Q2 2024 Udemy Inc Earnings Call

Operator: Good day, and welcome to the Udemy second quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.

Good day and welcome to the you to me second quarter 2024 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an.

<unk> to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.

Dennis J. Walsh: Thank you David joint.

Dennis J. Walsh: Joining me today are Udemy's Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard. During this conference call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For 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.

Dennis J. Walsh: Joining me today are you Didnt, Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard.

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

Speaker Change: 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 Change: 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.

Dennis J. Walsh: Our forward-looking statements are based upon information currently available to us. We caution you not to 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.

Speaker Change: Our forward looking statements are based upon information currently available to us.

Speaker Change: 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.

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

Speaker Change: 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 SEC as non-GAAP financial measures.

Speaker Change: 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.

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

Dennis J. Walsh: These reconciliations, together with additional supplemental information, are available on the Investor Relations website. Please note that we have provided a supplemental deck with tables and charts with details on some of the initiatives announced today. The deck can be found for download in the quarterly results section of our Investor Relations website. A replay of today's call will also be posted on the website.

These reconciliations together with additional supplemental information are available on the Investor Relations website.

Speaker Change: Please note we have provided a supplemental deck with tables and charts with details on some of the initiatives announced today.

Speaker Change: The deck can be found for download on the quarterly results section of our Investor Relations website.

Speaker Change: A replay of today's call will also be posted on the website.

Speaker Change: With that I will now turn the call over to Greg.

Gregory Scott Brown: Thank you, Dennis, and good afternoon to everyone on the call. I'm pleased to report that for the second quarter of 2024, our revenue came in at the high end of our guidance range, and we significantly exceeded the range for adjusted EBITDA margins. Udemy business revenue increased 19%, including the negative impact of two percentage points from changes in FX rates, while ARR grew to nearly $500 million, up 17% compared to the same period last year. As a result, total revenue increased 9% year over year, including a negative two-point impact from FX, to $194 million for the quarter.

Gregory Scott Brown: Thank you Dennis and good afternoon to everyone on the call.

Gregory Scott Brown: I'm pleased to report that for the second quarter of 2024, our revenue came in at the high end of our guidance range and we significantly exceeded the range for adjusted EBITDA margin.

Gregory Scott Brown: <unk> business revenue increased 19%, including the negative impact of two percentage points from changes in FX rates.

Gregory Scott Brown: They are our grew to nearly $500 million up 17% compared to the same period last year.

Gregory Scott Brown: As a result total revenue increased 9% year over year.

Gregory Scott Brown: Including a negative two point impact from FX.

Gregory Scott Brown: 94 million for the quarter.

Gregory Scott Brown: The growth is primarily driven by Udemy and was somewhat offset by an anticipated year-over-year decline in consumer revenue. On the bottom line, we over-delivered on our expectations for adjusted EBITDA as we continue to drive operational efficiencies throughout the business. This quarter, we also surpassed a monumental milestone of one billion course enrollments since inception. This remarkable achievement underscores our unwavering commitment to transforming lives through learning and highlights the profound impact we've made on individuals and organizations around the world. I'm extremely proud of our team's performance and can't thank our employees enough for their hard work and dedication.

Gregory Scott Brown: The growth was primarily driven by you to me business and was somewhat offset by an anticipated year over year decline in consumer revenue.

Gregory Scott Brown: On the bottom line, we over delivered on our expectations for adjusted EBITDA as we continue to drive operational efficiencies throughout the business.

Gregory Scott Brown: This quarter, we also surpassed a monumental milestone of 1 billion course enrollments since inception.

Gregory Scott Brown: This remarkable achievement underscores our unwavering commitment to transforming lives through learning and highlights the profound impact we made on individuals and organizations around the world.

Gregory Scott Brown: I'm extremely proud of our team's performance and can't thank our employees enough for their hard work and dedication.

Gregory Scott Brown: Now that we're more than halfway through the year, I wanted to provide an update on the current state of the market and several strategic initiatives that we're implementing to more effectively position Udemy for long-term success. The global workforce skill gap is widening as generative AI accelerates the pace of change across all industries and geographies. By 2030, it is estimated that there could be 85 million jobs unfilled due to a shortage of workers with the right skills, leading to $8.5 trillion in lost annual revenue.

Gregory Scott Brown: Now that we're more than halfway through the year I wanted to provide an update on the current state of the market and several strategic initiatives that we're implementing to more effectively position you to me for long term success.

The global workforce skills gap is widening.

Gregory Scott Brown: Generative AI accelerates the pace of change across all industries and geographies.

Gregory Scott Brown: By 2030, it is estimated that there could be 85 million jobs unfilled due to a shortage of workers with the right skills leading.

Gregory Scott Brown: Leading to 8.5 trillion dollars in lost annual revenues.

Gregory Scott Brown: Companies and individuals need to adapt to a rapidly evolving job market, where skills are the new currency and traditional education credentials are becoming less predictive of job success and adaptability. Udemy is uniquely positioned with our comprehensive platform to help organizations address the skills gap challenge and to help individuals meet their career goals. To that end, we remain committed to establishing Udemy as a skills platform of choice and providing the highest value to our customers around the world.

Gregory Scott Brown: Companies and individuals need to adapt to a rapidly evolving job market accelerated by AI, where skills are the new currency and traditional education credentials are becoming less predictive of job success and adaptability.

Speaker Change: <unk> is uniquely positioned with our comprehensive platform to help organizations address the skills gap challenge and to help individuals meet their career goals.

Gregory Scott Brown: So that and we remain committed to establishing <unk> as the skills platform of choice and providing the highest value to our customers around the world.

Gregory Scott Brown: Over the past few years, these trends have contributed to the significant expansion of our global enterprise customer base. Notably, in just three years, we have doubled the number of enterprise customers we serve, while simultaneously deepening our relationships with existing customers. As a result of our successful execution, Udemy Business is at a critical juncture where we are preparing to propel our business from a $500 million revenue organization toward a $1 billion industry powerhouse.

Gregory Scott Brown: Over the past few years. These trends have contributed to the significant expansion in our global enterprise customer base.

Gregory Scott Brown: Notably in just three years, we have doubled the number of enterprise customers, we serve while simultaneously deepening our relationships with existing customers.

