Q3 2023 Udemy Inc Earnings Call

Speaker 1: Good day and welcome to the Udemy 3rd quarter 2023 earnings conference call. All participants will be in a listen only mode. And should you need any assistance, please signify conference specialist by pressing the star key followed by zero.

Good day and welcome to the <unk> third quarter 2023 earnings Conference call.

All participants will be in a listen only mode is should you need any assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please also know.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone.

To withdraw your question. Please press Star then two.

Please also note that this event is being recorded today.

Speaker 1: I would now like to turn the conference over to Dennis Walsh, Vice President and Investor Relations. Please go ahead.

I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, Joe. Joining me today are you to meet Chief Executive Officer Greg Brown and Chief Financial Officer Sarah Blanchard.

Thank you Joe.

Joining me today are Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard.

Speaker 2: During this conference call, we will make forward-looking statements within the meaning of federal securities laws.

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

Speaker 2: These statements involve assumptions in our subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated.

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.

Speaker 2: For a complete discussion of risks associated with these four looking statements, we encourage you to refer to our most recent Form 10K and Form 10Q filings with the Securities and Exchange Commission.

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.

Speaker 2: Our four looking statements are based upon information currently available to us. We caution you to not place undue reliance on four looking statements, and we do not undertake or expressly disclaim any duty or obligation to update or alter our four looking statements, except as required by applicable law.

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

Speaker 2: 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 US generally accepted accounting principles referred to by the Securities Exchange Commission as non- GAAP financial measures.

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 Exchange Commission as non-GAAP financial measures.

Speaker 2: We believe the non-GAAP financial measures assist management and investors in evaluating our performance in comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules into our financials and financials.

We believe these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our financial earnings release.

Speaker 2: A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release.

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

Speaker 2: These are conciliations 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.

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.

Speaker 3: You and me once again delivered results that exceeded our expectations for both revenue and adjusted EBITDA.

Yeah, Let me once again delivered results that exceeded our expectations for both revenue and adjusted EBITDA.

Speaker 3: On a year-over-year basis, you to be business revenue increased 30%, while consumer revenue increased 1%.

On a year over year basis, using me business revenue increased 30%, while consumer revenue increased 1%.

Speaker 3: We also raised our outlook, which now projects our first full year of positive adjusted EBITDA. Well ahead of plan.

We also raised our outlook, which now projects our first full year of positive adjusted EBITDA well ahead of plan.

Speaker 3: During the quarter, you to me business customers remain highly engaged with our platform, as demonstrated by the 14% year over year increase in logos, and the 114% large customer net dollar retention room.

During the quarter Yummy business customers remain highly engaged with our platform as demonstrated by the 14% year over year increase in logos and the hundred and 14% large customer and net dollar retention rate.

Speaker 3: We had a new or expanded existing relationships with global customers, including Assurance, Deutsche Telekom, Sloanbergier, Shell, and Walmart Chilli to name a few.

We added new or expanded existing relationships with global customers, including Assurant Deutsche Telekom.

Jay Shell and Walmart, Chile to name a few.

Speaker 3: We close many six-figure deals during the quarter, including $3 million plus deals, contributing to Udemy Business AR growth of 26% year-over-year.

We closed many six figure deals during the quarter, including three 1 million dollar plus deals contributing to you to me business are our growth of 26% year over year.

Speaker 3: Compared to the prior quarter, the old velocity improved, our wind rates increased, and we're seeing higher average enterprise plan contract value.

Compared to the prior quarter deal velocity improved our win rates increased and we're seeing higher average enterprise plan contract values.

Yeah.

Speaker 3: Given these results, we are very encouraged by the demand on both sides of our booths.

Given these results we are very encouraged by the demand on both sides of our business.

Speaker 3: While still too soon to call the bottom, we're seeing customers beginning to ease their budgetary constraints, although still below historic norm.

While still too soon to call a bottom we are seeing customers beginning to ease their budgetary constraints, although still below historic norms.

Speaker 3: As customers plan for 2024, it is clear that investments in upscaling and rescaling are a key focus.

As customers plan for 'twenty 'twenty four it is clear that investments in Upskilling and Reskilling are a key focus.

Speaker 3: Our conversations with CLOs across the globe suggest that developing skills-based practices will be a top priority for the foreseeable future.

Our conversations with cielo is across the globe suggest that developing skills based practices will be a top priority for the foreseeable future.

Speaker 3: This gives us confidence in the significant opportunity for long-term growth.

It gives us confidence in the significant opportunity for long term growth.

Speaker 3: With that in mind, today I wanted to share some insights into first.

With that in mind today I wanted to share some insights into first.

Speaker 3: What is driving the transformative shift that is reshaping company's approach to skills-based practice?

What is driving the transformative ship that is reshaping companies approached the skills based practices.

Speaker 3: And second, the strategic investment to me is making now in order to capitalize on this opportunity and drive long-term, profitable growth.

And second the strategic investments you to me is making now in order to capitalize on this opportunity and drive long term profitable growth.

Yeah.

Let's start with the market trends.

Speaker 3: The current environment is characterized by an accelerated pace of innovation driven by digital transformation, the emergence of generative AI, and the widespread adoption of hybrid work.

The current environment is characterized by an accelerated pace of innovation driven by digital transformation.

The emergence of generative AI and the widespread adoption of hybrid work.

Speaker 3: These profound forces are reshaping the way we work and redefining the skills needed to drive future growth and success.

These profound forces are reshaping the way, we work and redefining the skills needed to drive future growth and success.

Speaker 3: A study for McKinsey underscored the urgency of the situation, revealing that 87% of executives are already identifying skills gaps within the organization.

The study from Mckinsey underscored the urgency of the situation, revealing that 87% of executives are already identifying skills gaps within their organizations.

Speaker 3: In addition, the World Economic Forum found that 60% of all workers will need retraining before 2027 as skills rapidly evolve or become obsolete due to automation.

In addition, the world Economic Forum found that 60% of all workers will need retraining for 'twenty 'twenty seven is skills rapidly if all or become obsolete due to automation.

Speaker 3: It is abundantly clear that we are in the early innings of a dramatic global transformation.

It was abundantly clear that we're in the early innings of a dramatic global transformation.

Speaker 3: One that businesses must fully embrace to enhance productivity, foster innovation, and create sustainable value.

One of the businesses must fully embrace to enhance productivity.

Foster innovation and create sustainable value.

Speaker 3: The new reality demands the immediate and ongoing attention of all organizations and work.

This new reality demands the immediate and ongoing attention of all organizations and workers.

Speaker 3: Many forward thinking companies are already responding to this challenge by recognizing skills as the new currency within their organization.

Many forward thinking companies are already responding to this challenge by recognizing skills as the new currency within their organizations.

Speaker 3: Global enterprises such as IBM, Bank of America, Kellogg's, and Walmart, as well as multiple US state governments are leading the way by prioritizing skills proficiency, including implementing credentialing programs and easing degree requirements for certain roles.

Global enterprises, such as IBM Bank of America, Kellogg's, and Walmart as well as multiple U S. State governments are leading the way by prioritizing skills proficiency.

Loading implementing credentialing programs and easing degree requirements for certain roles.

Speaker 3: Having a clear skills-based transformation strategy is critical for company's future success.

Having a clear skills based transformation strategy is critical for our company's future success.

Speaker 3: And it sure as talent decisions are based on what workers actually are capable of achieving.

And ensures talent decisions are based on what workers actually are capable of achieving.

A study by Deloitte reinforces this refueling that organizations embracing skills first practices are 107% more likely to place talent effectively.

Speaker 3: Refueling that organizations embracing skills first practices are 107% more likely to place talent effects.

Speaker 3: 52% more likely to foster innovation, and 57% more depth at anticipating and navigating change.

52% more likely to foster innovation, and 57% more adept at anticipating and navigating change.

Speaker 3: We firmly believe that companies aiming to stay ahead of the pace of change must invest in talent mobility to support career growth and the attraction and retention of top tier talent.

We firmly believe that companies aiming to stay ahead of the pace of change must invest in talent mobility to support career growth and the attraction and retention of top tier talent.

Speaker 3: In today's world, people are as vital as technology in creating sustainable differentiates.

In today's world people are is vital as technology and creating sustainable differentiation.

Speaker 3: For example, a prominent global airline partnered with Udemy Business Disco order to enhance the digital skills of its employees.

For example, a prominent global airline partnered with you to me business this quarter to enhance the digital skills of its employees.

Speaker 3: The company shows you to me as its learning partner to increase digital literacy.

The company shows you to me, that's just learning partner to increase digital literacy.

Speaker 3: Improve for activity, bridge skills gaps, and recane talented staff.

Improved productivity bridge skills gaps and retain talented staff.

Speaker 3: Yutami Business was chosen over an incumbent because of our demonstrated ability to develop and implement the skilling strategy.

You had me business was chosen over an incumbent because of our demonstrated ability to develop and implement a scaling strategy.

Speaker 3: the breadth of our skills content and skills validation capability.

The breadth of our skills content and skills validation capabilities.

Speaker 3: Laring on to that, AI continues to reshape industries across all geographers.

Layering on to that yeah. It continues to reshape industries.

Across all geographies.

Speaker 3: Organizations and professionals must understand how generative AI will impact individual roles and how it can be integrated into transformation strategies to foster agility, resilience, and competitiveness.

[noise] organizations and professionals must understand how generative me I will impact individual roles and how it can be integrated into transformation strategies to foster agility resilience and competitiveness.

Speaker 3: During the quarter, a large global pharmaceutical company doubled its seat count with us and a multi-year expansion deal to address the full extent of the AI opportunity.

During the quarter, a large global pharmaceutical company doubled its seat count with us in a multi year expansion deal to address the full extent of the AI opportunity.

Speaker 3: The CEO has set a mandate for upscaling the entire workforce on this technology in order to increase the speed to market for its pipeline of drug candidates.

The C E O set a mandate for Upskilling the entire work force on this technology in order to increase the speed to market for its pipeline of drug candidates drive efficiencies throughout the entire company.

Speaker 3: Drive efficiencies throughout the entire company and protected data with enhanced compliance.

And protected data with enhanced compliance.

Speaker 3: You to me is supporting our customer's efforts to achieve these critical business objectives by providing its employees access to relevant AI content, curated learning paths and certification.

Yeah to me are supporting our customers' efforts to achieve these critical business objectives by providing its employees access to relevant AI content curated learning fast and certifications.

Speaker 3: The demand for generative AI related content on the Uniplatform is remarkable.

The demand for generative AI related content on the <unk> platform is remarkable.

Speaker 3: Currently, we offer an extensive selection of over 1,500 cores.

Currently we offer an extensive selection of over 1500 courses.

Speaker 3: which have collectively garnered more than 2.5 million learner enrollment.

Which have collectively garnered more than $2 5 million learner enrollments.

Speaker 3: The organic creation of content in response to demand reaffirms the effectiveness of our marketplace model, which seamlessly adapts to evolving technology and learner needs.

The organic creation of content in response to demand reaffirms the effectiveness of our marketplace model.

Which seamlessly adapt to evolving technology and learnings.

Speaker 3: It's important to note that a technology continues to advance and new demands arise, our platform organically fosters the creation of fresh, relevant content. Gen AIs are prime.

It is important to note that as technology continues to advance and new demands arise our platform organically fosters the creation of fresh relevant content.

