three seasoned professionals, who were further developed our strategic vision and help scale our business globally.
First we welcome so had a biopsy as independent Board chairman.
So it brings more than 30 years of deep enterprise software and strategic leadership experience, including more than 10 years, serving as CEO of Informatica.
We also recently bolstered our executive leadership team with two newly created positions.
First we appointed our Chief Marketing Officer, Jennifer Murphy, who brings extensive experience leading marketing initiatives for fast growing software and technology companies.
And second we added a chief product Officer Prasad Roget, who brings a wealth of enterprise SaaS product experience of your enemy.
I'm very proud of the World class Executive leadership team that we have built as we heightened our focus on driving results at every level of the organization.
We look forward to sell head, Jennifer and precise contributions as we take you to me to the next level and continue to lead the transformation to a skills based economy.
Now I'll turn the call over to Sara for her financial review.
Thank you Greg.
So that's my comments on the key financial highlights and then provide our outlook for Q3 and full year 2023.
You can find the complete set of financial tables in our news release, which is available on our Investor Relations website.
As Greg mentioned at the outset, we delivered solid Q2 results.
Revenue increased 16% year over year to 178 million and exceeded the high end of our guidance range by $4 million.
The year over year growth included a negative impact from foreign exchange or FX of three percentage points.
Our enterprise segment are you to meet that.
Drove our total revenue growth.
Revenue of $102 million, an increase of 36% year over year.
Isn't that Carlos let's say three percentage point headwind from changes in FX rates.
This is a major milestone for you to me because it was our first quarter delivering more than $100 million and eat them even better.
We ended the quarter with annual recurring revenue or a R. R 420 million or 33% from a year ago.
Consolidated net dollar retention rate for Q2 was 108%.
The rate was 115% for large customers are those with 1000 or more employees.
Salary retention remained stable large customer churn with minimal and grew up in multiyear contracts continued during the quarter.
This is a testament to the strength of our customer relationships.
Given by the clear value and impact that you had me provides to help them achieve their strategic outcomes.
However, we do expect some pressure to continue and net dollar retention and some companies remain hesitant to move forward with expansions and Upsells during this unpredictable macroeconomic environment.
The strong U to me business growth was slightly offset by a 2% year over year decline in consumer segment revenue, which included a negative three percentage point impact from FX.
We continue to be encouraged by the vibrancy of our marketplace, which fuels the powerful flywheel effect that has the ability to increase customer engagement and reduced acquisition costs over time.
Traffic was up 8% year over year during Q2 to 34 million unique visitors.
By spending significantly less on performance marketing and we did a year ago.
More than 80% of learner enrolling courses to develop professional skills, which creates a healthy funnel of please forgive me, but yeah.
Also attracting instructors organically to create cortez continued to be a strength.
As a result, we found 11% year over year increase in course doesn't need any catalog with nearly 5000, new courses added each month.
As we move down the P&L note that all financial metrics are non-GAAP unless stated otherwise.
Yeah.
Q2 gross margin was 59% a 100 basis point improvement from Q2 2022, driven by the continued revenue mix shift to eat meat business since content cost as a percent of revenue are lower for that sector.
You can read business accounted for 57% of total revenue in Q2, which represents a meaningful mix shift from 49% a year ago.
With nearly 15000 business customers and growing this mix shift is expected to continue toward our long term target of approximately 75% of revenue.
Total operating expense was $108 million or 61% of revenue and 500 basis points lower than Q2 of last year.
Sales and marketing expense represented 39% of revenue down 200 basis points year over year, R&D expense was 13% or flat compared with the same period last year and G&A expense was 9% down 300 basis points compared with last year.
And the bottom line net loss in the quarter with approximately $1 million or negative 1% of revenue.
Adjusted EBITDA was approximately 2 million are positive 1% of revenue, which represents a 700 basis point expansion year over year, and 400 basis points better than our high end of the guidance range.
This was another major milestone forgive me as it was our first time showing positive adjusted EBITDA since our IPO.