Gregory Scott Brown: As a result of our successful execution gives me business is at a critical juncture, where we are preparing to propel our business from a $500 million revenue organization toward a 1 billion dollar industry powerhouse.

Gregory Scott Brown: In order to capture the significant future market opportunity, we are taking deliberate action to shift our strategic focus and resources toward large enterprise customers, which represent our highest growth opportunity. We anticipate that narrowing our focus on the large enterprise customer will enable us to deliver accelerated profitability, given the better unit economics and higher returns on our go-to-market initiative. As part of this shift in focus, and following a comprehensive review of our go-to-market operations with Udemy's new Chief Revenue Officer, Rob Rosenthal, we're implementing four key initiatives. First... We're reallocating resources upmarket toward enterprises with more than 1,000 employees, which we call our large customer cohort. The S&B segment has been more impacted by the current macroeconomic environment and, therefore, has more budget constraints.

Gregory Scott Brown: In order to capture the significant future market opportunity, we're taking deliberate actions to shift our strategic focus and resources towards large enterprise customers, which represent our highest growth opportunity.

Gregory Scott Brown: We anticipate that narrowing our focus on the large enterprise customer will enable us to deliver accelerated profitability given the better unit economics and higher returns on our go to market initiatives.

Gregory Scott Brown: As part of the shift in focus and following a comprehensive review of our go to market operations with using these new Chief revenue Officer, Rob Rosenthal, we're implementing four key initiatives.

Gregory Scott Brown: First.

Gregory Scott Brown: We're reallocating resources upmarket toward enterprise companies with more than 1000 employees, which we call our large customer cohort.

Gregory Scott Brown: The SMB segment has been more impacted by the current macroeconomic environment and therefore more budget constraint.

Gregory Scott Brown: Given its lower growth and less attractive unit economics, we are de-emphasizing our focus on the SMB cohort. We believe the large customer cohort represents the greatest growth potential for Udemy given the wider range of use cases and land and expand opportunities. The large customer cohort currently represents approximately 75% of our Udemy business revenue and is growing at a significantly faster rate than the SMB cohort. We've been executing successfully in this segment with stronger pipeline build, larger deal sizes, retention, more upsell opportunities, and better unit economics.

Gregory Scott Brown: Given the slower growth and less attractive unit economics, we are de emphasizing our focus on the SMB cohort.

Gregory Scott Brown: We believe the large customer cohort represents the greatest growth potential for you to me given the wider range of use cases and land and expand opportunities.

Gregory Scott Brown: The large customer cohort currently represents approximately 75% of our youth business revenue and is growing at a significantly faster rate than the SMB cohort.

Gregory Scott Brown: We've been executing successfully in this segment with stronger pipeline build.

Gregory Scott Brown: Larger deal sizes or retention.

Gregory Scott Brown: More upsell opportunities and better unit economics.

Gregory Scott Brown: With just over 5,000 enterprise customers in this cohort, we have barely penetrated the global addressable market opportunity of more than 130,000 enterprises worldwide. Additionally, large enterprises are moving faster than SMBs to capitalize on the opportunities presented by AI and the skills-based economy. As an example, during Q2, a large global professional services firm with more than 85,000 employees came to Udemy with a defined set of challenges. They were facing several pain points, including the imperative to keep up with the rapid pace of technological change and the anticipation of competitive pressure from the emergence of generative AI.

Gregory Scott Brown: Just over 5000 enterprise customers in this cohort we have barely penetrated the global addressable market opportunity of more than 130000 enterprises worldwide.

Gregory Scott Brown: Additionally, large enterprises are moving faster than smbs to capitalize on the opportunities presented by AI and the skills based economy.

Gregory Scott Brown: As an example during Q2, a large global professional services firm with more than 85000 employees came to you to meet with a defined set of challenges.

Gregory Scott Brown: They were facing several pain points, including the imperative to keep up with the rapid pace of technological change and the anticipation of competitive pressure from the emergence of generative AI.

Gregory Scott Brown: They needed an effective learning solution to prepare the company's consultants for certification exams and to develop a strategy for transitioning to a holistic skills-based organization. The company selected Udemy for its industry-leading learning programs and hands-on immersive learning experience. The customer has reported remarkable results, and just three months since launch, nearly 50% of the 6,000 licenses were being utilized across various roles, and over 10,000 hours of learning have been completed.

Gregory Scott Brown: They needed in an effective learning solution to prepare the companies consultants for certification exams and to develop a strategy for transitioning to a holistic skills based organization.

Speaker Change: The company selected you to me for our industry, leading learning programs and hands on immersive learning experiences.

Speaker Change: The customers reported remarkable results.

Speaker Change: In just three months since launch nearly 50% of its 6000 licenses were being utilized across various roles in over 10000 hours of learning have been completed.

Gregory Scott Brown: New large enterprise customers like this represent significant opportunities to grow meaningfully through our proven land and expand strategy. Which brings us to our next initiative.

Speaker Change: New large enterprise customers like this represents significant opportunities to grow meaningfully through our proven land and expand strategy.

Speaker Change: Which brings us to our next initiative.

Speaker Change: Second.

Gregory Scott Brown: We will focus on increasing penetration within our existing large customer base. Udemy's business has penetrated less than 10% of potential licenses within this cohort, with significant headroom to grow. We estimate our seed expansion opportunity alone to be over $1.5 billion based on 50% penetration of the more than 85 million employees in our current installed base of large enterprise customer accounts. As an example, Devoteam, a leading digital transformation consulting firm headquartered in France, has been a customer since 2016.

Speaker Change: We will focus on increasing penetration within our existing large customer base.

Speaker Change: You had me business has penetrated less than 10% of potential licenses within this cohort with significant headroom to grow.

Speaker Change: We estimate our seat expansion opportunity alone to be over $1.5 billion based on 50% penetration of the more than 85 million employees in our current install base of large enterprise customer accounts.

Speaker Change: As an example, devil team a leading digital transformation consulting firm headquartered in France has been a customer since 2016.