Jenny is a prime example of this dynamic process.

Speaker 3: Looking ahead, with further technological advancements on the horizon, we are confident in unanimous ability to lead by providing relevant, high-quality content that will continue to attract a growing number of learners and customers.

Looking ahead with further technological advancements on the horizon, we are confident in <unk> ability to lead by providing relevant high quality content that will continue to attract a growing number of learnings and customers.

Speaker 3: As demand for training skills and digital transformation strategies increase.

As demand for training skills and digital transformation strategies increases.

Speaker 3: We will align our own strategy, as well as our investments in product innovation, brand, and go-to-market to capture that demand.

We will align our own strategy as well as our investments in product innovation brand and go to market to capture that demand.

Speaker 3: Heading into the New Year, you can expect to hear more about our investments and new campaigns that we believe will have the potential to dramatically increase Udemy brand awareness global.

Heading into the new year, you can expect to hear more about our investments and new campaigns that we believe will have the potential to dramatically increase you to me brand awareness globally.

Speaker 3: As part of those efforts, we plan to bolster our go-to-market engine and lean into strategic partnerships that extend our reach more rapidly and into new markets.

As part of those efforts, we plan to bolster our go to market engine and lean into strategic partnerships that extend our reach more rapidly and into new markets.

Speaker 3: We recently announced a partnership with Docker, a leading provider of development tools, and have more exciting collaborations with technology leaders to announce over the next few months.

We recently announced a partnership with Docker, a leading provider of development tools and have more exciting collaborations with technology leaders to announce over the next few months.

Speaker 3: These partnerships will allow us to expand and introduce Udemy to millions of new learners.

These partnerships will allow us to expand and introduce you to meet to millions of new learners.

Speaker 3: For example, we're already seeing significant traction with our AWS partnership.

For example, we're already seeing significant traction with our AWS partnership.

Speaker 3: During Q3, total contract value of bookings through AWS increased 214% core over quarter. And we grew the number of deals transacted by more than 5x year over year.

During Q3 total contract value of bookings through AWS increased 214% quarter over quarter, and we grew the number of deals transacted by more than five X year over year.

Speaker 3: Over time, we anticipate our strategic partnerships will become even more impact.

Over time, we anticipate our strategic partnerships will become even more impactful.

Speaker 3: In addition, we remain bullish on the opportunities that Generative AI brings to our business, and have built a robust product roadmap that will supercharge the Udemy experience.

In addition, we remain bullish on the opportunities degenerative AI brings to our business that built a robust product roadmap that will supercharge. The you to me experience.

Speaker 3: We are building highly relevant, generative AI enabled capabilities for three distinct personas. Our enterprise customers, learner.

We are building highly relevant generative AI enabled capabilities for three distinct personas.

Our enterprise customers learners and instructors.

Speaker 3: In response to the evolving needs of our enterprise customers, Udemy is committed to delivering tailored solutions.

In response to the evolving needs of our enterprise customers you to me is committed to delivering tailored solutions.

Speaker 3: With industries undergoing rapid transformations, organizations are turning to you to me to address their specific upskilling requirement.

But the industry is undergoing rapid transformations organizations are turning to you to me to address their specific upskilling requirements.

Speaker 3: to serve them better. We're developing a cutting edge generative AI-powered skills mapping system.

To serve them better we're developing a cutting edge generative AI powered skills mapping system.

Speaker 3: This innovative solution, when integrated with our extensive course catalog of more than 210,000 courses, positions us at the forefront of addressing each customer's precise skills demand.

This innovative solution when integrated with our extensive course catalog of more than 210000 courses positions us at the forefront of addressing each customer's precise skills demands.

Speaker 3: Leveraging Generative AI, we will automate the creation of personalized learning fast and guidance.

Leveraging generative AI, we will automate the creation of personalized learning path and guidance.

Speaker 3: ensuring that every professional skilled development need is met.

During that every professional skills development neat is met.

Speaker 3: For learners, we are focused on enhancing the experience on our platform.

For learners, we are focused on enhancing the experience on our platform.

Speaker 3: We are harnessing the power of Genai to guide learners directly to content that aligns precisely with their unique needs to optimize their personalized experience.

We are harnessing the power of journey II to guide learners directly to contact the lines precisely with their unique needs to optimize their personalized experience.

Speaker 3: For example, we recently introduced smart search capabilities that enable learners to access bite size, micro learning opportunities within our BAS course catalog.

For example, we recently introduced smart search capabilities that enable learners to access bite size micro learning opportunities within our vast course catalog.

Speaker 3: that not only streamlines the experience, but it also enhances engagement and optimizes time spent on our flat.

This not only streamlines the experience, but it also enhances engagement and optimize this time spent on our platform.

Speaker 3: Finally, we are committed to empowering instructors with tools that supercharge their ability to create high quality content more efficiently and effectively.

Finally.

We are committed to empowering instructors with tools that supercharge their ability to create high quality content more efficiently and effectively.

Speaker 3: Instructors often spend substantial time responding to lower rank inquiries, with some even higher in teaching assistance.

[noise] constructors, often spent substantial time responding to learn inquiries with some even hiring teaching assistance.

Speaker 3: We will leverage AI to automate responses for learner questions, saving instructors valuable time.

We will leverage AI to automate responses for learner lunar questions saving instructors valuable time.

Speaker 3: LARS 2 will benefit from a more responsive and engaging experience.

<unk> two will benefit from a more responsive and engaging experience.

Speaker 3: The instructor also dedicates significant time developing practice tests and quizzes.

The structure is also dedicate significant time developing practice tests and quizzes.

Speaker 3: We will apply generative AI to automatically create interactive materials for instructors.

We will apply generative AI to automatically create interactive materials for instructors.

Speaker 3: These enhancements will be applicable to all new and existing courses and will be available to all 75,000 U-DME instructs.

These enhancements will be applicable to all new and existing courses and will be available to all 75000, you to me instructors.

Speaker 3: The synergy between generative AI, coupled with the depth and breadth of utamies content, will further enable us to deliver learning and skills development solutions to the market at scale.

The synergy between generative AI, coupled with the depth and breadth of <unk> content will further enable us to deliver learning and skills development solutions to the market at scale.

Speaker 3: In order to properly fund these initiatives, we announced to our instructor partners today that we will be adjusting our instructor revenue share.

In order to properly fund these initiatives, we announced to our instructor partners today that we will be adjusting our instructor revenue share.

Speaker 3: Our plan is to gradually lower the rate for our subscription programs over the next few years, which will reduce costs as a percentage of rubbers.

Our plan is to gradually lower the rate for our subscription programs over the next few years, which will reduce costs as a percentage of revenue.

Speaker 3: We believe that our investments in brand and product will be a net positive over time for instructors. Sarah will share more.

We believe that our investments in brand and product will be a net positive over time for instructors.

Sarah will share more details on this in a moment.

Speaker 3: Finally, our commitment to innovation extends beyond our customer offer.

Finally, our commitment to innovation extends beyond our customer offerings. We are actively leveraging the power of AI to transform our internal operations.

Speaker 3: We are actively leveraging the power of AI to transform our internal operations. Ultimately enhancing the service we provide.

Ultimately enhancing the service we provide to our valued customers.

Speaker 3: Our recent investment in cutting-edge technology is leading to the launch of a generative AI-powered chatbot that can efficiently handle over 70% of rain coming requests. Streamlaying our support processes and providing

Our recent investment in cutting edge technology is leading to the launch of a generative AI powered chatbot that can efficiently handle over 70% of our incoming request streaming.

Streamlining our support processes.

Providing quicker resolution for our customers.

In tandem with this development, we're equally committed to upskilling, our customer support teams.

Speaker 3: underscoring our dedication to becoming a premier center for generative AI support.

Underscoring our dedication to becoming a premier center for generative Yeah I support.

Speaker 3: In conclusion, we are committed to helping individuals and organizations navigate this exciting period of rapid change.

In conclusion.

We are committed to helping individuals and organisations navigate this exciting period of rapid change.

Speaker 3: Utomy is prioritizing skills, embracing the potential of AI, adapting to the hybrid future of work and foster.

<unk> to me is prioritizing skills.

Embracing the potential of AI.

Adapting to the hybrid future work.

Fostering a culture of agility and resilience.

Speaker 3: These strategic pillars will guide us as we continue to lead the transformation to a skills-based economy and innovate in this ever-evolving land.

These strategic pillars will guide us as we continue to lead the transformation to a skills based economy and innovate in this ever evolving landscape.

Speaker 3: Now, I'll turn the call over Sarah for a financial review.

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

Speaker 4: Thank you Greg. I'll focus my comments on the key financial highlights and the provider outlook for Q4 and full year 2023.

Thank you Greg I'll focus my comments on the key financial highlights and then provide our outlook for Q4 and full year 2023.

Speaker 4: You can find the complete set of financial tables in our news release, which is available on our Investor Relations website.

You can find the complete set of financial tables in our news release, which is available on our Investor Relations website.

Speaker 4: We have a strong third quarter as we exceeded expectations on both the top and bottom line.

We had a strong third quarter as we exceeded expectations on both the top and bottom line.

Speaker 4: Revenue increased 17% year-over-year to 185 million, or nearly 5 million above the high end of our guidance.

<unk> increased 17% year over year to 185 million or nearly 5 million above the high end of our guidance range.

Speaker 4: The year-over-year growth included a negative impact from foreign exchange or FX of one percentage.

Year over year growth included a negative impact from foreign exchange or FX of one percentage point.

Speaker 4: The contribution from regions outside of North America was 60% of total revenue, and increased from 58% in Q3 of the prior year, as we continue to expand our geographic foot.

The contribution from regions outside of North America, with 60% of total revenue an increase from 58% in Q3 of the prior year as we continue to expand our geographic footprint.

Speaker 4: UDB Business revenue increased 30% over year to 109 million. Included in net growth was a two percentage point headwind from changes in FX rate.

<unk> business revenue increased 30% year over year to 109 million.

Included in that growth was a two percentage point headwind from changes in FX rates.

Speaker 4: We ended the quarter with annual recurring revenue or ARR, of $443 million, of 26% from a year ago.

We ended the quarter with annual recurring revenue or <unk> of $443 million of 26% from a year ago.

Speaker 4: Our consolidated net dollar retention rate for Q3 was 106%, a 2 point decrease from the prior quarter.

Our consolidated net dollar retention rate for Q3 was 106% a two point decrease from the prior quarter.

Speaker 4: The rate was 114% for large customers, or those with 1000 or more employees, just 1. lower than the prior court.

The rate was 114% for large customers are those with 1000 or more employees, just one point lower than the prior quarter.

Speaker 4: It is encouraging the seed of pressure on net dollar retention soften, which gives us confidence that we will continue to deliver net dollar retention above 100%. As customers recognize the value of our plants.

It's encouraging to see the pressure on net dollar retention soccer, which gives us confidence that we will continue to deliver net dollar retention above 100% as customers recognize the value of our platform.

Speaker 4: On top of that, grow salary tension remains stable, which is impressive considering the current macroeconomic environment.

On top of that gross dollar retention remained stable, which is impressive considering the current macroeconomic environment and.

Speaker 4: In aggregate, we grow our customer base by 14% over year, or 432 net ads, to more than 15,000 customer squabbles.