The better than expected adjusted EBITDA result was primarily driven by revenue outperformance and our disciplined approach to driving operational efficiency throughout the organization.
We continue to maintain financial flexibility it allows us to make opportunistic investments that can accelerate or enhance our strategy and returns.
Moving on to key cash flow and balance sheet items, we ended the quarter with 469 million of unrestricted cash cash equivalents restricted cash and marketable securities.
Free cash flow for the quarter was positive $10 million due to improved collections timing and lower expenses.
Now turning to our outlook for Q3 and full year 2023.
During the second quarter, we did not see any signs that the macro environment isn't perfect within.
Within your to me, but we are seeing further sales cycle elongation and additional layers of RTL approvals. We are also seeing smaller deal sizes as companies optimize their budgets. During this time of uncertainty.
As we continue to adapt and manage the business through this unpredictable macroeconomic environment. There are challenges that ultimately may impact our results in the near term.
With that in mind, we expect Q3 revenue to be between 176 and $180 million.
Assuming foreign currency exchange rates remain constant FX is expected to negatively impact Q3 year over year total revenue growth by approximately two percentage points.
The continued macro related dynamics I just mentioned, we now expect to you to meet business growth in the near term to be pressured more than we had originally anticipated.
As a result, we currently believe a 2023 you'd read business year over year revenue growth rate in the low thirties is achievable versus our previous view of mid thirties.
On the bottom line, we anticipate Q3 adjusted EBITDA margin of negative 0.5 to positive one 5%.
Looking ahead, we are on track to deliver a profitable second half of the year and now expect Q3, adjusted EBITDA to come in stronger than Q4 due to the better than expected consumer performance in the second quarter, and resulting Q3 revenue recognition.
For the full year, we are narrowing our range on revenue to be between 712, and 720 million, which still anticipate 16% year over year growth at the midpoint.
That growth includes an estimated three percentage point negative impact from FX, assuming no further changes in rates.
For full year 2023, adjusted EBITDA margin, we currently expect between negative 1% to breakeven or a 750 basis point expansion at the midpoint compared to 2022.
Yeah.
Looking ahead, while we do not plan to provide formal 2024 guidance until our Q4 2023 earnings call.
I'd like to provide color on how we're thinking about the business heading into next year.
As a reminder, at our November 2022 Investor Day.
We shared that we thought we would be able to drive 23% to 25% total revenue growth in 2024.
Due to the deterioration of the macro environment since that time, we now believe our total 2020 for revenue growth will be lower than the range. We had provided.
That said for full year 2024, we continue to believe <unk> will represent more than 60% of total revenue.
non-GAAP gross margins will be 58% to 59% and we absolutely remain committed to delivering positive adjusted EBITDA for the full year of 2024.
It is important to note that while we are adapting in real time and navigating some short term obstacles, we feel confident that the long term opportunity available to you to me is as strong as ever.
In closing, we delivered a solid performance in an uncertain environment.
Our results illustrate the agility in our business model, we beat expectations on both top and bottom line delivered more than 100 million and you to meet business revenue and reported our first quarter of positive adjusted EBITDA as a public company are ahead of plan.
The foundation, we are laying today is expected to yield sustainable recurring revenue growth and generate attractive profit and cash flows overtime.
We look forward to continuing to deliver value to all of our stakeholders and updating everyone on our progress.
So with that we'll open up the call for your questions moderator.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Ryan Macdonald with Needham. Please go ahead.
Alright, Thanks for taking my question and congrats on a nice quarter, maybe just starting on the guidance you just provided especially as we think about fiscal 'twenty four.
As you think about what type of investments you might need to be made to reinvigorate the growth rate and you be going into next year.
How do you factor that in I guess around the targets for still being adjusted EBITDA breakeven.
Into next year do you do you feel like the run rate of where you're investing there right now is enough to sort of helped drive that growth as the market recovers or do you feel like new investments will be required.
Hi, Ryan Thanks for the question.
So you know as you can see like like many companies. We are currently adapting to a very dynamic environment.
