Q4 2023 Udemy Inc Earnings Call
Hello, and welcome to the <unk> fourth quarter 2023 earnings Conference call, all participants will be in listen only mode.
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I would now like to hand, the call to Dennis Walsh, Vice President Investor Relations.
Please go ahead.
Thank you Amjad joining.
Joining me today are Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard.
During this conference call, we will make forward looking statements within the meaning of federal Securities laws.
Statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated.
For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.
Our forward looking statements are based upon information currently available to US we caution you to not place undue reliance on forward looking statements and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements, except as required by applicable law.
In addition, during this call certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U S. Generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures.
We believe that these non-GAAP financial measures support management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release.
A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These.
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 Jonathan and good afternoon to everyone on the call.
I'll start today with comments on our results highlight some achievements from 2023, and then provide an update on our strategic priorities for 2024.
You only closed out 2023 with strong results that exceeded expectations for both revenue and adjusted EBITDA margin.
Despite the challenging macroeconomic environment.
You and me increased full year revenue by 16% year over year.
Within that our leading growth engine yummy business delivered impressive 34% year over year revenue growth as companies around the world are prioritizing investment in the Upskilling and reskilling of their talent.
From a profitability perspective.
We delivered our first full year of positive adjusted EBITDA well ahead of plan.
As a company we made meaningful progress in 2023.
I stepped into the CEO role last February.
And we further bolstered our leadership team with new Chief marketing people and product officers, who I'll bring deep experience within their respective functions to you to me.
On our Q4 call last year, we laid out our strategic priorities for investors and other stakeholders.
I'm proud to say that we delivered on each of those priorities which include it.
First.
Established you to me is the platform of choice for professional learners and increasing skills development through new learning modalities.
Last year, we significantly grew our learner base, adding 10 million new learners to our platform and more than 1800 net new you to meet business customers.
We leveraged generative AI technology to create more personalized learning experiences, including capabilities and enable micro learning.
We empowered our instructor partners with tools that help create high quality on demand and immersive content faster and more efficiently.
Further we shared our generative AI product roadmap that will transform how professionals develop skills organizations recruit and manage talent and.
And instructors create content.
Second introduce validation of skills acquisition through Badging and professional certification.
We partnered with one Ed Tech to bring the open bad just standard through our platform.
We introduced curated learning fast hands on labs, and assessments to support us Mi business learners preparation for nearly 200 branded third party certifications and badges.
We also enabled learners two important those badges and certifications onto our platforms to signal skills proficiency and to empower organizations with valuable data about their workforces capabilities.
Later this year, we will be extending our professional badging and certification capabilities to our consumer marketplace.
Third accelerate global expansion.
We leaned into our partner strategy.
They're developing our relationships with AWS, Tennessee, and other technology and regional reseller partners that extend our reach domestically and internationally.
Yeah.
To further our commitment to Upskilling and Reskilling you to me also entered into new partnerships with Docker.
A leading provider of development tools and service now.
Adding digital workflow company.
And finally.
Increased company wide operational efficiency and progress toward profitability.
Thanks to our disciplined approach to driving efficiencies throughout the organization, we delivered positive adjusted EBITDA for the full year ahead of plan.
Building on that momentum, we enter 2024, well positioned to capitalize on a large and growing opportunity.
AI is changing the way the Woolworths and is expected to have a four trillion dollar impact on organizations.
This unprecedented transformation.
Driven by rapidly evolving technology is expected to affect nearly every professional role in every industry and region.
This represents a massive long term opportunity for you to make since skills are at the heart of this revolution.
More than ever employers are recognizing the importance of prioritizing proficiency in specific skills, rather than solely looking at traditional degrees and job histories.
A recent study found that more than 90% of company's beliefs skills based hiring is more effective than traditional resume based approaches leading to a reduction in mis hours by nearly 90%.
This shift the skills based practices, just becoming increasingly necessary to support workforce retention.
<unk> internal mobility and enhance workplace diversity.
In addition, <unk>.
Corporate leaders around the world are concerned about a pending talent shortage.
A new study found that by 2030 less than six years from now.
It will be a global talent shortage of more than 85 million people.
This could significantly restrained company's growth, resulting in trillions of dollars of unrealized annual revenues.
As the business landscape further evolves so did the skills required.
Demonstrated by the powerful impact of generative AI in just one year.
In this current environment developing workforce skills, especially AI proficiency is essential for organizations to remain competitive over the long term.
The number one topic, we are discussing with leaders in almost every company is how <unk> can help them develop a digital transformation strategy.
As an example, genpact a leading global professional services company committed to leveraging data checking AI services recently expanded their relationship with you and me.
Genpact collaborated with you to meet to develop it's Jenny I talent Academy, a comprehensive 12 week program focused on developing AI skills.
With the introduction of this innovative learning program Genpact not only achieved its goal of upscaling and specialized workforce and generative AI, but it also emerged as one of the pioneering entities in the industry.