In aggregate, we grew our customer base by 14% year over year or 432 net out to more than 15000 customers globally.

Speaker 4: The number of customers spending more than $100,000 in ARR is up 37% from a year ago.

The number of customers spending more than $100000 in error is up 37% from a year ago.

Speaker 4: From a geographic perspective, the strongest demand during the quarter came from our North America and Asia Pacific reached.

From a geographic perspective, the strongest demand during the quarter came from our North America and Asia Pacific regions.

Speaker 4: Our consumer marketplace continues to be vibrant. Although traffic was flat, you're a year at 34 million average monthly unique visitors. We added nearly three million learners to the platform, ending the quarter with 67 million, or an 18% year-to-year increase.

Our consumer marketplace continues to be vibrant.

So traffic was flat year over year at 34 million average monthly unique visitors. We added nearly 3 million the rest of the platform ending the quarter with 67 million or an 18% year over year increase.

Speaker 4: Course creation and refresh are strong, with more than 5,000 new courses added each month, and 60% of our top courses were updated in the past 90 days.

Course creation and refresh our strong with more than 5000, new courses added each month and 60% of our top courses were updated in the past 90 days.

Speaker 4: This further demonstrates the power of a marketplace model to keep up with the

This further demonstrates the power of a marketplace model to keep up with the pace of change.

Speaker 4: As a result, we were pleased to deliver year-over-year segment revenue growth for the first time in six quarters of more than one percent, including the negative impact of a half percentage point from FF.

As a result, we were pleased to deliver year over year segment revenue growth for the first time in six quarters of more than 1%, including the negative impact of a half percentage point from FX.

Speaker 4: We also achieved an exciting milestone with our consumer subscription, which we call personal.

We also achieved an exciting milestone with our can stay where subscription which we call personal.

Speaker 4: We have been testing personal plan in silver markets and now have more than 100,000 monthly and annual paid subscribers.

We've been testing personal plant in southern markets and now have more than 100000 monthly and annual paid subscribers.

Speaker 4: Consumers are responding well to these plans, and we look forward to providing more updates as a program of all.

Consumers are responding well to these plans and we look forward to providing more updates as the program evolves.

Speaker 4: As we moved down the P&L, note that all financial metrics are non-gap unless data is otherwise.

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

Speaker 4: Q3 Gross Margin was 60%, a 200 basis point improvement from Q3 2022, driven by the continued revenue mixed shift to Udoe business, which accounted for 59% of total revenue in Q3.

Q3, gross margin was 60% a 200 basis point improvement from Q3, 2022 driven by the continued revenue mix shift to you to meet us which accounted for 59% of total revenue in Q3.

Speaker 4: Total operating expense was $177 million or 58% of revenue and due 1100 basis points lower than Q3 of last year. Thanks to our focus on company-wide cost efficiency.

Total operating expense was $107 million or 58% of revenue and 1100 basis points lower than Q3 of last year. Thanks to our focus on company wide cost efficiency.

Speaker 4: Sales and marketing expense represented 37% of revenue down 600 basis points.

Sales and marketing expense represented 37% of revenue down 600 basis points.

R&D expense was 13% down 100 basis points and G&A expense was 8% down 400 basis points.

Speaker 4: And the bottom line, we delivered positive net income of approximately $8 million or 4% of revenue.

And the bottom line, we delivered positive net income of approximately $8 million or 4% of revenue.

Speaker 4: Adjusted EBITDA was positive for the second consecutive quarter at approximately $8 million or 4% of revenue, which represents a 1200 basis point expansion year over year. And nearly 300 basis points better than the high end of our guidance.

Adjusted EBITDA was positive for the second consecutive quarter at approximately $8 million or 4% of revenue, which represents a 200 basis point expansion year over year, and nearly 300 basis points better than the high end of our guidance range.

Speaker 4: The Better Than Expected Adjusted EvidavResult was primarily driven by Revenue Out Performance and our Disciplined approach to driving operational efficiency throughout the organization.

Better than expected adjusted EBITDA result was primarily driven by revenue outperformance and our disciplined approach to driving operational efficiency throughout the organization.

Moving on to key cash flow and balance sheet items.

Speaker 4: We ended the quarter with 483 million of cash, cash equivalents, restricted cash and marketable security.

We ended the quarter with $483 million of cash cash equivalents restricted cash and marketable securities.

Speaker 4: Recash flow for the quarter was positive 9 million driven by collections timing and lower expense.

Free cash flow for the quarter was positive $9 million driven by collections timing and lower expenses.

Speaker 4: Now turning to our outlook for Q4 and full year 2023. We expect Q4 revenue to be between 184 and 187 million.

Now turning to our outlook for Q4 and full year 2023.

We expect Q4 revenues to be between 184 and 187 million.

Speaker 4: Assuming foreign currency exchange rates remain constant, FX is expected to negatively impact Q4 year over year total revenue growth by approximately 2%.

Assuming foreign currency exchange rates remain constant FX is expected to negatively impact Q4 year over year total revenue growth by approximately two percentage points.

Speaker 4: And the bottom line, we anticipate Q4 adjusted even down margins, a break even to positive 1%.

And the bottom line, we anticipate Q4, adjusted EBITDA margin of breakeven to positive 1%.

Speaker 4: For the full year, we're raising our outlook. We now expect revenue to be within a range of 723 and 726 million, or 15% year-over-year growth at the midpoint, including an estimated 3%age point negative impact from EBAX, assuming no further changes in rate.

For the full year, we're raising our outlook.

Now expect revenue to be within a range of 723, and 726 million or 15% year over year across at the midpoint, including an estimated three percentage point negative impact from FX, assuming no further changes in rates.

Speaker 4: On the bottom line, we are committing to our first four year of positive adjusted eva d'at, well ahead of plan.

On the bottom line, we are committing to our first full year of positive adjusted EBITDA well ahead of plan.

Speaker 4: We expect full year 2023, adjusted even down margin to be positive. Between 50 and 100 basis points, or a nearly 900 basis point expansion at the midpoint compared to 2022.

We expect full year 2023, adjusted EBITDA margin to be positive between 50, and 100 basis points or nearly 900 basis point expansion at the midpoint compared to 2022.

Speaker 4: Although we expect to end the year strong, we remain cautiously optimistic going to 2024.

Although we expect to end the year strong we remain cautiously optimistic going into 2024 weeks.

Speaker 4: We've continued to see delays in decision making from new and existing customers, the effects of which will flow into next year.

We've continued to see delays in decision, making on new and existing customers the effects of which will flow into next year.

Speaker 4: We're also seeing some softness in the mea as geopolitical tensions rise in that region.

We're also seeing some softness in EMEA as geopolitical tensions rise in that region.

Speaker 4: Therefore, we are exercising cautioned until we start to see green shoots materialize and have more visibility into next year. With that said, the long-

Therefore, we are exercising caution until we start to see green shoots materialize and have more visibility into next year.

With that said the long term opportunity is significant.

Speaker 4: Given our efforts to focus on operational excellence through these turbulent times, we are well positioned to capitalize on the opportunity in front of us.

Given our efforts to focus on operational excellence through these turbulent times, we are well positioned to capitalize on the opportunity in front of us.

Before taking questions we wanted to address an update.

Speaker 4: Earlier today, we shared with you two meetings instructor partners that we will be adjusting our instructor revenue share. Under the

Earlier today, we shared with you get them you construct your partners that we will be adjusting our instructor a revenue share.

Under the current payment structure.

Speaker 4: Instructors earn 37% of revenue for individual course purchases on Udemy's marketplace.

Doctors are and 37% of revenue for individual course purchases on your enemies marketplace.

Speaker 4: instructors are in 25% for you to be business and our personal plan subscription offerings, which is allocated pro rata based on consumption of their cuts.

Instructors are in 25 per cent for you to meet business and our personal plan subscription offerings, which is allocated pro rata based on consumption of their content.

Speaker 4: Due to the rapid growth of beauty business, our instructor payment pool has grown at a significantly faster rate than our marketplace revenue since 2020, with the total of instructor earnings expected to be more than $200 million for 2023.

Due to the rapid growth of Vietnamese orange.

Our instructor payment pool has grown at a significantly faster rate than our marketplace revenue since 2020 with a total instructor earnings expected to be more than $200 million for 2023.

Speaker 4: As we continue to scale the cost of acquiring, onboarding, and servicing customers has risen as well.

As we continue to scale the cost of acquiring onboarding and servicing customers has risen as well.

Speaker 4: Now is the right time for utami to further lean into capitalizing a massive long-term opportunity available to us as we lead the transformation to the skills-based economy.

Now is the right time for you to me to further lean into capitalizing on the massive long term opportunity available to us as we lead the transformation to the skills based economy.

Speaker 4: As Greg shared, we have an exciting product roadmap that leverages generative AI and will accelerate our growth.

As Greg shared we have an exciting product roadmap that leverages generative AI and will accelerate our growth.

Speaker 4: We believe that these new products will drive greater customer adoption and engagement, ultimately increasing LTV over time as customers grow with it.

We believe that these new products will drive greater customer adoption and engagement.

It's really increasing LTV overtime as customers grow with us.

Speaker 4: We also plan to invest in brand building initiatives to increase awareness and expand our global customer base, which will help grow instructors' businesses by connecting them to more learners.

We also plan to invest in brand building initiatives to increase awareness and expand our global customer base, which will help grow instructors businesses by connecting them tomorrow on Earth.

Speaker 4: Under the new structure, the revenue share for the marketplace will remain unchanged. But we will be gradually reducing the instructor's share of subscription revenue.

Under the new structure the revenue share from the market place will remain unchanged, but we will be gradually reducing the instructor share of subscription revenue.

Speaker 4: Our first adjustment to 20% will be effective January 1, 2024, followed by 17.5% in 2025 and 15% in 2026.

Our first adjustment to 20% will be effective January one 'twenty 'twenty four followed by 17, 5% in 2025 and 15% in 2026.

Speaker 4: Considering the gross potential we see for enterprise and subscription products, we will expand the instructor payment pool over time while optimizing the revenue share structure.

During the growth potential we see for our enterprise and subscription products, we will expand the instructor payment pool over time, while optimizing the revenue share structure.

Speaker 4: The positive impact on gross margin from the revenue share adjustment is expected to be meaningful, allowing us to continue to grow sustainably, make the necessary investments to capitalize on the opportunity at expand our bottom line.

The positive impact on gross margin from that revenue share adjustment is expected to be meaningful, allowing us to continue to grow sustainably make the necessary investments to capitalize on the opportunity and expand our bottom line.

Speaker 4: Let me take a minute to walk you through some of our preliminary assumptions to illustrate how we're thinking about margin expansion as we progress toward our long-term target.

Let me take a minute to walk you through some of our preliminary assumptions to illustrate how we're thinking about margin expansion as we progress toward our long term targets.

Speaker 4: Starting with a baseline estimated gross margin for 2023 of 58 to 59%. We expect an approximate 300 basis point improvement on average annually from 2024 to 2026.

Starting with a baseline estimated gross margin for 2023 of 58% to 59%. We expect an approximate 300 basis point improvement on average annually from 'twenty 'twenty four 'twenty 'twenty six.

Speaker 4: By the end of 2026, we expect gross margin to be approaching 70% and for 2027, we expect to exceed 70%.