<unk> said, we feel good about the investments that we've made to date and our go to market team in and also in our product and we are committed to delivering an EBITDA positive for 2024 and that takes into consideration a range of outcomes based on what the macro does and the investment that we would need.
To make our go to market perspective in order to achieve those outcomes.
Alright, so I'll just add one thing.
I'll just add Ron real quick.
Yeah as soon as we see the macroeconomic environment, improving and the impact on our sales cycle elongation coming back to more normal cycle times, we absolutely are going to lean in and start investing and go to market growth and so you know as soon as that happens.
We will trigger that and.
As you just alluded to whether it be the back half of this year or next year, we're not sure when that's going to happen, but when it does we will absolutely move.
Super helpful color, Greg maybe just to follow up with you.
I appreciate the comments about sort of this evolving environment within the enterprise around a shift towards skills based learning.
Curious, what you think the impact or how what the impact will be in terms of how.
Enterprise organizations choose to allocate the spend in that environment. Do you do you think that this shift to skills based learning accelerates the consolidation trend or or create sort of a new maybe funding environment or or sort of reinvigorate the funding environment around LNG spending for the skills based learning.
It's a good question Ryan and we're already seeing.
That play out now and I'll give you a couple of examples Unilever breakfast, perhaps a lot of talk about it.
Significant expansion with Unilever this past quarter.
Driven by their intent to reskill and upskill their entire workforce to quote unquote future fit their.
Their organization with the skills necessary for them to achieve their organizational objectives and they want to get this done by 2025. In addition to that they've selected us to support their digital University program, which they just launched this past year in accordance with their focus around skills development and so this is real it's happening.
In real time, and we're seeing examples of this and wins.
<unk> and the commitment organizations job in shifting from.
A long form learning and degrees to skills that can be applied now to get work done and in fact interestingly enough.
What the banks are the called White houses, we came out with a report on Nashville, cyber workforce and education strategy and I'm just gonna read a couple of lines that are relevant here with.
Our skills based approach is critical to connect more Americans to good careers.
Should compete for jobs based on what they can do rather than merely credentials. So we're seeing it.
Pretty much it from all vectors federal government, we're seeing it from customers. We're hearing it from employees and so this is a massive secular shift that we're seeing that we're on the front end.
There is not only going to drive that plays to our favor and it's going to drive our organizations to us based on our marketplace and our unique position that we have to keep up with the pace of change and aid them in developing the skills necessary for them to stay up with.
The technological advancements that are coming at us in real time.
Yes, we obviously know what's going on with generative AI and <unk> and we saw a couple of key wins just to add briefly just to add a couple of key wins this last quarter from large multinational enterprises.
All of this they selected us because of the breadth and depth in our marketplace around a are these.
These organizations are focused on upping the digital literacy.
Across the organization, but specific to AI and they made investments in our platform and us as a long term strategic partner as a result, so it's playing out right now Ryan and we're on the front end of a big trend.
Okay.
Thanks for taking the time I'll hop back in the queue.
The next question comes from Terry Tillman with Truest. Please go ahead.
Great. Good afternoon, Dan This is <unk> on for Terry.
First question, maybe a little bit more high level just on the recent executive hires a chief product Officer, Chief Marketing Officer, I guess, how do you see the evolution of the platform from a product and messaging standpoint evolving as you continue to position yourselves to take our skill space block more broached it to learning with these executives.
Yeah, It's a good question and thank you for it.
Without question, that's that is the case and we saw an opportunity as.
We're looking forward and projecting.
From a strategic perspective, the capability, we need to have in our business to deliver the value and impact to our customers and that really led us to bring your own Jennifer and Prasad Prasad to help US you know Prasad comes with.
A tremendous amount of depth and capability around AI. The company. He was just with the re architected. The entire platform founded based on generative AI in terms of the re architecture of that and we are without question are bringing him in and to help do the same thing here at ball.
In terms of how we get operational leverage and embedding AI and how we run our business as well as how we develop product and the value that that product is gonna have externally on customers as we move forward and better understand how we can leverage AI to improve the overall learning experience.