Genpact achieved this goal two times faster than expected.
Their team with the essential readiness to address escalating client demands.
Another example is Marriott international.
Which expanded their relationship with you to me this quarter as they are in the midst of a similar transformation.
Marriott, where leverage the learning platform, including our you'd me pro offering and local language collections.
As they further invest in growing their global digital and technology workforce.
Forward thinking companies like Genpact, and Marriott recognizes the importance and value of investing in employee Upskilling and reskilling.
Those that don't risk falling behind.
We believe skills based organizations with robust internal LNG programs see increased employee retention and also achieve better business outcomes.
It's for these reasons that many companies today are redefining jobs as collections of required skills.
Considering each roles evolution over the long term.
During the fourth quarter, one of the largest financial institutions in the World engaged you to me to provide a comprehensive learning solution that supports their goal of upscaling across the organization.
This new customer entered into a seven figure multi year multi product deal partnering with our team to accelerate the development of cloud and other technology skills with high quality and immersive learning experiences.
We continue to see a trend of financial institutions, becoming early adopters of AI technology.
Thus driving meaningful demand from that sector.
Another new customer then engage you to me during Q4 to support their LNG efforts as Airbus, a global aerospace and defense company.
As Airbus is shifting focus towards becoming a technology company Reskilling and upskilling existing employees is fundamental.
Yeah to me was selected as their partner due to our agile contact model that aligns with their shift towards becoming a skills based organization with emphasis on digital badges and professional certifications.
And initial focus is on digital profiles via the Airbus Digital Academy, a central hub for all data and tech content for.
Were you to me provides the skills development that helps their employees keep up with the accelerated pace of technology change.
Taking all that into account truly illustrates the importance of creating a culture of continuous learning are central to the future of work.
Traditional LNG models, which were primarily in person as well as publishing models.
Keep pace with today's ever evolving skills needs.
With our on demand immersive and cohort based learning modalities you to me is well positioned to become the exclusive partner to support any company's transition to a skills based organization.
Looking ahead, we are refreshing our strategic priorities for 2024, which include.
First.
Established you to me as the skills development platform of choice for professional learners and organizations.
Second.
Elevate the eat me brand globally, so that it becomes synonymous with skills.
Third support you'd mi business growth through strategic partnerships strengthening our global distribution capabilities.
Opening up new routes to market and additional ways to access the U to Mi platform.
Fourth accelerate global expansion.
And finally.
Further transformed that you'd me platform from an on demand learning content provider to the most innovative skills development platform.
Utilizing AI powered capabilities to accelerate skills acquisition and validation.
We're already off to a great start delivering on those priorities.
Two weeks ago, we unveiled our near term generative AI product road map and are you to me intelligence skills platform.
Our next generation software solution powered by our rich content model.
Your enemies comprehensive platform is set to redefine the LNG software landscape by incorporating a suite of cutting edge AI powered capabilities, including our learning assistant skills mapping and several new content creation enhancements for instructors.
At the same time using these platform will serve as a rich repository of learning data and actionable insights.
Enabling us mi business customers to make informed talent management decisions regarding internal mobility and recruitment strategies.
Ultimately utilize platform will revolutionize the way organizations future proof their workforce by fast tracking the acquisition and validation of critical professional skills required to more efficiently develop talent and thrive over the long term.
We are excited about the prospects of our product roadmap and are committed to continuing our journey of innovation and transformation.
All of this progress sets the stage for 2024.
Although the demand environment hasn't changed meaningfully since our last call in November we are confident in our ability to grow our business and continue capturing market share.
We believe the investments, we're making in brand product and our go to market capabilities will support our long term performance, giving us confidence that we will reaccelerate AOR growth this year.
Tara will provide more details on our outlook in a moment.
One final point before I close.
In conjunction with today's results announcement, we also shared that our board of directors has approved a stock repurchase program to acquire up to $100 million of the company's outstanding common stock.
This repurchase program not only underscores the confidence that our board and management team have in the future of you'd me, but it also allows us to leverage the strength of our balance sheet and deliver returns back to shareholders.
In closing.
We remain focused on executing our strategy as we help enterprises around the world transition to skills based organizations.
I want to thank all <unk> employees for their hard work and contributions to the results we delivered in 2023.
As well as to our valued instructors customers partners and shareholders for your continued support.
Now I'll turn the call over to Sara for her financial review.
Thank you Greg.
I'll start with comments on the key financial highlights and then provide our outlook for Q1 and full year 2024.
You can find the complete set of financial tables in our news release, which is available on our Investor Relations website.
We outperformed our full year 2023 guidance for both revenue and adjusted EBITDA margin.
Revenue of 729 million increased 16% year over year, including the negative impact from foreign exchange or FX of three percentage points, while we delivered our first of all here a positive adjusted EBITDA ahead of plan.
We could not be more proud of our team for their hard work over the past year to deliver these results in a challenging environment.
Yeah.
I will focus the rest of my comments on our fourth quarter results.