By the end of 2026, we expect gross margin to be approaching 70% and for 2027, we expect to exceed 70%.

Speaker 4: The majority of gross margin expansion will be driven by the instructor revenue share change and to a lesser extent the continued mixed drift to you to be business and other leverage as we scale the business global.

The majority of gross margin expansion will be driven by the instructor revenue share change and to a lesser extent. The continued mix shift for you to meet with us and other leverage as we scaled the business globally.

Speaker 4: During that time, we will make upper tunicic investments that will support the long-term growth of our business. As a result, while it won't be a straight line, we are confident that we will achieve our adjusted EVA-DOT target range of 15 to 20% by 2027.

During that time, we will make opportunistic investments that will support the long term growth of our business as a result, well it won't be a straight line. We are confident that we will achieve our adjusted EBITDA target range of 15% to 20% by 2027.

Speaker 4: In closing, 2023 has so far been a transformative year for you to meet. We significantly strengthened our leadership team, strategically navigated a very challenging macroeconomic environment, and we delivered positive adjusted EBITDA while ahead of plan.

In closing 2023 has so far been a transformative year for you to me, we significantly strengthened our leadership team.

T J play navigated a very challenging macroeconomic environment and we delivered positive adjusted EBITDA well ahead of plan.

Speaker 4: As we approach the end of 2023, we remain focused

As we approached the end of 2023, we remain focused on consistently balancing strong topline growth and profitability on an annual basis. We look forward to keeping you updated as we progress toward that goal.

Speaker 4: We look forward to keeping you updated as we progress toward that goal.

Speaker 4: So with that, we'll open up the call for your questions. Moderator. Here.

So with that we'll open up the call for your questions moderator.

We will now begin the question and answer session.

Speaker 1: to ask a question you may best star than one on your touchdown phone.

To ask a question you May Press Star then one on your Touchtone phone.

Speaker 1: If you're using a speaker phone, please pick up your handset before pressing the keys. Into a draw question, please press star then two.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker 1: At this time, we will take our first question, which will come from Ryan McDonald, but meet him. Please go ahead.

At this time, we will take our first question, which will come from Ryan Macdonald with Needham. Please go ahead.

Speaker 2: Thanks for taking my question and congrats on a great quarter. Maybe just starting with the instructor, revenue share adjustments.

Hi, Thanks for taking my question and congrats on a great quarter maybe.

Maybe just starting with the instructor or revenue share adjustments.

Speaker 5: As you think about what is this rolling out, is this going to be rolled out on January 1st to all you need business and consumer subscription content or only net new content that is created after Jan 1? And then as you think about the savings that this is gonna generate, you know, a gross margin at the cost of revenues one, how much of that do you expect to reinvest below the gross margin line? Or how much of that do you expect that should fall down to the bottom line?

As you think about what is this is rolling out is this going to be rolled out on January one two all you'd need business and consumer subscription content or only net new content that is created after Jan one and then as you think about the savings that this is going to generate.

You know our gross margin and the cost of revenues one how much of that you expect Q.

Reinvest below the gross margin line or how much of that I do expect that that should fall down to the bottom line.

Speaker 5: as we go work over the next couple of years.

We got to look over the next couple of years here.

Hi, Ryan Thanks for the question I'll answer the first part and then turn it over to Sarah to answer the second yeah as of Jan one are the changes in structure payment fees will apply to all courses that.

Speaker 3: You know that our subscription base personal plan as well as team plan enterprise plan and we surely you know are going to be in reinvesting

That are subscription based personal plan as well as team plan enterprise plan.

And we surely are going to be reinvesting.

These funds to grow the business and significant ways, but I'll, let Sarah at a little bit more color in terms of the balance between gross margin impact and and our bottom line EBITDA margin, Sir Yeah, Hi, Ryan Thanks for the question.

So from a gross margin perspective is as we talked about we expect about 300 basis points expansion on average which is a combination of the.

The instructor revenue share, which starts impacting immediately as Greg just spoke about we are making that change effective January one.

For all of our subscription courses.

Speaker 4: And then in addition to that, the revenue mix drift to U2Me business over time also contributes to that growth on margin expansion.

And then in addition to that the revenue mix shift to you to make that since the first time also contribute to that gross margin expansion.

Speaker 4: From an EBITDA perspective, for next year, we expect just modest expansion because we are going to be reinvesting some of those dollars in some of the things you heard us talking about around brand, around products, and around go-to-market as we see DreamShoots in different areas. You know, we're really focused on capturing this massive opportunity that is in front of us.

From an EBITDA perspective for next year, we expect just modest expansion because we are going to be reinvesting some of those dollars and some of the things you've heard us talking about around brand around product and around go to market as we see green shoots in different areas and we're really focused on capturing this massive opportunity that is in front of us.

Yes.

Speaker 4: So from a longer term perspective, that means we expect to deliver meaningful, bottom line expansion in 2025 and 2026 as a result of these investments. And we're confident we're gonna reach our long-term EBITDA target in 2027.

So from a longer term perspective that means we expect to deliver meaningful bottom line expansion in 2025 and 2026.

As a result of these investments and we're confident we're going to reach our long term EBITDA target in 2027.

Speaker 5: Thanks for the color. I really appreciate it. Maybe just one more drink for you. I'm just the environment within B2B. You know, we've seen recently from one of the largest HCM surveys in the industry that, you know, net mean dollars in sort of HR broadly are expected to be down, I think kind of 11% next year. But learning remains and training remains the top spend priority. So I'm curious, you know, given this sort of

Excellent. Thanks for the color I really appreciate it and maybe just one more Greg for you just the environment within B to B.

Yeah, we've seen recently from one of the largest HCM surveys in the industry that.

Net new dollars in sort of HR broadly are expected to be down I think 10, or 11% next year, but but learning remains in trading remains the top spending priorities. So I'm curious you know given the sort of shift towards skills based training within enterprises, how are those conversation.

Speaker 5: shift towards skills based training within enterprises. How are those conversations? Where are you seeing the most demanded? Are you seeing a healthy mix of met new versus existing, or is it more weighted towards existing customers?

And where are you seeing the most imagine are you seeing a healthy mix of net new versus existing or is it more weighted towards existing customers. Thanks.

That's a really good question Ryan.

Speaker 3: So, as we mentioned, we saw in court or we saw improvement in sales cycle velocity, win rates, average deal sizes, improvement in deals over 100K. And so.

So you know as we mentioned we saw in quarter, we saw improvement in sales cycle velocity when rates average deal sizes.

Improvement in deals over 100 K.

And so you know from the.

Speaker 3: perspective of the leading indicators we're looking at that give us confidence in the opportunity not just today but tomorrow. We feel really good about the momentum and we feel really good about our team's ability to execute.

Perspective, with a leading indicators, we're looking at that give us confidence and.

The opportunity not just today, but tomorrow, but feel really good about the momentum and feel really good about our team's ability to execute.

Speaker 3: We are seeing a balance of net new, a really healthy balance of net new customers as well as existing customer upsells. And I'll tell you, I'll give you an example in that new that is exciting for us. Large Fortune 500, a financial services company signed a $2 million, three year contract with us for the specific purpose of developing and transitioning to a skilled-based organization. So developing skills capability across the entire organization.

We are seeing a balance of net new adds.

It really healthy balance of net new customers as well as existing customer Upsells and I'll tell you I'll give you example, net new that is exciting for US you know large.

500.

National Services Company signed a 2 million dollar three year contract with us for the specific purpose of developing and transitioning to a skills based organizations, so developing skills capability across the entire organization.

And.

Speaker 3: They're leveraging all products, not just our core, but Udemy Business Pro, professional services, as well as badging and certification.

They're leveraging all products not just our core business pro professional services as well as Badging and certification and the nature of those conversations which have had an opportunity to take part of what was really exciting is the strategic nature of the ore of the partnership and the way that they were looking at it they've got goals to drive revenue reduce costs improve productivity.

Speaker 3: And the nature of those conversations, which had an opportunity to take part up.

Speaker 3: What was really exciting is the strategic nature of the partnership and the way that they were looking at it. They've got goals to drive revenue, reduce costs, improve productivity, and support their business community as a result of the investments they're making and upskilling across the organization. So, we've talked a bit in the past that this transition to a skills-based or and skills-based economy.

And support their business community as a result of the investments we're making in upskilling across the organization. So now we've talked a bit in the past that you know this transition to a skills base, our org and skills based economy is gaining steam and now it's starting to manifest and large multiyear contracts net new customers coming in in addition to our healthy.

Speaker 3: That is gaining steam and now it's starting to manifest in large multi-year contracts, net new customers coming in in addition to a healthy dose of expansion that we continue to speak.

Joseph expansion are that that we continue to see.

Speaker 3: I'll just add, I've reached over the last six weeks at an opportunity to go visit both Europe and India and spend time with a number of our larger customers.

I'll just add.

Our recent over the last six weeks at an opportunity to ask you go visit our both Europe and India.

And spend time with a number of our larger customers.

Speaker 3: I can tell you at the meeting with the CLOs and heads of people in these organizations that they're under immense pressure.

And I can tell you after meeting with the CLO and heads of our people in these organizations that they are under immense pressure.

The other Ceos to.

Speaker 3: to develop a strategy and a capability to upskill across the organization with respect to AI. Well, how are they going to internally leverage this transformational technology, right, to get operating leverage with respect to how they're running their business and at the same time leverage AI into the products and services they're developing to provide competitive advantage for their customers.

To develop a strategy and a capability to upskill across the organization.

With respect to AI, well, how are they going to entirely leverage this transformational technology right to get operating leverage.

With respect to how they're running their business and at the same time leverage AI into the products and services, they're developing to provide competitive advantage for their customers.

Speaker 3: This is unlike anything I've seen before in my career in terms of the consistency every customer we talked through this was the number one topic of conversation

Is unlike anything I've seen before in my career in terms of the consistency every customer we talk to this was the number one topic of conversation.

Speaker 3: And we, you know, and the conversations we were in.

And we you know and in.

And the conversations we were in <unk>.

Speaker 3: We're all about us being a primary partner and strategic partner and helping them through this endeavor of transitioning to not just a skills-based organization, but an organization that truly understands how to leverage AI to get operating leverage internally as well as expand that externally. So, you know, it's worth a front end of a transformational shift and we're going to see more and more of as we move forward.

We're all about us being a primary partner and strategic partner in helping them through this endeavor of transitioning to not just the skills based organization an organization that truly understands how to leverage AI to get operating leverage internally as well as extend that externally. So yeah. It's we're at the front end of other transformational ship.

And we're gonna see more and more of as we move forward.

I appreciate the color congrats again.

Speaker 1: And our next question will come from Stephen Scheldon with William Blair. Please go ahead.

And our next question will come from Stephen Sheldon with William Blair. Please go ahead.

Speaker 2: A, thanks. Really, really helpful commentary Sarah on the margin progression, which I'm sure a lot of investors appreciate.

Hey, Thanks, really really helpful commentary, Sarah on the margin progression, which I'm sure a lot of investors appreciate.

Speaker 2: It feels like you're targeting to hit that long term, even a margin target of 15 to 20% by 2027. Just curious is this, you know.

It sounds like you're targeting to hit that long term EBITDA margin target of 15% to 20% by 2027, just curious does this.

Speaker 2: Does this change impact your view of what longer term margins beyond 2027?