Gregory Scott Brown: Devoteam is a workforce of more than 10,000 employees across 25 geographies in EMEA. In the past two years, Devoteam increased its coverage of Udemy business licenses from 30% to 100% of employees, enabling comprehensive training in generative AI across the organization on general AI proficiency and Google's Gemini. This strategic investment has notably accelerated the attainment of industry-leading IT certifications among their employees, with certification rates rising from 40% to nearly 70% across all consultants within the same time frame. Devil Team set a goal to have all employees certified on AI before the end of this year.

Speaker Change: <unk> is a workforce of more than 10000 employees across 25 geographies in EMEA.

Speaker Change: The past two years double team increased its coverage of your enemy business licenses from 30% to 100% of employees, enabling comprehensive training and generative AI across the organization on general AI proficiency and Google's Gemini.

Speaker Change: This strategic investment is notably accelerated the attainment of industry, leading I T certifications among their employees.

Speaker Change: Recertification rates rising from 40% to nearly 70% across all consultants within the same timeframe.

Speaker Change: Devil team set a goal to have all employees certified on AI before the end of this year.

Speaker Change: We know from experience that once we prove our value, we can accelerate expansion and upsell opportunities within our existing customer base, particularly with large enterprises that have a strategic approach to critical skills develop.

Gregory Scott Brown: We know from experience that once we prove our value, we can accelerate expansion and upsell opportunities within our existing customer base, particularly with large enterprises that have a strategic approach to critical skills development. One of the primary benefits of the land and expand strategy within the large enterprise customer base is that it represents our highest margin opportunity and return on investment. In addition, we have several new AI-powered capabilities launching over the next few quarters, including skills mapping and AI learning assistance, which have received strong feedback from early testing.

Speaker Change: One of the primary benefits of the land and expand strategy within the large enterprise customer base is that it represents our highest margin opportunity and return on investment.

Speaker Change: In addition, we have several new AI powered capabilities launching over the next few quarters, including skills mapping and E learning assist.

Speaker Change: Which have received strong feedback from early testing.

Gregory Scott Brown: We believe these products will support further expansion within our customer base. We will continue to support growth through strategic partnerships, strengthening our global distribution capabilities, opening up new routes to market, and providing additional ways to access the Udemy platform. Partnerships are not only a critical way to drive revenue growth but also an important way to drive customer satisfaction. As you can see from our recent announcements, we're focused on building relationships with hyperscalers such as AWS and large developer platforms like Docker and CNCF.

Speaker Change: We believe these products will support further expansion within our customer base.

Speaker Change: Sure.

Speaker Change: We'll continue to support growth through strategic partnerships strengthening our global distribution capabilities opening up new routes to market and providing additional ways to access the etame platform.

Speaker Change: Partnerships are not only a critical way to drive revenue growth, but also an important way to drive customer satisfaction.

Speaker Change: As you can see from our recent announcements we're focused on building relationships with hyperscale or such as AWS.

Speaker Change: And large developer platforms like Docker and C N C F.

Speaker Change: Just last month, we expanded our partnership with AWS and launched our first collaboration to develop branded content specifically for you to me.

Gregory Scott Brown: Just last month, we expanded our partnership with AWS and launched our first collaboration to develop branded content specifically for Udemy. The program, Unlocking Gen-AI Opportunities with AWS, is a six-week cohort learning program offered exclusively through Udemy Business Leadership Academy.

Speaker Change: The program unlocking Jenny I opportunities with AWS is a six week cohort learning program offered exclusively through <unk> business leadership Academy.

Gregory Scott Brown: This program is designed to equip mid to senior-level leaders with essential generative AI knowledge and change management skills. This collaboration aims to help leaders across various industries develop the skills necessary to drive digital transformation within their organizations.

Speaker Change: This program is designed to equip mid to senior level leaders with a central generative AI knowledge and change management skills.

Speaker Change: This collaboration aims to help leaders across various industries develop the skills necessary to drive digital transformation within their organizations.

Speaker Change: Fourth.

Gregory Scott Brown: We're accelerating operational efficiency initiatives in order to emerge as a more durable, competitive company. These initiatives include... Accelerating the Reallocation of Resources into Lower Cost Geography.

Speaker Change: We're accelerating operational efficiency initiatives in order to emerge a more durable competitive company.

Speaker Change: These initiatives include.

Speaker Change: Accelerating the reallocation of resources into lower cost geographies.

Gregory Scott Brown: Reducing organizational layers and optimizing the go-to-market organization consistent with segments and regions where we see the most opportunity, specifically focusing on our fastest growing, more profitable large enterprise customer cohort. These initiatives are intended to enable us to more effectively navigate the near-term market conditions, to generate greater profitability, and capitalize on the massive long-term opportunity that is available to us. Not only that, but we expect that these initiatives will also better position Udemy to serve our customers and enhance the coordination among our R&D team.

Speaker Change: Reducing organizational layers.

Speaker Change: And optimizing the go to market organization, consistent with segments and regions, where we see the most opportunity.

Speaker Change: Specifically focusing on our fastest growing more profitable large enterprise customer cohort.

Speaker Change: These initiatives are intended to enable us to more effectively navigate the near term market conditions to.

Speaker Change: To generate greater profitability.

Speaker Change: And capitalize on the massive long term opportunity that is available to us.

Speaker Change: Not only that but we expect that these initiatives will also better position you to me to serve our customers enhance the coordination of our R&D teams.

Speaker Change: With more than 60% of revenue and 80% of traffic to our website coming from outside the United States. It's important for us to have a workforce that can support our customers' instructors and learners needs quickly and effectively on a global basis.

Gregory Scott Brown: With more than 60% of revenue and 80% of traffic to our website coming from outside the United States, it's important for us to have a workforce that can support our customers, instructors, and learners' needs quickly and effectively on a global basis. Ultimately, we anticipate that these operational efficiency initiatives will generate meaningful cost savings. Our goal is to deliver adjusted EBITDA of $130 to $150 million in 2026 and to achieve further meaningful adjusted EBITDA expansion in 2027 and beyond.

Speaker Change: Ultimately, we anticipate that these operational efficiency initiatives will generate meaningful cost savings.

Speaker Change: Our goal is to deliver adjusted EBITDA of $130 million to $150 million in 2026.

Speaker Change: And to achieve further meaningful adjusted EBITDA expansion in 2027 and beyond.