For the fourth consecutive quarter, our results exceeded guidance on both the top and bottom line.
Revenue increased 15% year over year to 190 million or nearly 3 million above the high end of our guidance range.
The year over year growth included a negative impact from FX of one percentage point.
The contribution from regions outside of North America, with 60% of total revenue an increase from 59% in Q4 of the prior year.
Similar to previous quarters, our enterprise business continues to deliver a best in class software company performance.
Business revenue increased 27% year over year to $115 million.
Included in that growth with a two percentage point headwind from changes in FX rates.
We ended the year with annual recurring revenue or <unk> of 466 million up 25% from a year ago.
From a macro perspective, the current environment remains volatile and sales cycles remain along it contributing to slower than expected conversions across most regions while.
While we are generally pleased with Q4 era, we did have softer than expected performance in Vietnam, and South Korea, where we have reseller partnerships and saw continued weakness in EMEA region.
Encouragingly, we are seeing higher quality leads coming through the pipeline and deal size and term length drop with a number of $100000 plus deals and multiyear contracts and are showing meaningful year over year growth.
As of the end of 2023, we signed 80% year over year increase in seven figure deals and are are a testament to the values large corporations are assigning to LNG investments globally.
Our consolidated net dollar retention rate at year end was 106% flat compared to the prior quarter. The rate was 113 per cent for large customers are those with 1000 or more employees, just one point lower than the prior quarter. It is encouraging to see that dollar retention showing signs of stabilization as we enter a new year.
On top of that gross dollar retention was unchanged once again.
In aggregate, we grew our customer base by 13% year over year to nearly 16000 customers globally.
Our consumer market place continues to be vibrant.
Approximately 34 million average monthly unique visitors came to our site during the quarter and instructor engagement remains strong more than 5000, new courses were added each month on average and 60% of our tap courses were updated in the past 90 days for.
For the quarter consumer revenue was flat on a year over year basis, and the impact from FX was not meaningful.
As we move down the P&L not that all financial metrics are non-GAAP unless stated otherwise.
Q4 gross margin was 59% a 200 basis point improvement from Q4 2022, driven by the continued revenue mix shift to Ub business, which accounted for 61% of total revenue in Q4, an increase of 600 basis points year over year.
Gross margin for you to meet business segment came in at 69% for the fourth quarter of 200 basis points from the prior year.
Operating expense was 114 million or 60% of revenue and 200 basis points lower than Q4 of last year. Thanks to our focus on company wide cost efficiency sales.
Sales and marketing expense represented 40% of revenue down 700 basis points.
R&D expense was 12% down 200 basis points and G&A expense was 8% down 300 basis points.
Okay.
On the bottom line, we delivered net income of approximately $4 million or 2% of revenue.
Adjusted EBITDA was positive for the third consecutive quarter at approximately $4 million or 2% of revenue, representing a 1400 basis point expansion year over year, and 100 basis points about the high end of our guidance range.
The better than expected adjusted EBITDA result was primarily driven by revenue outperformance and disciplined approach to ensuring operational efficiency throughout the organization.
Moving onto key cash flow and balance sheet items.
We ended the quarter with 481 million of cash cash equivalents restricted cash and marketable securities.
Free cash flow for the quarter was negative $11 million driven by timing related to bookings and collections.
Now to introduce our outlook for Q1 and full year 2024, we.
We are cautiously optimistic about 2024, given the lingering uncertainty macroeconomic conditions.
Well the environment is beginning to show early signs of stabilization. Our approach is unchanged we are monitoring.
During the environment closely and are taking prudent steps to position ourselves to move fast one screen should start to materialize.
On our last call, we shared that 'twenty 'twenty four will be a heavier investment year in future periods, we have aligned our strategy as well as our investments in product innovation brand and go to market to capture the increasing global demand for skills development.
For modeling purposes, we anticipate that opex as a percent of revenue will be greater in the first half of the year.
We expect our strategic investments in brand and product to begin delivering returns in the back half of the year, which we're confident will result in celebration of air growth followed by you to meet business revenue growth.
With that we expect Q1 revenue to be between 193 and 196 million.
Assuming foreign currency exchange rates remain constant FX is not expected to meaningfully impact Q1 revenue growth.
On the bottom line, we are targeting breakeven for Q1 adjusted EBITDA margin.
For the full year, we expect revenue to be within a range of 795, and 810 million or 10% year over year growth at the midpoint, including an estimated three percentage point negative impact from FX, assuming no further changes in rates.
Further we expect unit business revenue will account for more than 60% of Tullow revenue for the full year.
On the consumer side, we remain focused on maintaining a vibrant marketplace in 'twenty 'twenty, four which will continue to fuel the flywheel that powers the enemy businesses Carla.
As a reminder, we are not currently investing behind consumer revenue growth. Therefore, we anticipate it to be down 3% to 5% year over year in Q1 and on a full year basis.
On the bottom line, we expect full year adjusted EBITDA margin of 150 to 200 basis points.