Does this change impact your view of what longer term margins beyond 2027 could look like.

Speaker 4: Yeah, it's a great question, Stephen. And really with this change, that gives us a lot of confidence, that over time, we're going to be able to hit the high end of that target.

Yeah. It's a great question, Stephen and you know really with this change that gives us a lot of confidence that over time, we're going to be able to hit the high end of that target.

Speaker 4: And the industry and what is happening, as Greg just said, this is a massive transformation that we haven't seen in.

And you know that the industry and what is happening as Greg just said this is a massive transformation that we havent seen and you know a decade or two since like the move to the call and that sort of thing. There are so many things that are happening and our ability to invest and to build out these capabilities that.

Speaker 4: you know a decade or two since like the move to the con that sort of thing. There are so many things that are happening and our ability to invest and to build out these capabilities that really allow us to serve customers who as Greg just said.

Really allow us to serve customers, who is as Greg just said, they're really struggling to figure out how do I Upskilling My team, how do I make sure that they can embrace AI and that my business can be really competitive.

Speaker 4: They're really struggling to figure out how do I upscale my team? How do I make sure that they can embrace AI and that my business can be really competitive?

Speaker 4: And so, we're gonna be investing more next year as a heavier investment year than we'll have in future periods as we look to really take advantage of this, these tailwinds.

And so you know we're gonna be investing more next year, it's a heavier investment year than we'll have in future periods as we'd like to really take advantage of this this tailwind.

Speaker 2: Got it. That's helpful. And then maybe in UB and just thinking about the expansion.

Got it that's helpful and then maybe in U b and just thinking about the expansion.

Speaker 2: I think you talked historically with current UV customers only having 10% of current employees covered under a license.

You've talked historically with with current <unk> customers only having 10% of current employees covered under a light and.

Speaker 2: curious if that moved any higher, you know, for the last year or so, especially with consolidation of L&D spin that might be going on right now. And is there anything that you need such as even more content breadth to be able to push that metric higher on the expansion? That's a really good question.

Curious if that moved any higher you know over the last year or so, especially with consolidation of LNG spend it that might be going on right now and is there anything that you need such as even more content breadth to be able to push that metric higher on the expansion. That's a really good question really good question.

Speaker 3: The acceleration of consolidation continues to happen. And we're seeing it accelerate as a result of this massive trend which we just talked about to a skills-based org. In fact, I'll talk briefly about two of our larger global financial services customers. One, one of the largest banks in all of A-PAC.

The.

Acceleration of consolidation continues to happen and and we're seeing it accelerate as a result of this massive trend, which we just talked about to a skills based or in fact I'll talk briefly about two of our larger global financial services customers. One one of the largest banks in all of APAC.

Speaker 3: made a decision to consolidate from four vendors, of which we were one to one vendor, and standardized on a strategic...

Made a decision to consolidate from four vendors of which we were one to one vendor and standardized on a strategic.

Speaker 3: Approach to developing AI skills across the organization.

Our approach to developing AI skills across the organization.

Speaker 3: Fortunately, we ended up being their selected partner. Right, so they doubled the size of the contract.

Fortunately, we ended up being or selected a partner right. So they doubled the size of the contract.

Speaker 3: We're now in process of developing a multi-year strategy to develop AI skills across the organization and a number of capacities, added on U2Me Business Pro to help them on the technical side of the house. In addition to that, we've talked about our AWS partnership.

We're now in process of developing a multiyear strategy to develop AI skills across the organization in a number of capacities added on you to me business pro to help them on the technical side of the house.

In addition to that we've talked about our AWS partnership.

Speaker 3: They were an ADWS customer and that partnership enabled us to move through procurement, procurement, the whole procurement process and accelerated pace and benefited everybody involved for us to do this deal through AWS. So the consolidation trend continues, the focus on transition to skills based or continues. And in terms of our penetration, north of 10%.

They were an AWS customer and that partnership enabled us to move through procurement procurement the whole procurement process, an accelerated pace and benefited everybody involved for us to do this deal through AWS. So the consolidation trend continues the focus on transitioning skills based or continues and in terms of.

Penetration north of 10%.

Speaker 3: We haven't seen significant movement in that. I would say a modest, right? You know, modest movement. But in our larger customers, especially in the financial services vertical, we're seeing significant movement in Pfizer right now. And what we are saying is

We haven't seen significant movement in that I would say.

Modest right, a modest movement, but in our larger customers, especially in the financial services vertical we're seeing significant moving and Pfizer have right now and what we are saying as well.

Speaker 3: We now have this last year, over 100% year over your growth.

We now have this last year over 100% year over year growth.

Speaker 3: and end our 4,100 financial services customers of which by the way we're now over 70% penetrated into the 4,100 five-service sector. So we have...

And N are fortune 100 financial services customers of which by the way. We're now over 70% are penetrated into the fortune 105 serve sector right. So we.

Speaker 3: for all of the purposes locked up by that segment of customers and they're investing heavily

We are.

For all intensive purposes locked up that segment of customers and they're investing heavily to.

Speaker 3: To upskill and rescill, both to develop AI capability and skills development.

To Upskill and Reskill bolt to develop AI capability and skills development, specifically around cyber security.

Speaker 3: specifically around cybersecurity in areas that are critical for their compliance and...

In areas that are critical for their compliance and a very unique circumstance in that financial sector. So anyway. Nonetheless, we're seeing some vertical momentum as far as expansion as well as you know we're seeing a continued trend toward building out that skills based or capability and so that's deal size.

Speaker 3: very unique circumstance in that financial factor. So anyway, nonetheless, we're seeing some vertical momentum as far as expansion.

Speaker 3: as well as, you know, we're seeing, you know, a continued trend toward building out that skills-based or capability. And so that's deal sizes for us are getting larger. I mentioned a deal is over 100K. It was our biggest quarter ever.

As for US are getting larger I mentioned the deals over 100 K. It was our biggest quarter ever in terms of percentage of deals over 100, guys. So you know theres good momentum for us there.

Speaker 3: in terms of percentage of deals over 100k. So, you know, there's a good momentum force there.

Great to hear congrats on the results.

<unk>.

Speaker 1: Next question will come from Jeff Mueller with Baird. Please go ahead.

And our next question will come from Jeff Mueller with Baird. Please go ahead.

Speaker 6: Yeah, thank you. It seems like we've had a couple of quarters in a row now of better consumer than you were expecting. Just, I guess, how much of that is just a better demand environment? And does it, if it continues, does it make you rethink at all, I guess the ambitions for how you can manage profitability in the consumer segment, if the vibrant marketplace remains from a content creation standpoint?

Yeah. Thank you it seems like we've had a couple of quarters in a row now of better consumer than you were expecting.

I guess, how much of that is just a better demand environment.

But if it continues doesn't make you rethink at all I guess the ambitions for how.

How you can manage profitability in the consumer segment.

Vibrant marketplace remains from a concentration standpoint.

Speaker 4: Thanks for the question, Jeff. So, you know, consumer, we have been really pleased with the stability of the marketplace. And, you know, as you saw unique visitors were stable, monthly average buyers were up. We do those...

Thanks for the question Jeff.

You know consumer we have been really pleased with the stability of the marketplace and you know as you saw unique visitors were stable monthly average buyers were up.

We do though know that theyre.

Speaker 4: There is some other things that are happening with consumers like credit card debt is now, you know, it's creeped up to a high in comparison to where it's been. And so when you look at, you know, as an example, forecast for Black Friday promotions and that sort of thing, spending is actually expected to be muted.

There is some other things that are happening with consumers like credit card that is now you know, it's creeped up to a high in comparison to where it stands and so when you look at you know as an example forecasts for Black Friday promotions and that sort of thing spending is actually expect it to be muted and so in the short term.

Speaker 4: And so in the short term, there's continues to be volatility. We think that the consumer business is going to be flat, maybe down a few points. We're all going to just have to wait and see what that looks like.

Term, there's continues to be volatility, we think that the consumer businesses.

Going to be flat, maybe down a few points were all going to just have to wait and see what that looks like but longer term.

Speaker 4: But longer term, there's some things that are really exciting that we are building out for learners generally. But first we build for our Unibisist learners.

There are some things that are really exciting that we are building out for learners generally, but first we build for argument business learners.

Speaker 4: And over time, we'll be rolling those out onto our consumer platform.

And over time, we'll be rolling those out onto our consumer platform.

Speaker 4: And so some of those capabilities we believe could start to drive more interest in our consumer. An example of that is the badging and certification. So that ability to take these classes and go out and get that certification and actually share that on the UMI platform. That capability is coming to the platform. And so things like that.

And so some of those capabilities, we believe could start to drive more interest in our consumer and example of that is the Badging and certification so that ability to take these classes and go out and get that certification and actually share that I needed me platform on that capability.

Is coming to the platform and so things like that.

Speaker 4: Help us really shape how we see consumer as over time being an area that we're gonna keep an eye on. Some growth good happen, we don't think in the near term. It's a little bit of a wait and see still, but that stability's been great for us.

US really shape, how we see consumer adds over time being an area that we're going to keep an eye on some growth could happen. We don't think in the near term, it's a little bit of a wait and see so but that stability has been great for us.

Speaker 6: Great. And then I'm just anything you can say about the initial instructor response to receiving the letter and the changed pale plans and just anything else you're doing to manage that including to maybe better inform them on how it can be enough benefit to them be on the letter that you said. Thank you.

Great and then just anything you can say about the additional instructor response to receiving the letter in the changed payout plan and just anything else you're doing to manage that including maybe better inform them on.

How it can be a net benefit to them beyond the letter that you spoke about thank you.

Yeah, It's a good question.

Speaker 3: So we did communicate directly with our instructors this morning with respect to the changes. I'm hosting a webinar as well with our instructors tomorrow. And we're going to go into a lot more detail there. But, you know, what we did share with them, and we, let me just say, we've been monitoring our instructor forms very closely today.

So we did communicate directly with our instructors. This morning with respect to the changes I'm hosting a webinar as well with our instructors tomorrow.

And we're going to go into a lot more detail there, but you know what we did share with them and let me just say we've been monitoring our instructor forms very closely to that.

Speaker 3: There's a couple points that I'm going to go into with them. One of which is...

There's a couple of points that I'm gonna go into with them one of which is.

Speaker 3: Our instructors have a life of our business. We don't have a business without our instructor community. So we took...

Our instructors who are the lifeblood of our business, we don't have a business without our instructor community right.

Alright, So we took tremendous cure.

Speaker 3: and modeling and assessing the impact of this change.

And modeling and assessing the impact of this change.

Speaker 3: as well as looking back into 2019, in terms of how we executed the change back in 19, that predated Sareni, but how that impacted our instructors. And what that change was very clearly was in 2019, we move instructor payments for our subscription business, Unibus business, from 50% to 25% in one fail swoop.

As well as looking back into them and to 2019 in terms of how we executed the change back in 19 that predated Saturn I.

But how that impacted our instructors and what that change was very clearly wasn't in 2019, we move.

Construct or payments for our subscription business unit business from 50% to 25% in one fell swoop.

Speaker 3: As a result of that, one of the instructors that was with us back then made the comment in the community and actually showed his graph. They said back in 2019 when they made this change, they made the same commitments to investing and go to market and technology to enable us to grow you to me business and accelerate it rate. At the time,

As a result of that one of the instructors who was with US back then made the comment in the community and actually showed his graph.