Speaker Change: Before I turn the call over to Sara wanted to reiterate that we cannot be more excited about the future of you to me.

Gregory Scott Brown: Before I turn the call over to Sarah, I wanted to reiterate that we cannot be more excited about the future of Udemy. We're making strategic decisions to build upon our past successes. ARR is approaching a half billion dollars. We have robust gross margins. We're profitable on an adjusted EBITDA basis, and we have a solid cash position to fund future growth. Our competitive positioning is strongest with large global enterprises who are moving quickly to capitalize on AI and upscaling, and our runway is massive within these organizations.

Speaker Change: We're making strategic decisions to build upon our past successes.

Speaker Change: A R. R is approaching half a billion dollars.

Speaker Change: We have robust gross margins for.

Speaker Change: We're profitable on an adjusted EBITDA basis, and we have a solid cash position to fund future growth.

Speaker Change: Our competitive positioning is strongest with large global enterprises, who are moving quickly to capitalize on AI and upscaling and our runway is massive within these organizations.

Gregory Scott Brown: The deliberate and purposeful initiatives discussed today will make us a stronger, more durable business and position Udemy to deliver meaningful value to all stakeholders as we enter our next stage of growth. We thank you for your continued support on this journey.

Speaker Change: The deliberate and purposeful initiatives discussed today will make us a stronger more durable business and position you to me to deliver meaningful value to all stakeholders as we enter our next stage of growth.

Speaker Change: We thank you for your continued support on this journey.

Speaker Change: And now I'll turn the call over to Sara for her financial review.

Sara: Thank you Greg.

Sarah Walter Blanchard: I'll start with comments on the key financial highlights and then provide our outlook. You can find the complete set of financial tables in our news release, which is available on our Investor Relations website.

Sara: I'll start with comments on the key financial highlights and then provide our outlook you can find the complete set of financial tables in our news release, which is available on our Investor Relations website.

Sara: Revenue increased 9% year over year to $194 million.

Sarah Walter Blanchard: Revenue increased 9% year-over-year to $194 million. With more than 60% of our total revenue coming from outside the U.S., we have a negative impact from FX on our year-over-year growth rate of 2 percentage points. Without the higher than anticipated effects headwind, we would have exceeded the high end of our guidance range for Q2. Business revenue for the quarter was $121 million, an increase of 19% year-over-year, including a two-percentage-point headwind from changes in FX rates.

Speaker Change: With more than 60% of our total revenue coming from outside the U S. We had a negative impact from FX, where year over year growth rate of two percentage points.

Speaker Change: Absent the higher than anticipated FX headwind, we would have exceeded the high end of our guidance range for Q2.

Speaker Change: Eat meat business revenue for the quarter was 121 million, an increase of 19% year over year, including a two percentage point headwind from changes in FX rates.

Sarah Walter Blanchard: We ended the quarter with annual recurring revenue, or ARR, of $493 million, up 17% from a year ago. Professional Services, Financial Services, Manufacturing, Tech, and Retail continue to be the strongest verticals contributing to ARR growth. Our consolidated net dollar retention rate, or NDRR, at quarter end was 101 percent. The rate was 108% for large customers, or those with 1,000 or more employees. As expected, upsells are taking longer than historical norms in this environment, so we are still seeing some pressure on net dollar retention. However, gross salary retention has remained stable.

Speaker Change: We ended the quarter with annual recurring revenue or era of $493 million up 17% from a year ago.

Speaker Change: Professional services financial services manufacturing Tech and retail continue to be the strongest vertical contributing to our growth.

Speaker Change: Our consolidated net dollar retention rate or N D. R. R at quarter end was 101%.

Speaker Change: The rate was 108 per cent for large customers are those with 1000 or more employees.

Speaker Change: As expected upsells are taking longer than historical norms. In this environment. So we are still seeing some pressure on net dollar retention.

Speaker Change: Gross salary retention has remained stable.

Sarah Walter Blanchard: In aggregate, we grew our global customer base by 11% year-over-year to nearly 16,600. Gross margin for our Udemy business segment came in at 72% for the second quarter, up 500 basis points from the prior year, primarily due to the instructor revenue share change that went into effect on January 1 of this year. As expected, second quarter consumer revenue of $74 million was down 4% on a year-over-year basis, including a negative three percentage point impact from FX.

Speaker Change: I forget we grew our global customer base by 11% year over year to nearly 16600.

Speaker Change: Gross margin for our U S business segment came in at 72% for the second quarter up 500 basis points from the prior year, primarily due to the instructor revenue share change that went into effect on January one of this year.

Speaker Change: As expected second quarter consumer revenue of 74 million was down 4% on a year over year basis.

Speaker Change: Including a negative three percentage point impact from FX.

Sarah Walter Blanchard: Within that, personal plan subscriptions contributed more than 10% of the segment's revenue for the first time. During Q2, average monthly visitors grew 21% year-over-year to more than 41 million. The increase in traffic was primarily driven by new marketing initiatives to drive engagement with consumers across digital channels. As we move down the P&L, note that all financial metrics are non-GAAP unless stated otherwise.

Speaker Change: Within that personal plan subscriptions contributed more than 10% of the segment's revenue for the first time.

Speaker Change: During Q2 average monthly visitors grew 21% year over year to more than $41 million.

Speaker Change: The increase in traffic was primarily driven by new marketing initiatives to drive engagement with consumers across digital channels.

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

Sarah Walter Blanchard: Q2 Gross Margin was 64%, a 500 basis point improvement from Q2 2023, driven by the instructor revenue share change, as well as the continued revenue mix shift to Udemy Business, which accounted for approximately 62% of total revenue in the quarter, an increase of 500 basis points year over year. As previously shared, we expect total company growth margins to increase to approximately 70% in 2026, as the instructor revenue share steps down to 15% on all subscription revenue.

Speaker Change: Q2, gross margin was 64% or 500 basis point improvement from Q2 2023.

Speaker Change: Driven by the instructor revenue share change as well as the continued revenue mix shift for you to meet with.

Speaker Change: [noise] accounted for approximately 62% of total revenue in the quarter, an increase of 500 basis points year over year.