Going forward, we will continue executing on our strategic initiatives as we progress toward our long term financial targets.
So it won't be a straight line. We are confident that we will achieve our adjusted EBITDA margin target of 15% to 20% by 2027, driven by the revenue share change continued revenue mix shift to your to me peso and Opex leverage primarily from sales and marketing as we scale globally.
We plan to make significant investments in brand and product innovation, while also focusing on expanding operating and free cash flow margins.
With the introduction of our share repurchase program, we can opportunistically return capital to our shareholders throughout the year as we execute on our long term initiatives and as the macroeconomic environment improves we are well positioned to create significant shareholder value.
In closing 2023 with a transformative year for us and we are proud of the milestones we achieved.
Our outlook for 2024 does reflect challenges we experienced in Q4 that flow into the first half of this year.
However, our long term growth opportunities in this space are significant.
He provides a comprehensive solution that addresses increasing demand to support companies as they transition to becoming skills based organizations and develop strategies around generative AI.
With all of that in mind, we are as excited as ever about the future and look forward to keeping you updated on our progress.
So with that we'll open up the call for your questions moderator.
Thank you very much we will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Stephen Sheldon with William Blair. Please go ahead.
Hey, Thanks for taking my question first year, just on the revenue guidance.
Great to get some color on the growth assumptions you've made between <unk>.
Consumer and your <unk> business and then just generally I guess at a high level, how you factored in broader macro trends in your guidance.
It seems like you maybe have taken a conservative approach there but are you are you kind of assuming that the budgetary pressure from organizations continues throughout the year on the business I just would love some.
The detail there.
Yeah. Thanks for the question Yeah. So you know first we're very pleased with the quarter delivering Ub revenue up 27% year over year and million dollar plus customers up 80% and our full year EBITDA profitable ahead of schedule.
But our guidance really took into consideration a few things. One is you know there is still this macroeconomic volatility and we expect that to continue for some period of time.
And as we spoke about we did see some execution issues in the second half of Q4, and specifically that was with some of our reseller partners in Korea and Vietnam.
And you know we saw extended softer performance in EMEA.
On the consumer side of things the focus for us has been marketplace vibrancy.
And we are seeing an increase in customer acquisition cost while at the same time, our asp's are up but putting those two things together along with the pullback that we've had over the past two years in performance marketing spend our focus really is on continuing to see.
5000 courses, you know a month being published and that constant stream of high quality fresh fraud com.
Content, we are not going to be reinvesting behind consumer and tell we're reporting some of the Ub capabilities for our learners over to our consumer side of things.
What we're looking at for the year as you know we are in the process of taking some actions to address that.
The performance and execution issues, we saw in the back half of Q4, and so you know, we set pretty and expectations for the first half because those initiatives will take some time to take hold but we do expect a or our growth well it will be down.
Down a bit in the first half and then accelerate in the back half.
Got it.
Is there any way to like for Korea, and Vietnam, I guess is there any way to frame roughly how big.
Those countries are in terms of games.
The contribution to <unk>.
Hi, Stephen Good question.
So I won't get into the specific.
Numbers of economics around it, but we did get surprised and.
Material enough for us to call it out to you.
And the actions, we're taking as we're putting gms and the process that we've already got one of these hard in both countries and Korea and Vietnam to bolster our leadership.
As well as ensuring that from an enablement perspective, we're taking all the knowledge and best practice, we learned.
On a global basis, and specifically in Japan, where we've seen continued growth and acceleration.
Porting that over to Korea, and Vietnam and that leadership is going to is going to help with that so those are the actions we've taken and you know.
As you also mentioned it wasn't just exclusive to Vietnam and Korea, we did see.
Execution issues in other segments and were taken similar action in those areas. So the net of it is we're.
We're confident.
Do we know what we need to do to address the execution issues.
The plans are in flight.
And as Sarah mentioned, we are confident that we will see acceleration in our growth in the back half of the year.
Got it that's helpful.
Just maybe then switching to the margin guidance youre not assuming much expansion relative to where you ended up in 2023, even work with the upward trend in gross margins and you talked about that as being the right expectation last quarter, so not a big surprise, but it'd be great to get some detail and it seems like you're maybe ramping the strategic investments I'm just some more detail on.
Specifically kind of what your where you're making those investments.
Yeah. It's a great question as you you know sad we have shared that this year, it's going to be an investment year for us. So while we expect about 300 basis points of expansion from a gross margin perspective.
Both the instructor revenue share changes and from the continued mix shift to U B. We are reinvesting the majority of that back into the business such that this year, we expect about 150 to 200 basis points on the bottom line.
Estimates are in three areas, namely the first is brand.
You to me historically has not invested in branding and now is the time the second is N product investments specifically some.
AI enabled capabilities that are going to be complete game changers for the value that we can deliver to our customers and I'll, let Greg share a little bit more on that but the last thing is in specific areas, where we did see a great performance in certain segments, we will be continuing to expand the go to market teams.
Sir.