Back in 2019, when they made this change they made the same commitment to investing in go to market and technology to enable us to grow your business at an accelerated rate.

At the time I did take a short term hit.

Speaker 3: But I'll show you my graph since they made that change. I have more than 6x.

I'll show you my graph since they made that change I have more than six X.

Speaker 3: My instructor revenues as a result of the investments that they've made and the growth of you to me business.

My instructor revenues as a result of the investments that they've made and the growth of your business.

Speaker 3: I believe in this theme, I believe in their ability to go do the same thing again. And that's a truncated paraphrase version. But as you can imagine, there's mixed comments. Some instructors that may be a little bit newer, maybe react a little bit more emotionally and what have you. But we had a number of instructors balancing that feedback with a little bit more.

I believe in this team I believe in their ability to go do the same thing again and that's that's a truncated you know a paraphrase version, but yeah.

And but as you can imagine there was nick's comments and you know some instructors that maybe in a little bit newer maybe.

Maybe reacted a little bit more emotionally and what have you, but we had a number of instructors.

<unk> Ah that feedback with a little bit more.

Speaker 3: a little bit more experience and a little more understanding around how this change impacted them last time and what the end result has been. And we care about all the responses because the reality is without our instructor community again, you know, we're not here. Right. So we get a couple things to soften.

<unk>, a little bit more experience a little more understanding around how this change impacted them last time and what the end result has been and we care about all the responses because the reality is without an instructor community again you know.

We're not here right. So we.

We did a couple of things to soften.

The.

Speaker 3: below, so to speak, in the short term that we did not do last time. One of which is we made this a three-year transition, not making the shift from 25 to 15 in one year. And the modeling shows us right now that if we execute our growth projections for you to be business.

Hello, So to speak in the short term that we did not do last time, one of which is we made this a three year transition not not making the shift from 25 to 15 in one year and the modeling shows US right now that if we execute our growth projections for you to my business that.

Speaker 3: that we will actually grow the instructor pool through this three year transition, and then coming out the other side, we're often running, and we're back to significant growth. So we've done a lot of work, we've done a lot of modeling, I'm gonna go into more detail with our instructors tomorrow, but very pleased by the response from a number of the instructors that have been with us for a long time, that have commented on the impact over the years and our ability to execute a similar outcome here.

We will actually grow the instructor pull through this three year transition and then coming out the other side, we're often running and we're back to significant growth right. So we've done a lot of work we've done a lot of modeling I'm going to go into more detail with our instructors tomorrow.

But you know very pleased by the response from a number of instructors that have been with us for a long time that have commented on the impact over the years and our ability to execute a similar outcome here.

Helpful detail. Thank you.

Speaker 1: And our next question will come from Anola Herman with JP Morgan. Please go ahead.

And our next question will come from Noah Herman with J P. Morgan. Please go ahead.

Speaker 7: Hey, guys, thanks for taking the questions and congrats on the follow up order. I just wanted to touch a little bit about maybe the linearity you saw in terms of the E-1-8 cell cycles you're continuing to see. It's kind of like that has improved a little bit. So just curious on how that track can queue through versus Q2 and what maybe you're sort of seeing October . Hey.

Hey, guys. Thanks for taking the questions and congrats on the solid quarter.

I just wanted to touch a little bit about maybe the linearity you saw in terms of the.

You want me to sales cycles, you'll continue to see has that it sounds like that has improved a little bit. So I'm just curious on how that tracked in Q3 versus Q2, and what maybe you're you're sort of seeing in October.

Speaker 3: You know what we are seeing is it's a good question, thank you. Is in some sectors and segments.

You know what we are seeing is it's a good question. Thank you is in some sectors and segments.

Speaker 3: We're seeing fail cycle velocity improvement. We did touch on that in the opening. And so, you know, in aggregate, that is the case. But look, the SMB business is still heavily impacted by the macro. And then, you know, regionally, Amia, based on everything that's going on that Sarah mentioned earlier, at geophilic impact, in Amia it's...

We're seeing sales cycle velocity improvement, we did touch on that in the opening and so in aggregate that is the case, but look the SMB business is still heavily impacted by the macro and then you know regionally EMEA based on everything that's going on that Sarah mentioned earlier, a geopolitical impact in EMEA. It's.

Speaker 3: Without question, it's present. And so we're not, again, ready to call the bottom, but we are encouraged by improving sales velocity.

Without question, it's it's present and so we're not again ready to call a bottom, but we are encouraged by improving sales velocity, especially in the enterprise segments in Asia Pacific as well as in North America.

Speaker 3: especially in enterprise segments and Asia Pacific as well as in North America.

And.

Speaker 3: you know, through our channel programs. So, you know, there's, it's mixed right now. And, you know, obviously, we're monitoring it very closely. And, you know, we're hopeful that, you know, as we move into next year, that for all of us, we're going to start to see the geopolitical concerns start to wane and get some of that addressed. And.

Pro channel programs. So you know, there's it's mix right now and.

Obviously, we're monitoring it very closely.

And we're hopeful that as we move into next year are there for all of US we're going to start to see the geopolitical concerns start to wane I guess some of that addressed and.

Speaker 3: You know, have a different year next year in terms of the macroeconomic impact.

You'll have a different year next year in terms of the macroeconomic impact.

Speaker 7: Got it and then just a quick follow up. But you know, it's, I, I, I, I realized, you know, some of the comments made around around India, but you know, in the quarter, it actually looks like a cross each region internationally. Um, we're actually a bit. So I just wanted to develop a quick and see what's really driving that. Um, if you can maybe provide a, uh, a brief breakdown, what you're seeing in this region.

Got it and then just a quick follow up but you know me.

I realize you know some of the comments made around around EMEA, but in the quarter actually looked like across each region and internationally the growth actually accelerated a bit. So I just wanted to double click in and see what's really driving that.

If you can maybe provide a brief break down what you're seeing in each region. Thanks.

Speaker 4: Yeah, I think what you're looking at is the total numbers that you're seeing in the geo, how that growth is happening and we did see...

Yeah, and I think what you're looking at is the total numbers that you're seeing in the G. O. How that growth is happening and we did see you know them.

Speaker 4: you know, me growing at about 20% overall. Again, as Greg said, we're seeing pressure on the U2Me business side.

We are growing at about 20% overall again as Greg said, we're seeing pressure on the business side, but what we're seeing is some strength on the consumer side and so both of those go into what's happening.

Speaker 4: but what we're seeing is some strength on the consumer side. And so both of those go into what's happening.

Speaker 4: North America Enterprise Businesses Greg just said that was strong. We saw a slight improvement in the field cycle velocity there as well as A-PAC.

North America Enterprise business as Greg just said Ah that was strong and we saw a slight improvement in the sales cycle velocity, there as well as APAC.

Speaker 4: But we do continue those sales cycles are so longer than historical. So the geo mix that you're seeing and what's happening is a blend of what's happening within UB and what's happening with consumer.

But we do continue at those sales cycles are still longer than historical so the geo mix that you're seeing and what's happening is a blend of what's happening with <unk> and what's happening with consumer.

Yeah.

Got it thank you.

Mhm, Thanks for the question.

Yeah.

Speaker 1: and our next question will come from Josh Faire with Martin Stanley. Please go ahead.

And our next question will come from Josh Baer with Morgan Stanley. Please go ahead.

Speaker 7: Great, thank you for the question. Um, wanted to just confirm, is it correct that the, this content revenue share change, it was not contemplated or needed to get to that 15 to 20%, even a margin guidance originally?

Great. Thank you for the question.

Wanted to just confirm is it correct that the this content our revenue share change it was not contemplated or needed to get to that 15% to 20% EBITDA margin guidance originally.

Speaker 4: Yeah, Josh, thanks for the question. It was not originally anticipated.

Yeah, Josh Thanks for the question. It was not originally anticipated, but we do believe that we're going to get to that target sooner and our 2027 and it also gives us confidence that we'll be able to get to the high end of the range and over and in the years beyond that so this change really is to allow us.

Speaker 4: But we do believe that we're going to get to that target sooner and 2027. And it also gives us confidence that we'll be able to get to the high end of the range and over in the years beyond that. So this change really is to allow us right now to really invest in these things that are continue to drive that sustained growth that you see in you to be business and well mutable based on the macro.

Right now to really invest in these things that are continue to drive that sustained growth that you see in your business and while muted based on the macro we think when that macro start to clear off we'll see a reacceleration again, because we are in a really great position to capitalize on that opportunity.

Speaker 4: We think when that macro starts, we'll see a re-acceleration again because we are in a really great position to capitalize on that opportunity.

Speaker 7: Right, really clear. And one on translation using Gen AI to do translations for your courses, just wondering for you if how helpful that is or if it's helpful. I know that you have a lot of focus in actually having like local language content. And so just wondering if that's in area of cost savings for you or maybe not as relevant. Thank you.

Great really clear and one on a translation using gen AI to do translations for your courses just wondering for you. If how helpful that is or if it's helpful. I know that you have a lot of focus in actually having like local language content and so just wondering if.

That's an area of cost savings for you or maybe not as relevant thank you.

Hi, Josh Thanks for the question.

Speaker 3: It is not as relevant for us because we do add the advantage.

It is not as relevant for us because we do have the advantage.

Speaker 3: on a global basis of our instructors developing localized contact and local language, local tone, local context that we

On a global basis of our instructors developing localized content and local language local tone local contacts that we.

Speaker 3: package and make available to our enterprise customers around the globe. So not relevant to us because it's not needed. And the second thing I would say is, leveraging Gen AI for language translation is a fairly basic.

Package and make available to our enterprise customers around the globe, so and not relevant to us because it's not needed and you know the.

The second thing I would say is leveraging Jenny I for language translation is it fairly basic.

Speaker 3: capability and we're really focused on developing

<unk> capability and we're really focused on developing next generation learning experiences as a result of the investments we talked about and the learner experience capabilities, we're providing our structures as well as organizations and you're going to hear a lot more from us around our ability to deliver skills mapping capability and mapping that the concept.

Speaker 3: Next generation learning experiences, as a result of the investments we talked about and the learner experience, capabilities we're providing are structures, as well as organizations. And you're gonna hear a lot more from us around our ability to deliver skills mapping capability and mapping that to content, learning fast and tailored learning fast in product, to truly transform how organizations develop skills as a result of

Learning paths and tailored learning path in product.

To truly transform how organizations develop skills as a result of getting more systematic access to personalized learning experiences through our platform and its these types of investments that we're making that are truly going to be transformational as we move forward in helping organizations transitioned to a skills based economy, and that's really where our energy is for.

Speaker 3: getting more systematic access to personalized learning and experiences through our platform. And it's these types of investments that we're making that are truly going to be transformational as we move forward in helping organizations transition to a skilled-based economy. And that's really where our energy is focused on these types of investments.

Because on these types of investments.

Okay.

Speaker 1: And our next question will come from Brent Fell with Jeffries. Please go ahead.

And our next question will come from Brent Thill with Jefferies. Please go ahead.

Speaker 8: Thanks guys, this is Dave Lossberg on Footbrand. I have two if I may, maybe to start, I wanted to ask on the consumer subscription, nice to hear I think 100,000 subs passed. Maybe how long has that been rolled out? I guess if there's a data point on the quarterly growth, and where do you guys see that getting two over time?