Speaker Change: As previously shared we expect total company gross margins to increase to approximately 70% and 2026 as the instructor revenue share steps down to 15% on all subscription revenue.

Speaker Change: Total operating expense was $124 million or 64% of revenue.

Sarah Walter Blanchard: Total operating expense was $124 million, or 64% of revenue. Next, the quarterly operating margin was approximately 300 basis points higher than Q2 of last year due to increased sales and marketing investments, as well as some professional service fees and G&A that are not part of our ongoing operation. On the bottom line, we delivered a net loss of approximately $6.5 million, or negative 3% of revenue.

Speaker Change: For the quarter was approximately 300 basis points higher than Q2 of last year due to increased sales and marketing investments as well as some professional service fees and G&A that are not part of our ongoing operations.

Speaker Change: And the bottom line, we delivered a net loss of approximately $6 5 million or negative 3% of revenue.

Sarah Walter Blanchard: Adjusted EBITDA was positive for the fifth consecutive quarter at approximately $5.5 million, or 3% of revenue, representing a 200 basis point expansion year over year. The better-than-expected adjusted EBITDA result was driven by our ongoing focus on operational efficiency. Moving on to key cash flow and balance sheet items, we ended the quarter with $422 million of cash, cash equivalents, restricted cash, and marketable securities. Additionally, we generated $25 million of free cash flow in the second quarter.

Speaker Change: Adjusted EBITDA was positive for the fifth consecutive quarter at approximately $5 5 million or 3% of revenue, representing a 200 basis point expansion year over year.

Speaker Change: The better than expected adjusted EBITDA result was driven by our ongoing focus on operational efficiency.

Speaker Change: Moving on to key cash flow and balance sheet items. We ended the quarter with 422 million of cash cash equivalents restricted cash and marketable securities and generated 25 million of free cash flow in the second quarter.

Sarah Walter Blanchard: Now for our outlook for Q3 and full year 2024. As a result of the ongoing challenging macroeconomic environment, softer than expected marketplace conversions, tight enterprise customer budgets, and the optimization of our go-to-market organization, we're lowering our revenue growth expectations for this year.

Speaker Change: Now for our outlook for Q3 and full year 'twenty 'twenty four.

Speaker Change: As a result of the ongoing challenging macroeconomic environment softer than expected marketplace conversions tight enterprise customer budgets and the optimization of our go to market organization, we're lowering our revenue growth expectations for this year.

Sarah Walter Blanchard: We now expect full-year 2024 revenue to be in the range of $776 to $782 million, or nearly 7% growth at the midpoint, including an expected negative 2 percentage point impact from FX. In the earnings supplement, we have provided a bridge between our prior full-year 2024 guidance midpoint of $800 million and our updated guidance midpoint of $779 million. As you will see, of the $21 million reduction at the midpoint, $11 million is attributable to the consumer segment.

Speaker Change: We now expect full year 'twenty 'twenty four revenues to be in the range of $776 million to $782 million or nearly 7% growth at the midpoint, including unexpected negative two percentage point impact from FX.

Speaker Change: In the earning supplement we have provided a bridge between our prior full year 'twenty 'twenty four guidance midpoint of 800 million and our updated guidance midpoint of 779 million.

Speaker Change: As you will see the 21 million a reduction at the midpoint 11 million is attributable to the consumer segment.

Sarah Walter Blanchard: $6 million is attributable to Udemy business, and $4 million due to our updated FX assumptions. While the challenging macro and strategic shift toward enterprise customers will create a near-term headwind to revenue growth. The actions we are taking are intended to position us to grow into a more scalable and profitable business over the medium term. On the bottom line, we now expect to deliver a full year adjusted EBITDA margin in the range of 250 to 350 basis points.

Speaker Change: $6 million is attributable to eat meat business and 4 million due to our updated FX assumptions.

Speaker Change: While the challenging background strategic shift toward enterprise customers will create a near term headwind to revenue growth.

Speaker Change: We are taking are intended to position us to grow into a more scalable and profitable business over the medium term.

Speaker Change: And the bottom line, we now expect to deliver full year adjusted EBITDA margin in the range of 250 to 350 basis points, while we continue to invest prudently in the most important initiatives and take cost actions that will benefit 2025 and beyond.

Sarah Walter Blanchard: Will we continue to invest prudently in the most important initiatives and take cost actions that will benefit 2025 and beyond? With respect to the third quarter, we expect revenue to be between $191 million and $194 million, or approximately 4% year-over-year growth at the midpoint. Assuming exchange rates remain constant, FX is expected to negatively impact Q3 revenue growth by 2 percentage points.

Speaker Change: With respect to the third quarter, we expect revenue to be between 191 and $194 million.

Speaker Change: Also only 4% year over year growth at the midpoint.

Speaker Change: Assuming exchange rates remain constant FX is expected to negatively impact Q3 revenue growth by two percentage points.

Sarah Walter Blanchard: And on the bottom line, we are targeting 200 to 300 basis points of adjusted EBITDA margin. We expect that the actions we are taking, which Greg outlined earlier, will meaningfully improve our expense structure going forward as it will generate $25 million in annualized structural cost savings against our run rate. It is important to highlight that the remaining cost basis will increase due to compensation and benefits increases, additional reseller fees as our partnership revenue continues to grow, and further investments that support our strategic initiatives.

Speaker Change: And the bottom line, we are targeting 200 to 300 basis points of adjusted EBITA margin.

Speaker Change: We expect that the actions, we are taking which Greg outlined earlier will meaningfully improve our expense structure going forward. He will generate 25 million in annualized structural cost savings against our run rate.

Speaker Change: It is important to highlight that the remaining cost basis will increase due to compensation and benefits increases additional reseller fees as our partnership revenue continues to grow and further investments that support our strategic initiatives.

Sarah Walter Blanchard: Since we will begin implementing these actions immediately, we expect to have some redundant expenses in the back half of this year. Therefore, we will begin seeing the impact of these efforts in the first half of 2025.

Speaker Change: Since we will begin implementing these actions immediately we expect to have some redundant expenses in the back half of this year.

Speaker Change: Therefore, we will begin seeing the impact of these efforts in the first half of 2025.