Yeah, I'll just add Stephen that.
Look we could not be more excited about the investments, we're making and the impact. These investments will have and in terms of the intelligent skills platform. We just talked about it a little bit but if this is gonna be a game changer for us and most importantly for our customers as we began delivering skills mapping, which is going to save LNG.
James hundreds of hours and the learning assistant which is going to develop excuse me going to deliver a personalized learning experience that is transformative.
And something that we have not been able to to accomplish without.
The addition of generative AI into our tool kit and then automated Q&A for instructors you know today many of our instructors spend hours answering Q&A, there's been able us to answer those questions in seconds, and then instructors validate the answer in an off ago. So this is just the beginning.
And one of the things we're probably most excited about now that we have the ability to leverage the data that we get from 69 million learners on the platform.
Over cross 220000 courses.
Gives us the ability to feed that data into our L. O M.
And then be able to produce insights back to our customers about the most valuable resource which is their people.
That is going to enable them to transform how they run their businesses and leverage those without those valuable resources. So we're at the front end of this we're making some big investments right now we're already starting to see are these investments start to have an impact and we'll be talking more about this as the year progresses.
Very helpful. Thank you.
Thank you. The next question is from Curtis Nagle with Bank of America. Please go ahead.
Terrific. Thanks, very much taking the question one maybe just more of a clarification in terms of I guess, the pullback or a decision not to invest more in.
Marketing.
To stabilize the consumer revenues it sounds like your return hurdles are quite.
I guess there are two hard to justify.
The investment is that the case or anything else you, though I guess elaborate on.
Yeah really what we're looking for before we start to invest more than we are currently from a marketing perspective behind consumer.
Is getting some of that functionality that we're launching and Ub first on the consumer platforms, such that the ltvs of those consumers of those learners makes sense and so for us, it's all about balancing where youre investing balancing growth and profitability Ub.
Business is the growth engine of our business and so we're focused our investments there first but we will be putting some of those capabilities like badging and certification under the consumer platform and then making some decisions about how we invest behind that.
Got it Okay, and then just one Ub in terms of the accelerating revenue.
It sounds like that's a two H a bench.
I guess aside from.
Maybe a clearer macro and maybe more importantly.
New product rollout and what are the catalysts.
It gives you the confidence to say that you think that's going to happen.
So at this point right now.
Yeah. It's a good question I think.
In terms of the <unk>.
Forward look.
The look forward as far as U b and our confidence with respect to the ADR growth and expansion in the back half of the year really comes down to three primary areas. The.
The international expansion that we're leaning into and investing and is a massive opportunity for us.
Based on the brand awareness, we have in countries like India and Brazil.
And the lead bowling pins that we've already knocked down in these markets to give us a lot of confidence that we can but we can run that rina run the table with the right investments.
And the rights a programmatic approach.
Second is.
The leverage that we believe we will get.
Through the investments, we're making in strategic partnerships.
With the likes of AWS.
Service now.
Docker and many others that were engaged with.
And there'll be more to come as we start to progress throughout the year, but.
We absolutely.
I believe that we're going to see material leverage from these partnerships and then finally, it's Brandon product investments, we've talked quite a bit about the product investments already.
We're making equally important investments in brand and those AI related product investments of which I. Just highlighted Oh, you know really are going to transform learning and organizations and again, we're at the front end of this.
And so we're making some big bets are those bets are well placed and we expect those bets start to materialize in the back half of the year.
It gives us a lot of confidence that our growth will happen.
Okay very clear I appreciate the answer.
Thank you. The next question is from Ryan Macdonald with Needham and company. Please go ahead.
Alright, Thanks for taking my questions, maybe first just starting on the investments can you help me understand the the investment in brand.
Obviously, you to me a very large marketplace you know millions of learners are coming per month to the platform.
You would have had a pretty good <unk> business in terms of gaining share helped me understand where you feel like you need to invest incrementally to build out the brand and.
Are there opportunities that you are bets that you think youre not getting still or maybe just help provide some more context around that thanks.
Yeah happy to Ryan.
So like most organizations, we do brand surveys on a fairly frequent basis, and our unaided and aided brand awareness.
And a number of our key markets.
Is much lower.
Than we would've thought and much lower than you would expect.
And so yes, we believe that there'll be a halo effect and we will get significant lift.
By investing in.
Developing <unk> into a household name synonymous with skills and skills development.
Within organizations large and small and so you know we're underway in the investment we're making in Mclaren and the partnership there and multiyear investment is just one of.
Many investments, we're making to start to elevate the brand.
And give us an opportunity to.
Make it much easier for our sales organization to have that first conversation in terms of.
The awareness of the value and impact our relationship with you to meet can bring.
So yeah, yeah top funnel without question is to quantify an impact Brian is it is a goal and focus and we are.
Quantitatively measuring the investments in brand and a variety of different ways and we're excited about the yeah. The early impact we're starting to see and the programs are just kicking off so yeah, theres a big opportunity for us there really is.