Thanks, guys as Dave loss pagan for Brian I have two if I may maybe to start I wanted to ask on the consumer subscription nice.

Nice to hear I think 100000 subs past me know, maybe how long has that.

Being rolled out I guess, if there was like a data point on on the quarterly growth and you know where do you guys see that getting to over time.

Speaker 4: Hi Dave, thanks for the question. So, you know, we really started rolling out in small test markets.

Hi, Dave Thanks for the question. So you know, we really started rolling out in small cap markets.

Speaker 4: Almost two years ago with our subscriptions, it's been a while, but part of that rollout was really taking into consideration, bringing our instructors along, because again, the consumer marketplace, they are the consumer transactional marketplace. They received 37%.

Almost two years ago with our subscriptions, it's been a while but.

Part of that rollout was really taking into consideration, bringing our instructors along because again the consumer market place. They there are the consumer transactional marketplace they've received 37%.

Speaker 4: At the time subscriptions were at 25 and as we know now the 25's going to be going to 15 over time. And so just bring them along and making sure that we're gradually rolling that out to really be thoughtful about their earnings was important to us.

At the time subscriptions were at 25 and as we now know that 25 is gonna be going to 15 over time and so his brand it along and making sure that we're gradually rolling that out to to really be thoughtful about the earnings what's important to us.

Speaker 4: Where this goes over time, you know, we think it's reasonable that this becomes a meaningful portion of our consumer revenue. And at the same time, that marketplace, that transactional marketplace is where new courses are tested. It's where they get feedback and it's where we are able to see the quality and applicability of those courses so that then we can put them over in our subscription.

Where this goes over time, we think it's reasonable that this becomes a meaningful portion of our consumer revenue and at the same time that marketplace that transactional marketplace is where new courses are tested it's where they get feedback and it's where we are able to see the quality and applicability of those courses. So that then we can put them over an hour.

Subscription product, so hard to say exactly where that's going to call. We do think a lot of the features and functionality that we're building out for learners on the UV side first those are most applicable to the personal plan our subscription plan.

Speaker 4: So hard to say exactly where that's going to go. We do think a lot of the features and functionality that we're building out for learners on the UB side first. Those are most applicable to the personal plan or subscription plan.

Speaker 4: And so, you know, we're going to continue to update you as that program rolls out. What I will say is, while we started first in the US, and about 50% of our subs are, our subscribers are in the US still to date, we have added on a number of markets over 10 additional markets slowly over time. And right now what we're seeing is the fastest growth in India. So, you know, more to come on that, but we're really excited about the response that we've seen from consumers with respect to our personal plans.

And so you know we're going to continue to update you as that program rolls out what I will say as well we started first in the U S and about 50% of our subs are <unk>.

Subscribers are in the U S still up to date, we have added on a number of markets over 10 additional market slowly over time and right now what we're seeing is the fastest growth in India. So more to come on that but we're really excited about the response that we've seen from consumers are with respect to our Arsenal plan.

Speaker 8: Got it, that's helpful. And then maybe just a quick follow up. You know, interesting to hear your comments on, you know, certifications and credentialing. I think it's a very topical, you know, topic in the industry right now. I'm sure many of you saw another company in the space acquired a sizable company around, you know, just that credentialing and whatnot. So, curious where you guys think you sit today as it relates to, you know, those credentialing.

Got it that's helpful. And then maybe just a quick follow up.

Interesting to hear your comments on certifications and Credentialing I think it's a very topical.

Topic in the industry right now I'm sure. Many of you saw another company in the space acquired a sizable company around you know just that credentialing and and and whatnot. So curious where you guys think you sit today as it relates to those credentialing.

Speaker 8: Capabilities and you know how hard are you guys going to lean into this how important is it for you Would be helpful to hear your thoughts on that. Thanks so much guys

Capabilities and how hard are you guys going to lean into this how important is it for you would be helpful to hear your thoughts on that thanks, So much guys.

Speaker 3: Yeah, you got it. Thanks for the question. Very important to us. Couldn't be happier with the momentum. And the uptake we're seeing with respect to badging and credentialing. I give an example. We have one of our larger Fortune 500 financial services customers. Run a 5,000-seat initial.

Yeah, you got it thanks for the question.

Very important to us I couldn't be happier with the momentum.

The uptake, we're seeing with respect to Badging and Credentialing I give an example, we have one of our larger fortune 500 financial services customers.

Run a 5000 seat initial phase deployment.

Speaker 3: that resulted in an increase of 13 days, or acceleration of 13 days.

And that resulted in an increase of 13 days or acceleration of 13 days.

Speaker 3: faster in terms of certification completion and a 20% higher first time pass rate than the prior vendor they had used. So as a result of that, we've gone from 1000 seats to 30,000 seats this last quarter through that expansion and that's really

Faster in terms of certification.

Certification completion, and a 20% higher first time pass rate than the prior vendor that had us. So as a result of that we've gone from 5000 seats to 30000 seats. This last quarter.

Through that expansion and that's really.

Speaker 3: You know, I think consistent with what we're seeing across the board is because we have the badging and certification capability in platform now.

I think consistent with what we're seeing across the board is because we have the badging and certification capability and platform now.

Speaker 3: And we have an end-to-end continuity, with respect to Udemy Business Pro, layered on top of our core content, to enable folks to come in, have an immersive learning experience, which ended up self-helps accelerate the learning. And we have an end-to-end continuity, with respect to Udemy Business Pro, layered on top of our core content, to enable folks to come in, have an immersive learning experience, which ended up self-helps accelerate the learning.

And we have end to end continuity with respect to your business pro layered on top of our core content to enable folks to come in have an immersive learning experience, which ended up itself helps accelerate.

The learning process, which helps accelerate the amount of days that it takes to get through the learning process series of courses and then as a result of a higher quality experience a higher pass rate first time pass rates. So that's just one of a number of examples we had another large fortune 500.

Speaker 3: which helps accelerate the amount of days that it takes to get through the learning process, a series of courses, and then as a result of the higher quality experience.

Speaker 3: a higher pass rate, first time pass rate. So, you know, that's just one of a number examples. We had to know the large Fortune 500, you know, A-PAC customers, it's been a customer for a virus for some time, do something similar. And they ended up standardizing on our platform, you know, about a year and a half ago, they just layered in 10,000 seats of U-Pro for their text side of the house.

APAC customer it's been a customer for of ours for some time I do something similar and they ended up Saturday standardizing on our platform.

You know about a year and a half ago. They just layered in 10000 seats of <unk> pro for their tech side of the house and on top of that they said one of the reason one of the primary reasons they ended up.

Speaker 3: And on top of that, they said one of the reasons, one of the primary reasons they ended up

Speaker 3: layering those seats in is because of the badging and certification capabilities that we now have in conjunction with the immersive learning experience of U-Pro. So we really couldn't be happier with the momentum we're seeing right now. And we expect it to continue. Validation is really important. It's important for the learner. It's important for...

Those seats and that's because of the Badging and certification capability that we now have in conjunction with the immersive learning experience of your pro So we really couldnt be happier with the momentum we're seeing right now and we expect it to continue validation is really important it's important for the learner it's important for our customers.

Speaker 3: And, you know, the reality is it's really in support of this whole transition to a skill-based economy.

And you know the reality is it's really in support of this whole transition to skills based economy and so for US we are investing heavily there. We just made available the ability for our for our learners to now display those batches I and you know not only in our platform, but external platform social platforms and there's further investments coming.

Speaker 3: And so, you know, for us, you know, we are investing heavily there. We just made available the ability for learners to now display those badges in, you know, not only in our platform, but, you know, external platforms, social platforms, and there's further investments coming. So, you know, all to say, great momentum on our side, helping us win more deals, expand faster and existing customers, and we expect that to continue.

So all to say great momentum on our side, helping us win more deals expand faster than existing customers and we expect that to continue.

Yeah.

Speaker 1: Our next question will come from Brett Nobler with Cantor Fritz Gerald. Please go ahead.

Our next question will come from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Speaker 9: Hi guys, thanks for the question I can grab from the quarter. I guess one for me, if we kind of look at average ACVs, and maybe the customers added over the last year, it's up 33% in the cellar. And so I guess my question is, what's really driving the ACV growth of more recently added customers? Is it really just like the makeup of the customers you're adding in this tough macro, much more forward thinking? Anything else to help us understand what's driving that?

Hi, guys. Thanks for the question and congrats on the quarter I guess, one for me if we kind of look at average ACB is and maybe the customers added over the last year, it's up 33% and accelerated so I guess my question is what's really driving the ACB growth of call. It. The more recently added customers is it really just.

The makeup of the customers you are adding in this tough macro monkey more forward thinking anything else to help us understand what's driving that.

Speaker 4: I'll take that and break and chime in here. What we are seeing is the dio sizes.

Yes, I'll take that and Greg can chime in here. What we are seeing is the deal sizes increase because enterprises are having a little bit easier of a time navigating this tough macro than that than the smaller businesses and so as that business has shifted toward at all.

Speaker 4: because enterprises are having a little bit easier of a time navigating this tough macro than the smaller businesses. And so as that business has shifted toward enterprise, you'll see that.

Price, you'll see that.

Speaker 4: Also, I believe the clarity in which we are sharing with them, how AI impacts our business, and how it can help them close the gaps that they're looking at. Do these customers, they really are...

Also I believe the clarity in which we are sharing with them, how AI impacts our business and how it can help them close the gaps that theyre looking at these customers. They really are struggling with.

Speaker 4: 5,000, 10,000, 20,000, you name it employees, all of who have different skills needs and those skills needs are changing. They're not static. And so they're looking for a solution that they can partner with.

<unk> 5000, 10000, 20000, you name it employees all of who have different skills needs and those skills needs are changing they're not static and so they're looking for a solution that they can partner with.

Speaker 4: Not just now, but into the future. And I think the roadmap that we've laid out and what we are doing and the product innovation really speaks to the problem that they have and helping them solve that in a very automated, very effective, cost-effective way. Yeah, I'll just add that.

Not just now but into the future and I think the the roadmap that we've laid out and what we are doing and the product innovation really speaks to the problem that they have and helping them solve that in a very automated very effective cost effective way.

I'll just add that.

Speaker 3: The two primary trends, transition to skills-based organization, and then AI literacy are acute. And I was even a bit surprised.

The two primary trends transition to skills based organization and then.

Hey, I literacy are acute and I was even a bit surprise.

Speaker 3: at just how much pressure and how cute the need is for CLOs to be able to answer the question and really solve the problem and really it's more of a take advantage of the opportunity.

And just how much pressure and how cute.

The need is for cielo as to be able to answer the question and really solve the problem and really it's more of a to take advantage of the opportunity.

Speaker 3: to upskill an entire organization with respect to, you know, AI literacy. I mean, it's...

Upskill them, an entire organization with respect to AI literacy I mean, it's it's.

Speaker 3: And it's also something that I could feel it in the conversations that I was in and did.

And it's also something that I could feel it in the conversations that I was any of that.

Speaker 3: They believe, and the CEOs believe that if they don't move now, they're going to get left behind. That it's that fear of missing out or fear of losing the competition because they're not moving fast enough to educate their employees on how to operationally leverage AI internally to get leverage and how to build AI capability into their products and services to provide more value and impact to their customers. The

They believe in the Ceos believes that if they don't move now they're going to get left behind that it's good that it's that fear of missing out or fear of.