Sarah Walter Blanchard: Ultimately, these actions are intended to deliver meaningful adjusted EBITDA, which we expect to be in the range of $130 to $150 million for the full year of 2026. As we have shared before, we have set a long-term target of achieving a 15 to 20% adjusted EBITDA margin. In the supplemental deck, we have provided some of the key building blocks to achieve the high end of that target sooner than planned. Specifically, we expect to generate 650 basis points in gross margin improvement, primarily through the instructor revenue share change that rolls out over the next two years and the continued mixed shift to our higher-margin Udemy business cycle.

Speaker Change: Ultimately these actions are intended to deliver meaningful adjusted EBITDA, which we expect to be in the range of $130 million to $150 million for the full year of 2026.

Speaker Change: As we've shared before we set a long term target of achieving 15% to 20% adjusted EBITDA margin.

Speaker Change: In the supplemental deck, we have provided some of the key building blocks to achieve the high end of that target sooner than planned.

Speaker Change: Specifically, we expect to generate 650 basis points and gross margin improvement primarily through the instructor or revenue share changed that rolls out over the next few years and the continued mix shift to our higher margin usually that's affected.

Sarah Walter Blanchard: We expect to deliver approximately 300 basis points from operational efficiency initiatives announced today, as well as another 750 basis points from OPEX leverage. We have several levers at our control to achieve significant expansion and adjusted EBITDA well into the future. Udemy leadership and our board remain confident in the long-term opportunity for Udemy, which is reflected in the activity of our share repurchase program. We used $35 million in cash to buy back 3.8 million shares through a share repurchase program during Q2.

Speaker Change: We expect to deliver approximately 300 basis points from operational efficiency initiatives announced today as well as another 750 basis points from Opex leverage.

Speaker Change: We have several levers in our control to achieve significant expansion in adjusted EBITDA well into the future.

Speaker Change: <unk> leadership and our board remain confident in the long term opportunity for you to me, which is reflected in the activity of our share repurchase program.

Speaker Change: We used $35 million in cash to buy back three 8 million shares through our repurchase program during Q2.

Sarah Walter Blanchard: As of quarter end, we had approximately $60 million remaining on our $150 million authorization, and we expect that we will continue opportunistically buying back shares. In closing, we're confident that the long-term opportunity available to us remains intact. We have made a strategic decision to focus on our most attractive large enterprise cohort and drive margin improvement faster to ensure we create economic value for all stakeholders. As always, we are committed to a disciplined and balanced approach to optimizing cost and improving efficiency and profitability over time while maintaining the flexibility to invest in future growth opportunities. So with that, we'll open up the call to your questions. Moderator.

Speaker Change: As of quarter end, we had approximately $60 million remaining on our 150 million authorization and we expect that we will continue opportunistically buying back shares.

Speaker Change: In closing we are confident that the long term opportunity available to us remains intact.

Speaker Change: We have made a strategic decision to focus on our most attractive large enterprise cohort and drive margin improvement faster to ensure we create economic value for all stakeholders.

Speaker Change: As always we are committed to a disciplined and balanced approach to optimizing costs and improving efficiency and profitability over time, while maintaining the flexibility to invest in future growth opportunities.

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

Operator: We will now begin the question and answer session. To ask a question, you may press star and then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star and then 2. Our first question comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.

Speaker Change: Our first question.

Speaker Change: Comes from Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Thomas A Singlehurst: Hi, this is Thomas Shinsky on for Brett. Thanks for taking my question. I guess on the consumer weakness, you know, last quarter, we kind of pointed out the North American weakness, but straight strength outside of North America. I guess, any update on the trends there? Are we seeing continued consumer weakness, and any idea when you think this might pick up?

Thomas A Singlehurst: Hi, This is Thomas Shinskie on for Brett and Thanks for taking my question I guess on the consumer weakness you know last quarter, we kind of pointed out the north American weakness, but strange strength outside of North America, I guess any any update to the trends there or we are we seeing continued.

Speaker Change: Sumer weakness and any idea of when you think this might pick up.

Speaker Change: Hi, Tom Thanks for the question I'm still a few things I think the first is just a reminder, that while we focus on most when it comes to consumer is our consumer vibrancy metrics, so really making sure that we are staying.

Sarah Walter Blanchard: Hi, Tom. Thanks for the question. So, a few things. I think the first is just a reminder that what we focus on most when it comes to consumers is our consumer vibrancy metrics. So, really making sure that we are seeing the course creation and updating that makes our solution and our platform so powerful. And we continue to see 5,000 plus courses updated and created each month, which we're really happy to see.

Speaker Change: It's of course creation updating that makes our solution and our platform is so powerful and we continue to see 5000 plus of course those are updated and created each month, which we're really happy to see that being said we did have a strong Q1 from a conversion perspective, we saw softness across.

Sarah Walter Blanchard: That being said, we did have a strong Q1 from a conversion perspective, but we saw softness across Q2. And, you know, there wasn't really any room.

Speaker Change: Across Q2, and and you know there wasn't really any area was really broadly just you know consumer.

Speaker Change: Spending we have also as you probably know been pulling back on marketing spend over the past few years.

Sarah Walter Blanchard: It was really broadly just, you know, consumer spending. We have also, as you probably know, been pulling back on marketing spend over the past few years. One other thing I will add is we did implement some new low-cost marketing initiatives in the quarter, so you saw traffic jump up quite a bit to about 41 million, over 20% up year over year. So there's some puts and takes within the consumer, traffic is up, we've got some low cost, long-term marketing initiatives, but we did see software conversion across the board from both a category of learning and from a regional perspective.

Speaker Change: Hum.

Speaker Change: One other thing I will add is we did implement some new low cost marketing initiatives in the quarters. These soft traffic jump.

Speaker Change: I jumped up quite a bit to about 41 million over 20% up year over year. So there's some puts and takes within consumer traffic is up we've got some low cost long term marketing initiatives, but we did see softer conversion across the board from both a category of learning and from a regional perspective.

Gregory Scott Brown: I'll just add real quick that, from a strategic standpoint, our focus is on investing in the enterprise and deploying resources to scale and take advantage of the massive opportunity in the enterprise. So, you know, as Sarah just alluded to. We've been pretty clear that we're not investing in the consumer business in a material way to see significant growth. It's really about vibrancy, so you should expect as we go forward, the investment and where we apply our resources is going to largely be into the large enterprise.