I appreciate the color there and maybe for a follow up on the product side, obviously, great to see the investments on <unk>.
AI generative AI and then obviously skills mapping.
You know from the from the checks that we've had out in the marketplace. It seems like that with AI. What are interesting functionality out there early days, but there's still a hesitancy you know with <unk> you know to invest in this area or maybe just not sure where to start and then skills mapping. It's it's something that it seems like most organizations.
And as we speak he wants to move towards but it's not an easy fix so as you think about some of these product investments and then commercializing those how do you start to get customers over the hump. This year was.
As you know more broadly go to market with that functionality.
That's a really doing wrong.
So first I'll say that the example, we gave the Genpact example of Genpact, creating their own AI Academy, we're seeing that type of scenario.
Play out in a number of our engagements another one.
As you know just to give you a little bit more color in and bring this to life Emirates integrated telecom Middle East in front I think this is one of the first large organizations in the Middle East has developed their own version of an academy they called checkup.
And they partnered with us specifically.
To up level, the AI literacy in the organization with respect to chat GPT.
And a key component of that was being able to validate their employees that acquire those skills through our validation capabilities.
Now they started with tech skills first.
And they're in the process of putting the plan in place to expand to management leadership coaching and then the sales organization. So.
Although.
It may feel like and Youre doing some market tests and touch points that a lot of organizations and they are all in the exploratory stage.
There's also the progressive organizations that are much beyond that they're moving.
And we believe that those are the organizations that are truly going to get a leg up and have the ability to distance themselves in their category and so you know.
Again, we're enabling that and you know our content.
And the focus we're putting on enabling our customer success organization to help these companies developed the right strategy.
In addition to the platform that we provide it really is one of the key components because you know Ryan.
The platform without the strat most organizations don't know how to do this right.
Right, they're looking for from from US So looking for as much of the strategic value and insight in terms of how to think about developing.
A capability around AI in their company as much as they are the platform to do it and we've invested heavily to enable our customer success organization to provide that strategic level of service and support upfront to enable the organization to get comfortable with making that investment starting that transition. So there's a lot that goes into it you're absolutely right.
And we've made some big investments and we'll continue to make those big investments to help organizations take that step and the ones that have been or are already starting to reap.
Rewards as a result, and we're doing that ourselves by the way right. We put everybody in our organization through a boot camp and a lot of the progressive companies are doing just that.
Look forward to seeing the progress thanks, Greg.
Thank you. The next question is from Josh Baer with Morgan Stanley. Please go ahead.
Great. Thanks for the question I wanted to stick with growth and margins.
Thinking about it from a rule of 40 basis.
In 'twenty three it was close to 17% and then in guidance implied is closer to 12% and so with that in mind two areas of questions first what is your growth and margin framework and how should investors.
What what should we think what shall we expect from a rule of 40 like metric from a philosophy standpoint in a second if you could talk to any areas of conservatism that are embedded in this initial guidance. Thanks yeah.
Yeah, Josh Thanks for the question.
Our philosophy around rule of 40 is we are working.
Working toward achieving that.
For this year you know what we see is you know at the midpoint, it's about 10% revenue growth and that includes about three percentage point headwind from <unk>.
Facts.
What you have to remember is we are sitting in front of a massive opportunity and organizations have to transform how they upskill and reskill their employees.
Stay up with the pace of change and to embrace.
AI technology and other things that can actually really help their businesses and so you know as you're thinking about the long term opportunity. This is an investment year because of our position because of the opportunity in front of US we are always thinking about balancing that growth balancing profitability.
But the long term our long term expectations around EBITDA market have not changed we are still committed to achieving long term.
EBITDA margin of 15% to 20% by 2027, and so while we worked through some of these short term execution issues that are impacting the top line in the first half we continue to invest in do you think the things that are going to drive that long term growth continued at a lever ub growth at ski.
Ill above 20%.
And at the same time, we are committed to continuing to pursue areas of operational efficiency, which you saw us deliver against very meaningfully in 2023.
Great very helpful. Thank you.
Thank you. The next question comes from Terry Tillman with Truest. Please go ahead.
Great idea and this is Conor bestseller on for Terry I. Appreciate you taking the question I just wanted to ask one as it relates to you would be curious on the uptake of Badging and certification in how the adoption curve has trended there it's been coming mostly from the advanced R&D organization, so far or has it actually been more mainstream with adoption coming from a variety of.
Thank you.
Yeah. Good question, Yeah, we continue to remain that remained very.
Bullish and excited about the adoption badging and certification as well as the.
Probably most importantly, the value and impact that it's starting to have a go.
An example, but we've got a large large multinational tech company.
That.
Decided to run a side by side a b test.
With 200 consultants and the a b test was around AWS certification.
The first 100 ran through the process of educating themselves and then taking the certification.
The way they always had in the second group leverage our content and you wouldn't be a pro our immersive learning capability.
To prepare them for that test.
The group that use our technology, our platform and our approach.