Losing to competition, because they're not moving fast enough to educate their employees on how to operationally leverage AI internally to get leverage and how to build AI capability into their products and services to provide more value and impact to their customers and.

Speaker 3: and like i said you know i've been doing this uh... this a while and enterprise software for going on thirty years and even the dot com area and some of these other transitions it hasn't been this acute uh...

Like I said, you know I've been doing this a while I've been in enterprise software for all going on 30 years in each.

Even the dotcom era in some of these other transitions it hasn't been this acute.

Speaker 3: and pointed in terms of the conversations that we're having right now and the investments companies are making. We talked about some large multi-year deals that we're signing as a result of organizations accelerating their transition to skills-based org and accelerating their investments in AI. And we truly believe we're on the front end of this. We talked about the numbers, the vast majority of organizations.

And <unk>.

And pointed in terms of the conversations that we're having right now and the investments companies are making we talked about some large multiyear deals that we're signing as a result of organizations accelerating their transition of skills based org and accelerating their investments in AI and we truly believe we are on the front end of this we talked about the.

<unk> the vast majority of organizations do.

Speaker 3: do not have an understanding as to how to transition to at this ai world or to a skills based or capability and and so this is going to be in front of us for you know years to come at the health organizations really address and

Do not have an understanding as to how to transition to this AI world or to a skills based or capability in.

So this is going to be in front of us for years to come to help organizations really address in and that really is one of the reasons why we're seeing the deal sizes go up.

Speaker 3: And that really is one of the reasons why we're seeing that deal sizes go up and all the accelerants we're seeing on the enterprise side of our business. As much as we're seeing some depression still on the SMB side, the enterprise side and on a global basis within our large multinational organizations, there's an accelerated level of activity around these key trends.

And you know all the accelerants were saying on the enterprise side of our business as much as we're seeing some depression still on the SMB side and the enterprise side and on a global basis within our large multinational organizations others. There's there's an accelerated level of activity around these key trends.

Speaker 1: And our next question will come from Tom, same will her with the city, please go ahead.

And our next question will come from Tom <unk> with Citi. Please go ahead.

Speaker 10: Yeah, hi, I'm Tom here. Thanks for taking the question. Thanks for the presentation. I'm a couple of questions. So that's one of the major I was admitting and I think combining your sort of trajectory of the revenue share and the comment about, I hope you the instructor is not experiencing any absolute concession. And my right and just inspiring that means at least 25% revenue growth next year and around 20% compound revenue growth.

Yeah, Hi, Thanks, a lot.

Taking my question thanks for the presentation.

A couple of questions.

So that's one.

I just wanted to make sure I wasn't missing anything that combining you'll sort of trajectory.

The trajectory of the revenue share and comment about.

<unk> instructions.

Are you seeing any absolute congestion.

Am I about.

About right just confirming that means at least 25% revenue growth next year and around 20%.

Thank you Greg.

Speaker 10: As a sort of base level level, I, you know, through to 2026. I've been to make sure I got the mass right and everything and I think.

Is it sort of bikes.

The level.

Through to 2026.

That's right.

<unk>.

Speaker 4: Tom, thanks for the question. So that response was overall that that will grow, not necessarily that UV is 25% next year. But what we do think is we are gonna be exiting Q4 on the UV side in the mid-20s.

Hey, Tom Thanks for the question. So that that response was overall that that will grow not necessarily that UV is you know 25% next year.

But we do think is we are going to be exiting Q4 on the UV side in the mid twenties.

Speaker 4: And we do think, you know, plus, you know, a few points, but that's a reasonable range in this continued like, tough macro environment. We think that we'll, you know, accelerate when the macro softens, but right now it doesn't look like that's gonna be any time soon. And so really what we're focused on is, you know, a stable instructor pool and growing over time and investing in the things that will allow that to grow at a greater rate over time than it could have without those investments.

We do thank you know plus or minus a few points that that's a reasonable range in the continued tough macro environment. We think that will you know.

Accelerate when the macro cell phones.

Right now it doesn't look like that's going to be anytime soon.

So really what we're focused on is as you know a stable instructor pool and growing over time investing in the things that will allow that to grow at a greater rate overtime that it cut out without those investments.

That's super clear.

<unk>.

Speaker 10: The second one was just on, I suppose, cashew to the moment where you're delivering obviously better, even if we were going for a positive cash flow, which was great. I mean, you've got that big sort of...

The second one was just on cash.

Cash usage in the port.

Delivering on.

Oh, Thank you better EBITDA level, you're going to have positive free cash flow, which is great.

Okay.

Speaker 10: cash balance. I'm just wondering whether there is anything in addition there is to say on cash usage, given what you've sort of related about the sort of accelerated progress to like 15, 20, 20-bit go of engine and then more comfortably with a higher end of that, you should be expecting.

Cash burn so I'm just wondering.

Okay.

In addition.

Sorry I'm on.

Cash usage.

Sort of.

Related to that the accelerated.

Accelerated progress.

20%.

Hum.

We're comfortable with the higher end.

Should we expect.

Speaker 10: more movement on Cassius system when the Büro

Yes.

We'll move on.

Cash usage, whether it's M&A.

Okay.

Yes, it's a good question. Thank you.

Speaker 3: We're still, and we talked about this on prior calls and happy to, you know, to just reiterate that we are active in the market with respect to corporate development, M&A.

We're still and we've talked about this on prior calls and I'm happy to you know to just reiterate that.

We are active in the market with respect to corporate development M&A.

Speaker 3: But for us, it's going to be the bar is pretty high. And we will put that capital to work when we find the right opportunity either to...

But.

For us it's going to be the bar is pretty high.

And we will put that capital to work when we find the right opportunity either too.

Leverage of the.

Speaker 3: technical capability an organization has to enable us to and potentially move forward faster with respect to our AI strategy and our platform strategy at large. And in addition to that, it could be geographic expansion. At this time, we haven't found that right company that we believe is going to help us in one of those areas. And, you know,

Technical capabilities of an organization that has to enable us to potentially move that further faster with respect to our AI strategy and our platform strategy all.

A large and in addition to that it could be geographic expansion at this time, we haven't found that right company that we believe can help us in one of those areas and then.

Speaker 3: but we'll keep going until we do. We do have, it is a heart, to put that capital to work, and it definitely is a focus for us. So we'll keep you posted.

Well, we'll keep going until we do we do it we do have a desire to put that capital to work and it definitely is a focus for us. So we'll keep you posted.

Speaker 1: As a quick note, any interest in time will ask that you please limit yourself to only one question to remain in the call.

Yes.

In the interest of time, we ask that you. Please limit yourself to only one question for the remainder of the call.

Speaker 1: Our next question is, I will come from Terry Tillman with tremendous securities. Please go ahead.

Our next question here will come from Terry Tillman with career Securities. Please go ahead.

Speaker 11: Great, thank you. This is Connor Basler, all on for Terry. Appreciate you taking the question. Just wanted to ask one around the doctor, doctor partnership. Here's spending, if there's any revenue minimums or financial impact from the partnership. And maybe if you could speak to the greater opportunity and date around expanding your leadership position and educating developers, thank you.

Great. Thank you. This is kind of a best seller on for Terry I. Appreciate you taking the question just wanted to ask one around the Doctor. Dr. Partnership curious, if theres any revenue minimums or financial impact from the partnership and maybe if you could speak to the greater opportunity at around expanding your leadership position in educating developers. Thank you.

Speaker 3: That's a good question. No revenue minimums. This is a RepShare partnership. Typical reseller RepShare partnership. And...

Yeah. That's a good question no revenue minimums. There. This is a rev share part in typical resell a rev share partnership and.

Speaker 3: It couldn't be happier with the

Couldn't be couldn't be happier with the.

Speaker 3: co-marketing capability, which is going to be kind of the primary lever for us, that we're going to execute against them. We're both docker and due to me, I've agreed to spend into that. And it's early days, the ability for us to help them with certification. And.

Yeah.

Co marketing capability, which is going to be you know kind of the primary lever for us.

That you know, we're going to execute against similar bolt.

Both Docker and using me have agreed to spend into that and.

It's early days.

Ability for us to help them with certification.

And.

Speaker 3: Skills development is significant, which is why they were excited to partner with us. And I do want to clarify though, that as I'm thinking through the question, as far as revenue per se, this is primarily co-marketing right now, we will over time the evaluating the opportunity to develop revenue generating opportunities or revshare opportunities. But right now I think the initial phase of this relationship is primarily co-marketing. So we'll keep you posted on that.

Skills development Ah is significant which is why they were excited to partner with us and I do want to clarify though that.

Yeah. Thank you threw the question as far as revenue per Se. This is primarily co marketing right now we will over time be evaluating the opportunity to develop.

Revenue generating opportunities of retro opportunities, but right now I think the initial phase of this relationship is primarily co marketing. So we'll keep you posted on that.

Okay.

Great. Thank you.

Speaker 1: And our next question put Devon up with K. Please go ahead.

And our next question will come from Devin.

Please go ahead.

Speaker 6: Hi Greg, hi Sarah. Thanks for fitting me in. Yeah, just one question and also just want to ask about the instructor revenue share. You know, but that structure kind of going from 25 down 15% over the years. How does the revised structure maybe stack up against kind of the other players in the industry? Just any color you can provide on that. Thanks.

Hi, Greg Hi, Sarah Thanks for fitting me in.

Just one question and also just wanted to ask about the instructor revenue share.

But that structurally kind of going from 25% on 15% over the years, how does the revised structure, maybe stack up against kind of the other players in the industry.

Any color you can provide on that thanks.

Speaker 4: That's a great question. And I think I would also remind everyone that we don't just have the instructor revenue share on the Univ business side, but all the instructors that fit in our subscription business sit on our marketplace.

Yeah, It's a great question and I I think I would also remind everyone that we don't just have the instructor revenue share on the heating side, but all the instructors that sit in our subscription business sit on our marketplace and they are able to enjoy a well above market of 37%. So when you look at the combined it is still a very very strong.

Speaker 4: and they're able to enjoy a well-above market of 37%. So when you look at the combined, it is still a very, very strong revenue share. In addition to that, the access that they have to...

Sure. In addition to that the access that they have to 67 million learners and growing globally and the access they have to argue to meet business, which you know even though the macro stuff like we're winning market share like we're in a good spot. So the combination of those I would say make it a very.

Speaker 4: 67 million learners and growing globally and the access they have to argue to be business which

Speaker 4: You know, even though the macro stuff, like we're winning market share. Like we're in a good spot. So the combination of those, I would say make it a very attractive place for instructors to come and share their expertise on our platform.

Attractive place for instructors to calm and share their expertise on our platform.

Speaker 1: And this concludes our question and answer session. I'd like to turn the conference back over to Greg Brown for any closing remarks.

And this concludes our question and answer session I'd like to turn the conference back over to Greg Brown for any closing remarks.

Speaker 3: I'd just like to thank everybody for joining us on the call and appreciate all of the feedback and questions and look forward to seeing you again in February .

I'd just like to thank everybody for joining us on the call I appreciate all of the feedback and questions and look forward to seeing you again in February.

Speaker 1: The conference is now concluded. I'd like to tell you in today's presentation, you may now disconnect your line.

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