And then on the marketing side, we really have not invested historically and building.
To me into a global brand that everybody is well aware of and understand how we can help them as an individual or team our organization transform lives through learning whether it be their life or the lives of the Oregon. The individuals in their organization and Juniper has got just tremendous relevant background and experience.
That yeah, we couldn't be more excited to have in our business now to help carry us forward not only helping to build the brand but to optimize our go to market motion as we come out of this economic downturn step on the gas and really start scaling on a global basis. So both executives are going to have a significant impact on our ability to take the next step in our evolution.
Rising our vision to transform lives through learning.
Great. That's really helpful. I appreciate the color maybe just as a quick follow up I wanted to touch on immersive learning in your pro.
I guess, how does the how is the adoption of your pro continued to trend this quarter and then maybe what kind of additional immersive learning capabilities are you looking to maybe later into the platform. Thank you.
Yeah. Thanks for the question.
Really happy with the continued adoption and growth of your pro.
Within our global customer base, and we're really starting to see that global expansion happen with respect to <unk> Pro and this last quarter talking about global.
Nature large Latin American bank.
Came inbound and had a bake off.
Which as usual a competitive bake off selected us for two primary reasons. The immersive learning capability that we provide with your pro and the Badging capability that we're launching and we've already launched the first phase of.
Phase two was in flight and their focus.
At that point in time, there's consolidation they want to consolidate into one platform that they believe is going to be the right platform and company to help lead them forward in their digital transformation and they selected us to do that and they are close to US was you've saved us months of work by being able to consolidate onto one platform and do all of the work with one partner.
We were doing with multiple so.
Really excited about the impact would be pro is having and expect that to continue what was the second part of the question I'll ask that.
Yes.
Any any.
<unk> immersive learning capabilities, maybe looking at as well.
Just in general.
It's a good question, yes, we are looking at other immersive learning capabilities and modalities that we believe could be an extension of <unk> into one of our platform nothing to speak up to date in terms of new modality that we're layering in <unk> into the platform, but we are we are exploring.
A number of different options and for US, It's bill partner bought and.
You know as we've talked about on prior calls.
We do have an opportunity and are sitting in AR.
A good position to acquire capabilities that would potentially enable us to extend the modalities on a platform and a and that's something that's it.
I'll talk about when the appropriate time comes.
Got it thanks, Greg.
The next question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Hi, guys. Thanks for taking my question.
So I guess you know, we're seeing kind of GDP growth accelerated in the U S. At least hold up a lot better than we are.
<unk> I.
I guess, it's not really accelerating.
You can find out it seems like every company, making AI their number one priority.
So I guess like what specifically in macro is leading to the weakness is it just like LNG not being as mission critical as we thought.
It was going to be in a post pandemic world because it seems like you guys are very well positioned to catch.
Captured this unique moment in time, where AI is just beginning to kind of reverberate through.
Enterprises, and they need skilled stresses like there should be more I feel like you are a tailwind for you guys and I know you talked about demand on the platform of minutes were tragic fee in AI, but I guess, how is that not translating into more kind of enterprise demand.
Hey, Brett Thanks for the question, we actually are seeing it translate into enterprise. The man you know we had a couple large wins one in particular with the European engineering and technology firm that.
Purchase.
Our platform. If you will were selected us as their partner for <unk>.
Specifically for Upskilling across the organization, but embedding AI is a critical component of that buying decision based on the breadth and depth of the AI content that we have on platform.
And there were a number of those so we are seeing it impacting our.
Our ability to win in the enterprise, but now let me just take a step back and talk a little bit about what what's going on in the business that I believe will help answer this question.
The top of funnel for us is extremely encouraging right in terms of pipe generation lead generation into the top of the funnel.
But what we are seeing is some safety sales cycle elongation that we alluded to.
Just a few minutes ago and that's a macro.
No circumstance. If you will that we know is short term, but it's impacting you know.