That certification in half the time.
Half the time equated saving 15 hours per person for the prep.
Along the path of acquiring that certification so we're starting to see meaningful impact.
The combination of <unk> pro and our validation capability around Badging and certification and that's just one example of many that are like that and we are starting to see even more velocity and impact around us winning new business as a result of having the full complement on our platform.
Tech content.
Soft skills power skills content management leadership development content.
All with the ability to to validate and form a badging and certification that skills have been acquired again coming back to our approach around skills development and developing that intelligence skills platform. So also say really excited about what we're seeing and we expect it to continue.
Really helpful. Thanks, Greg.
Thank you and.
In the interest of time please.
Keep to one question and then you may jump back in the queue by pressing star one.
Next question comes from Brent Hill with Jefferies. Please go ahead.
Thank you.
Good luck on for Brian Thanks for taking the question.
I wanted to ask on automated Q&A.
And you know a little bit more about how you guys are building that and going about it.
I guess for why don't you building your own or your.
Partnering and.
I know you talked about it being used for entering in structure instructor questions. A quick one for instructors to then look at it.
Validate but is there an opportunity to roll that out more broadly to the consumer.
In a way, where it's not necessarily correlated but can help.
Someone who is just trying to understand any question. Thanks.
Yeah. Good question.
So effectively how it works in all keeps us very brief as well.
We are transferring automated we we develop but we've automated the ability to develop transcripts associated with all 220000 courses that are on our platform. We feed those into the L M and that gives us the ability.
Obviously AI enabled to.
Light up the ability to answer questions as they come through.
Instantaneously, because we've got all the insight and information the transcripts from all of the courses that are learners would check and so really what that does we've got many instructors to spend upwards of 50% of their time of day four hours a day either themselves.
Or their T A's teaching teaching assistance answering questions.
So that removes all of that time and energy that goes in answering those questions now all they have to do is validate that the answers are accurate they.
Make any adjustments hit send and off it goes and we're really excited about the level of accuracy. We're seeing in the early days, we know as we continue to.
Educate the L M and that happens automatically.
Did that the accuracy is going to improve over time and do we have the ability to port this type of capability to the consumer experience.
Answer is yes, and in a variety of ways.
And we're really excited about that I mean, I'll tell you one of the things. We're most excited about you know in the short to midterm as <unk>.
Porting, the Badging and certification capability to the consumer experience, so that all of that validation.
The opportunity is now made available in that environment. In addition to all that the capabilities. We're talking about now that were initially launching into the enterprise segment everything Thats applicable, we're gonna port down to the consumer experience. So you can surely expect the enhancements to flow down and that process will not be alone.
We expect that to be a fairly quick process.
Thank you. The next question comes from Noah Herman with J P. Morgan. Please go ahead.
Hey, guys. Thanks, Thanks for taking the question.
With respect to linearity in the quarter can you provide just some color on the top of funnel demand and conversions throughout the quarter.
Yes.
Yeah, I'll take that thanks for the question Noah.
So very typical with a fourth quarter and any corner, but you see this more so in the fourth quarter.
The bookings come in the last month.
So from a linearity.
Perspective, you book, a small portion not won a small portion of their month two and then the the most significant portion in the last month and that's exacerbated in Q4 as companies are figuring out their budgets for the next year and so you know that's what we saw and expect it again in this quarter.
And you know when we got down to the last that last month, that's where we identified some execution issues, but the bookings that come in as expected and.
In some respect it was.
Masked a little bit by the macro.
But we are taking actions against that and we expect to see that those initiatives take hold in the back half as we continue to invest in all the areas that are going to drive our long term growth.
Thank you. The next question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.
Hi, guys. Thanks for taking my question, maybe just on the broader budgetary commentary.
I think NII has been making waves for over a year now and I think this is supposed to lead to increased reskilling and upskilling by organizations. So I guess, what's the holdup or hesitant hesitancy on the organization's part and what do you think is going to be the cause for an inflection and what they're willing to.
Spend money on from a re skilling perspective, thank you.
Okay.
Yeah. Good question I'll take that.
So.
Amidst the guidance that we provided I think it's important to call out that we are seeing.
In our enterprise segment.
North America and around the world.
And we're seeing.
Accelerated expansion.
Opportunities start to come to life and get executed.
And the pace of those starting to increase given example, mercado libre.
Largest E Comm Fintech company.
Company in Latin America.
Just expanded significantly expanded their relationship with us this last quarter from initially Argentina, and Brazil to all of Latin America based.
Based on our ability to help them execute their strategy.
With respect to upscale.
Skilling and Reskilling.
They're tech teams and beyond.
Including AI, which was a key component of that.
On an ongoing basis and that's as a result of the success we had in the initial two countries.
When you look at.
A government entity like County, Los Angeles, 100000 employees has been a customer since 2021.
Based on the success that they saw and over 90% of their supervisors seeing an increase in productivity.
And employee engagement this is quantifiable impact.