Speaker Change: I'll just add real quick that.

Thomas A Singlehurst: Awesome. Thank you. And then one more, if I may.

Speaker Change: From a strategic standpoint.

Speaker Change: Our focus is on investing into the enterprise and deploying resources to scale them and take advantage of the massive opportunity in the enterprise. So you know as sort of just alluded to.

Speaker Change: We've been we've been pretty clear that we're not investing in the consumer business in a material way to see significant growth. It's really about vibrancy. So you should expect as we go forward the investment and where we apply our resources is going to largely be into the large enterprise.

Thomas A Singlehurst: On the enterprise shift, I guess, how will this shift affect existing SMB customers in terms of, you know, service continuity or changes in contracts? And I guess how will that also affect, like, as we're looking at the NRR delta between the two NRRs that you guys, you know, disclosed, should we start to see those go in different directions here? Should we start to see the 108 kind of stick and the lower one kind of drive further down, or not?

Speaker Change: Awesome. Thank you and then one more if I may on the enterprise shift.

Speaker Change: How will this shift affect existing SMB customers in terms of service continuity or or changes in contracts and.

Speaker Change: And I guess, how will that also effect.

Speaker Change: As we're looking at the NR or delta between the two <unk> that you guys. You know disclose it should we should we start to see those you know go in different directions here should we start to see the one that we kind of stick in and the lower one kind of drive further down or.

Speaker Change: What are we seeing there.

Gregory Scott Brown: I'll take the first part of the question, and Sarah, I'll let you take the second. He's going to broadly state that we've taken a very deliberate and data-driven approach to the decision of reshaping our strategy to focus upmarket into the enterprise in a more concerted way. Now, that really is about us.

Speaker Change: I'll take the first part of the question and answer I'll, let you take the second.

Speaker Change: So I'm just kind of broadly state that we've taken a very deliberate and data driven approach.

Speaker Change: To the decision of <unk>.

Speaker Change: Now reshaping our strategy to focus upmarket into the enterprise and a more concerted way now.

Speaker Change: Now that really is about us.

Speaker Change: Moderating I would say in adjusting to the headwinds and the tailwind that we're seeing in our business, but by no stretch.

Sarah Walter Blanchard: We are moderating, I would say, and adjusting to the headwinds and the tailwinds that we're seeing in our business. But by no stretch are we divesting and not going to serve the SMB opportunity or customers. That absolutely is still going to be an important component of our overall strategy. So please take that away from us that we're going to take care of our SMB customers just as efficiently and, ideally, more effectively going forward than we have in the past.

Speaker Change: Divesting and not going to serve the SMB opportunity to your customers that absolutely you're still going to be an important component of our overall strategy. So please take that away that we're gonna take care of our SMB customers just as efficiently.

Speaker Change: And yes I.

Speaker Change: Ideally more effectively going forward than we have in the past, but the investment into our growth and the expansion opportunity is going to be in the enterprise. So SMB customers are going to be well taken care of <unk> go ahead, Sir Yeah, I would just add to that you know when thinking about net dollar retention, we are going to still continue to support our SMB customers where were.

Sarah Walter Blanchard: But the investment into our growth and the expansion opportunity is going to be in the enterprise, so SMB customers are going to be well taken care of. Go ahead, Sarah. Yeah. I would just add to that.

Sarah Walter Blanchard: Yeah, I would just add to that, you know, in thinking about net dollar retention, we are going to still continue to support our SMB customers. Where we're moderating our spend is in things like generating pipeline and regions and segments on SMB sites where that pipeline is inefficient to generate, it's inefficient to capture. So from a moderation perspective, a lot of it is in landing those new SMBs, but of course, awesome

Speaker Change: Moderating our spine is in things like generating pipeline in regions and segments on F&B side, where that pipeline, it's inefficient to generate its inefficient to capture.

Speaker Change: So from a moderation perspective, a lot of it is in landing those those.

Speaker Change: Those new F N B's, but of course, we're always going to take good care of our customers.

Speaker Change: Awesome. Thank you.

Thomas A Singlehurst: Thank you. Thank you for the question. You're welcome.

Speaker Change: Thank you for the question.

Operator: And our next question comes from Stephen Sheldon with William Blair. Please go ahead.

Speaker Change: And our next question comes from Stephen Sheldon with William Blair. Please go ahead.

Unknown Attendee: My team, you've got Pat McElwee on today. My first question, I just quickly wanted to ask, so as we're seemingly on the cusp of hopefully an improving macro environment, can you just talk a bit more about the decision to strategically refocus on larger enterprise customers now?

Stephen Hardy Sheldon: Hi team, you've got Pat Mcafee on today. My first question just quickly wanted to ask so as were seemingly on the cusp of hope.

Stephen Hardy Sheldon: Hopefully improving macro environment can you just talk a bit more about the decision to.

Speaker Change: Strategically refocus on larger enterprise enterprise customers now versus you know down the road.

Speaker Change: Yeah. It's a good question I'm happy to take that.

Gregory Scott Brown: Yeah, it's a good question. I'm happy to take that. So based on our assessment of the environmental conditions we're operating in today, as well as projecting forward, and then coupling that with the assessment of all of the unit economic data that we have access to and our ability to build pipeline, and everything we just mentioned in the release with respect to higher win rates and what have you, all data points for us lead to the decision that we made to invest in the large enterprise.

Speaker Change: So based on our assessment of the environment environmental conditions, we're operating in today as well as projecting forward and then coupling that with the assessment of.

Speaker Change: All of the unit economic data that we have access to and our ability to build pipeline and everything we just mentioned in the release.

Speaker Change: With respect to higher win rates and what have you all data points for us lead to.

Speaker Change: Then the decision that we've made to invest into the large enterprise and that is something that.

Gregory Scott Brown: And that is something that has not been taken lightly, obviously. It's got a lot of thought, and data supports the decisions we've made. So the macroeconomic conditions, I would say, play some factor, but this is really about us playing to our strengths and allocating resources and really getting focused as an organization on what we can control. And what we can control is the investment into this segment, where we have historically had a disproportionate amount of revenue growth, win rates, and we compete very, very well in this segment.