Our ability to move deals through the pipeline and get those deals closed and it is a timing situation I want to make sure that everybody. Clearly here is that from US is that we strongly believe this is timing based on the fact that customers continue to tell us that the importance of Upskilling and Reskilling has never been higher in the organization.
We're not seeing a material decrease in budget per head per employee.
<unk> allocated to Upskilling and Reskilling that may be happening with respect to broader education, we're not seeing that or hearing that with respect to upskilling and reskilling, but what is happening is you know what cfos around the world have been doing including our own which is making sure that they are keeping a close watch on.
And what's happening from a macro and geopolitical perspective, and being more conservative than we've seen in the past with respect to allocating spend we know that's going to change at some point in time, we see the same indicators that everybody else is saying that we think this is gonna be a soft landing and that could that could start to have a positive impact sooner than later, but sales cycle elongation and.
Timing is really the reason why we're seeing a little bit of what we're seeing on our side, but we strongly believe this is short term and that it is going to change you know like you all are alluding to as soon as the macroeconomic climate improves which could be sooner than later.
And then if I could just add maybe just one more on kind of a net revenue retention is a decline there can you maybe just parse that through.
What's coming from upsell or you know kind of fewer upsell or fewer expansion versus churn has churn kind of been what you would expect it as churn picked up from what you'd expected or is that kind of sequential decline mostly related to expansion.
Yeah. Thanks for the question our gross dollar retention has remained stable and so really what you're seeing is the same thing that we're seeing kind of across the board, which has longer sales cycles are impacting our the speed at which we're expanding and upselling.
But again, the long term opportunity it hasn't changed when the macro improves we expect sales cycle to normalize and net dollar retention of Rytary.
Perfect. Thank you guys.
The next question comes from Noah Herman with Oppenheimer. Please go ahead.
Hey, guys.
Hey, guys. This is Matt.
Women.
Just a quick question with respect to the macro environment or are.
Are you seeing.
Do you see it maybe like a sequential.
That's down in the microenvironment potential.
Incremental pressure just wanted to get a sense of whether or not the elongation in sales cycles or is that increasing on a sequential basis, maybe just what your constant through July .
Yeah, I'll take that so we did see sales cycles farther along again in the second quarter.
And we do expect that to continue in the back half of this year and potentially in into that first half than what we expect to see it from an air our perspective, you know growing at a fairly similar amount quarter over quarter and until that macro starting to come back the sales cycles are.
Come back down at and well start seeing increases in productivity from ourselves.
Yeah.
Okay, Great and then just a quick follow up but can you maybe just provide us an update on the international expansion as well as the partnership strategy, Darren maybe which regions you're sort of seeing the most traction with Uni business at this point. Thank you.
Yeah. Thanks for the question.
International expansion side, we continue to see our new ventures, a division operated at a at a very high level, Japan continues to be one of our fastest growing countries. Our partner benefited there continues to perform.
Out of that a very high level and from a productivity standpoint, I couldn't be happier with what we're seeing there.
One data point that I think is relevant as we're now in over 60.
Percent of the Nikkei 225.
So we're seeing further expansion into the Japanese market, we had a major event. There this last quarter we had.
Hopefully now effectively.
Oversold the event in terms of the interest.
And what we're doing as far as the Upskilling and Reskilling, our ability to help organizations in country. So you know.
Again, very happy with what we're seeing there and we've taken that model and reported that model to Korea, Vietnam and in China, and we're seeing very similar traction and trajectory in Korea, Vietnam and China are much earlier. So it's early days, there, but Ah Korea had a really nice quarter as well so I feel really good about.
Yeah, the investments in Asia Pacific on that front.
Additional to that our partnership with AWS also had international impact.
This last quarter, we had multiple six figure deals close through the partnership with AWS and we also saw something that was.
A bit of a surprise.
And.
If we're surprised obviously, it's at a good when I explain what it is which is we had a number of deals that for a variety of different reasons were saw a budget potentially was being reevaluated and when we introduced the AWS partnership and explained that their retained committed budget.