They made a decision to deploy 200000 proud of that it was a subset.
We are seeing acceleration, we are seeing organizations spend money, we are seeing organizations leaning into the notion of we have to develop the skills necessary for us to be competitive and win in this environment, where the pace of change is increasing every day.
So as much as I know right now based on the guide. It may appear that you know and we are taking a conservative approach to the year Theres no doubt about it but it may appear that that's.
The velocity.
Of the business.
Is not necessarily.
Well, we would like it to be and.
The reality is we already talked about some of the execution issues, but what we're really excited about is the impact we're starting to see in the enterprise. We're starting to see dollars be spent at an accelerated pace consolidations continue to happen.
The Marriott opportunities, we talked about was.
As a consolidation to our platform for multiple.
The large multinational financial institution that we talked about seven figure deal.
Consolidation from multiple to our platform.
So momentum is building in our enterprise segment, which by the way is 80% of our revenue.
But that's hidden a little bit based on the guide and based on some of the execution issues. We did see coming out of Q4, which we absolutely are confident will be rectified. So I know, there's probably a little bit more color than you were looking for but I think it warrants it.
Because you.
The reality is this business is very healthy.
And on really solid footing don't forget.
UB is projected to exit the year and a half a billion in revenue are growing over 20% year over year with a massive tam and significant tailwind so yeah the opportunities in front of us.
<unk> got a very solid foundation that we're growing from and.
The economic climate, we believe throughout the year.
Is going to enable us to execute at the level, we've talked about so I'll leave it at that.
Thank you. The next question is from Jeff Mueller with Baird. Please go ahead.
Yeah. Thank you if you can pull up on for Jeff.
You mentioned that sales cycles remain elongated maybe just put that into context are you seeing incremental elongation is it sort of stable at higher levels and how much longer rite aid and you would expect for a normal sales cycle.
And then Sara I think you had mentioned something about higher quality leads in the pipeline.
Any color there around what makes you make you characterize them that way.
Yeah. Thanks for the question Yeah. So sales cycles has did not along gate.
Further in Q4, we did see some pockets in Q3, where the sales cycle.
And then a little bit, but we are nowhere near historic levels still those sales cycles are they're pretty stable that elongation continues but did not get worse from a quality of leads in the pipeline. There has been a lot of work done on our funnel and ensuring that we are capturing the leads and then spending our resources.
Following up on the lease.
That are more likely to convert so we have seen our when rates go up.
And that is a function of the quality of the leads but then get converted into opportunities for us are those parties that are more interested that no more and understand more about our business because of the upfront work that we've done.
On the marketing the outbound side.
Thank you. The next question comes from Jason Selina with Keybanc capital markets. Please go ahead.
Hi, Greg Hi, Chiara. This is largely devin on for Jason today, Thanks for taking our question.
Just wanted to also follow up on kind of your expectation of BRL growth to pick up in the second half are you also assuming net retention to improve and also new customer growth to kind of accelerate in the second half just any additional color you can provide on your confidence back yeah.
Yeah. Great question, you know from a net dollar retention we don't.
Give out guidance on that but what we expect is once that net new air or starts to pick up in the back half that will over time translate into an improvement in net dollar retention, which again is still strong and the snap route 113% for our large customers and stable at 106.
Overall from a logo perspective, because I heard you talking a little bit about customer count there.
We did in Q4 I see some of the the smaller side of our SMA business.
Not renew at year end, but that is something typically that we also saw last year, where we add more logos in the third quarter than we do in the fourth quarter, where that enterprise business continues to chug, along and drive that growth, but you see some attrition on that on the low side.
Thank you. The next question is from Arvind <unk> with Piper Sandler. Please go ahead.
Hi, Thanks for taking my question.
Wanted to ask about.
Kind of staying disciplined on the kind of.
Operational efficiencies and you kind of being prudent on on radio spend money, but also at the same time.
Making investments there.
Both of them through the call. So I just wanted to kind of reconcile those.
Two dynamics on the on the expense side.
Yeah, I'll I'll take that question. Thanks Arvind.
If you just look across you know 'twenty, two and 'twenty three from a percentage of revenue what we are spending on the different functions in the organization that has come down dramatically and that is because of the operational efficiencies. The systems that we're investing in the processes that we're investing in.
To drive that operational efficiency and we're going to continue doing that you heard Greg say that we have.
And AI boot camp across the organization there are AI investments that we can make for our operation not just our partner before our operations that will continue to drive operating efficiency.
At the same time, we are going to be investing in the R&D capabilities that we spoke about and our brand spend that is new.
And so those two things are balanced out and that's why you're seeing we had significant margin expansion on the bottom line in 2023.
But it's only going to be modest in 2024, as we make those investments and continue to focus on capturing the long term growth.
Thank you. This concludes our question and answer session I would now like to turn the call back to Greg Brown for closing remarks.
Thank you I'd just like to thank you all for joining the call today.
And we look forward to connecting again in May for the Q1 update so thank you again have a great afternoon.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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