Against the AWS partnership to be allocated towards <unk> to me. It unlock these deals and one of them was a $500000 annual contract value deal with a large financial services organization and we saw a number of years. So.
Couldn't be more excited about the momentum, we're starting to see with Amazon and their commitment to the partnership is equally exciting as the impact on customers and our ability to extend our reach around the world. So and as you know this is just one example, so yeah, we've seen a meaningful meaningful traction.
Both areas and Latin America as well.
We continue to see our partners in both Brazil, and Mexico, our expand and accelerate.
In market as we're fueling their growth so internationally and feel good about about what we're seeing.
As a reminder, if you wish to ask a question. Please press Star then one to enter the question queue.
The next question comes from Stephen Sheldon with William Blair.
Please go ahead.
For taking my questions first one here wanted to dig in a little more on the Badging and specifically how important it could be the enterprise customers to be able to provide skills batches to employees and just thinking about it from an employer's perspective, you possible, we might get more visibility in the skills within your organization, but it could also arguably.
Make your employees that get batches.
More marketable if they wanted to move to another company. So just curious if that's ever concern you here or does it kind of seemed like providing badges and the extent of skills pathways will become broadly accepted.
Accepted employers don't offer them could hurt their ability to recruit talent just curious what you're hearing in conversations on this front, although I know it's really early.
Yeah, Steve Thanks for the question it is early but.
But I believe the short answer is I believe the latter is how it's going to play out, but it's going to be more of a standard and then employers and organizations don't offer validation in the form of Badging and certifications you know, they're gonna be a bit of an outlier and so I believe this soon it's going to be a standard in most organizations.
But you know as we talked about we couldnt be more excited about the integrated skills framework that we're bringing to market and the impact we're already starting to see it have on our ability to win deals I just mentioned, we're winning business right now as a result of the.
The initial capability that we've launched as well as what's to come.
And what's to come is probably as if not more exciting than what we've already got out there right. Now organizations you have the ability with with first phase to understand the skills that are being acquired.
And skills benchmarks, how their organs.
Organization stacks up against other organizations in a particular marketplace a vertical but what's coming is the ability to identify skills gaps within your organization and address those skills gaps with prebuilt pass right that are going to enable them. It's really kind of completing the circle, if you will but where the flywheel that they need.
To continue to accelerate as far as their ability to keep up with the pace of change and Upskill and reskill their employees.
Enable them to reach the outcomes, they're trying to achieve as an organization. We've done a tremendous amount of work with our customers Our advisory Council and alike and we haven't.
Strong a signal from our customers and everybody that we work with it this is exactly what they need in a hyper competitive world not just today, but tomorrow.
The inability to execute their strategy. So I feel really good about the early impact feel really good about the response from the marketplace and I feel even better about where we're going and what's to come.
Great to hear yes, that's really helpful.
And then as a follow up just you know.
Thank you maybe talked about still seeing some good growth in multiyear contracts.
What do you see in terms of willingness for enterprises to sign up for multiyear contracts in this environment and within that kind of how do you think about balancing.
Pricing.
In order to secure these multi year deals and maybe the tradeoff between the two but assuming you're giving up some to secure the longer commitments. How do you. So yeah demand. What are you. What are you seeing in terms of willingness to sign up and how you think about balancing pricing to secure it.
Yeah, I'll start and the tariff feel free to add.
Feel really good about what we saw in terms of multi year contracts come in this last quarter, we actually saw a slight bump right. So we continue to execute very well in terms of our sales organization.
You know executing the play if you will and I'm really only happens if the customer believes that there's value strategic value.
Which gives them the confidence and willingness to sign a multiyear contract. So I believe again, we're executing well in market. The other thing I think it's important to note is our competitive win rate actually increased this quarter.
As a result of a lot of what we're doing from a product perspective as well as the adjustments we've made to our go to market motion in the way that we're approaching customers and how we can add value and impact in the environment. We're operating so yeah I think from that standpoint. The teams are doing a nice job of adapting and adjusting.
Two the conditions, we're operating in.
I'm, sorry, I don't know if there's anything you'd like to add yeah, I'll just add from a pricing perspective, you know we have a very typical enterprise SaaS multi year discounts.
Model and that has not changed and like Gregg said you know the first set of IRR coming up coming from multiyear deals is up quarter over quarter, we saw a little bit of pressure on multiyear deals and new business.
But still we're able to sell a number of multiyear deals and certainly within our upsells and expansions as well.
Good to hear thank you.
Thank you.
The next question comes from Josh Baer with Morgan Stanley . Please go ahead.
Great. Thanks for the question.
Apologies. If this was asked already but was hoping you could give an update on your federal business.
And then also was wondering if theres an opportunity in Trinity to take these new badging initiatives and ends our initiatives around scaling into schools like into the academic World are in addition to just the business world.
It's something on the radar like schools acknowledging that there might be learning gaps in PREPA and preparing their students for jobs or careers could be.
Due to me in this new new offering to its students.
Hi, Josh Thanks for the questions.
I'll start with the last one first with respect to schools and the opportunity there I very much agree that.
Yeah, there is an opportunity for us to explore we have not.
<unk> done that to date in terms of.
Doing the diligence and spending the time to understand how we could.
Best serve.
<unk> in this capacity not.
Not to say that it's not an opportunity for us going forward and something we may look at or we just haven't we haven't made it a focus today so no progress to report on that as.
As far as government business.
We did and we continue to to continue to invest on in the government sector. There is no doubt.
Can't talk about a lot of what we're doing there, but we did have a significant win in this last quarter with a.
Our branch of the U S government that.
We're very focused on scaling I mean, just coming back with scaling and they have got a large contingent of folks in the organization that our contractors are in addition to the folks that are no government employed and we're doing some very interesting things or I, just can't talk a lot about it for probably obvious reasons, but well continue to invest in the Gulf.
<unk> segment.
And well continue to see.
Steady progress there and that's around how if there's anything you want to add.
No that sounds good thanks, Jeff.
Great. Thank you.
Once again, if you would like to ask a question. Please press Star then one to enter the question queue.
The next question comes from Devin O with Keybanc capital markets. Please go ahead.
Great. Thanks for taking our questions I.
I have another question on Badging.
Greg wanted to get your thoughts on just the adoption of this product I know the math.
<unk> currently isn't the most favorable but you know just given how in demand skills are an increasing need for learners.
Validate and showcase their skills.
See like a faster adopt adoption of this product versus your other modules that you have just curious on your thoughts there.
Yeah, we do thanks for the question.
We are already seeing that now because there's there's pent up demand candidly for validation in the form of Badging and certification. It's a concept that's been out in the market for some time now.
We strongly believe that our approach is the right approach to enabling organizations.
I understand you.
How they need to be executing against the skills based economy opportunity.
And yes fully expect the adoption to be faster than what we've seen in some of our other products for those reasons.
Great.
That's good to hear and really helpful detail, maybe my follow up.
I don't know if my math is correct. It seems like the implied <unk> guidance it kind of baking in some step up in operating expenses any notable expenses, maybe pushed out into <unk> or any seasonality.
One time items that we should be mindful of thank you.
Yeah. Thanks for the question the one normal seasonality step up that we see from an opex perspective in the fourth quarter around our biggest promotion cycle.
In the marketplace since our Black Friday Friday cyber Monday.
The other thing that's happening is if you're referring to our Q3 EBITDA being higher than our Q4 that is due to the over performance of our consumer business in the second quarter that a lot of that revenue gets recorded in the third quarter and so where previously we had expected.
EBITDA to grow we expect it to actually.
On a sequential basis decreased slightly.
But we will be profitable for the back half.
Okay.
Great. Thank you so much.
Thanks for the question.
This concludes our question and answer session I would like to turn the conference back over to Greg Brown for any closing remarks.
I'd just like to thank everybody for joining the call and we look forward to speaking with you again in November have a great rest of the day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].