Stephen Hardy Sheldon: It has not been taken lightly obviously, it's got a lot of thought and.

Stephen Hardy Sheldon: You know data is supports the decisions. We've made so you know the.

Speaker Change: Economic conditions are.

Speaker Change: I would say you know play some factor, but this is really about us playing to our strengths and allocating resources and really getting focused as an organization on what we can control.

Speaker Change: And what we can control is the investment into this segment, which we have historically had.

Speaker Change: Disproportionate amount of revenue growth when rates are and we compete very very well in this segment and that's also going to enable us to deliver what we talked about on the bottom line.

Gregory Scott Brown: And that's also going to enable us to deliver what we talked about on the bottom line, which is an accelerated, material acceleration and expansion of our bottom line, which again is very much within our control. So that's a little bit of color around the decision process and what led us here.

Speaker Change: Which has accelerated material acceleration and expansion of our bottom line, which again is very much within our control. So you know that's a little bit of color around the decision process and and what let us here.

Gregory Scott Brown: Right. Okay. Thanks, Greg. And then just now that it's been a couple of quarters since you implemented the change to the instructor payouts, can you just provide an update on how that has gone with instructors, how retention has held up, and particularly with those instructors on the higher end?

Speaker Change: Right, Okay. Thanks, Craig and then.

Speaker Change: Just know that it's been a couple of quarters since you implemented the change to the instructor payouts can you just provide an update on.

Speaker Change: How that.

Speaker Change: Has gone within structures, how retention has held up and particularly with those instructors and the higher end.

Gregory Scott Brown: Yeah, we We are very pleased to say we continue to have had no top instructors opt out, and we expect that to continue. We are in constant communication with our instructors.

Speaker Change: Yeah, we.

Speaker Change: We're very pleased to say we continue to have had no top instructors opt out.

Speaker Change: And we expect that to continue we are in constant communication with our instructors and most recently, our chief product officer had a session with them going more deeply into the product capabilities that we're going to be releasing that we're moving into beta right now with and the sentiment coming out of that meeting was extremely positive.

Gregory Scott Brown: Most recently, our chief product officer had a session with them going more deeply into the product capabilities that we're going to be releasing, that we're moving into beta right now. And the sentiment coming out of that meeting was extremely positive. And the comments and the dialogue continues to be very much upbeat. So, we are really happy with the work our teams have done. To bear hug and wrap our arms around our instructors, who are the lifeblood of our business, and make sure that the vibrancy of the conversation we're having with them continues to remain very, very positive.

Speaker Change: And you know the comments in the dialogue continues to be very much upbeat, so really happy with the work our teams have done.

Speaker Change: Bear hug and wrap our arms around our structures, which are the lifeblood of our business and making sure that the vibrancy of the conversation, we're having with them continues to remain very very positive.

Unknown Attendee: Great, that's helpful. Thank you.

Speaker Change: Great. That's helpful. Thank you.

Operator: And our next question comes from Ryan MacDonald with Needham & Company. Please go ahead.

Speaker Change: And our next question comes from Ryan Macdonald with Needham and company. Please go ahead.

Ryan Michael MacDonald: Hi, thanks for taking my questions. Greg, maybe the first one for you on one of the areas of strategic focus in terms of increasing that focus on penetrating the existing large customer base. I think you noted that it was about a billion and a half dollar revenue opportunity if you got to over 50% penetration there. What specifically can you do in the current environment to increase that penetration with those that you're obviously already embedded with? And obviously, there's been some volatility in the market with some competitors struggling. Is there any way you can use that to your advantage in the near term to help continue to consolidate shares or maybe accelerate that consolidation of shares that is happening?

Ryan Michael MacDonald: Alright, Thanks for taking my questions, Greg maybe first one for you on one of the areas of strategic focus in terms of increasing that focus on penetrating the existing large customer base. Thank you noted that it was about 1 billion and a half dollar revenue opportunity if you get to over 50% penetration there what specific.

Speaker Change: Can you do in the current environment to increase that penetration with those that you're obviously already embedded with and obviously there's been some volatility in the market with some competitors struggling is there any way you can use that to your advantage in the near term to help continue to consolidate share or maybe.

Speaker Change: That consolidation of share occurring.

Gregory Scott Brown: I'll touch on a couple things. One is that we continue to get strong data points from a variety of different sources to give us confidence that this shift to a skills-based economy and focus on learning and development continues to gain steam. Most recently, our own Workplace 2.0 report saw 84% of our customers are focused on developing a skills-based infrastructure. And most recently, over the last week, Insight published a report that investment by leaders and prioritization in learning and development is up from 29% in 2023 to 50% in 2024.

Speaker Change: Yeah. It's a good question Ryan I appreciate it.

Speaker Change: I'll touch on a couple of things one is we continue to get strong data points.

M.: M. A variety of different sources to give us confidence that this shift to a skills based economy.

Speaker Change: And.

Speaker Change: Focus on learning and development continues to gain steam most recently our own report a workplace two point or report saw 84% of our customers are focused on developing a skills based infrastructure and most recently over the last week inside published a report that invest investment by leaders.

Speaker Change: And prioritization and learning and development is up from 29% in 2023% to 50% in 2024 so.

Gregory Scott Brown: So we continue to see momentum in the direction of developing a capability around skills, and that also manifests in customer wins. You know, we had a number of nice customer wins. One in particular, I'll just call out.

Speaker Change: So we continue to see momentum in the direction of developing a capability around skills and that also manifests in customer wins, we had in a number of nice customer wins, one in particular of I'll just call out there was a large consumer products company that came to us needing a platform abroad.

Gregory Scott Brown: It was a large consumer products company that came to us. Needing a platform, a broad platform to consolidate onto, it is us against the usual suspects in it from a competitive perspective. And the requirements were much broader than just IT, including business skills, professional skills, management leadership skills, very much playing into our favor in that that's exactly what we've developed, the capability of platforms that will serve an entire enterprise in its endeavor to transition to a skills-based organization.

Speaker Change: Platform to consolidate onto was us against the usual suspects in it from a competitive perspective and the requirements were much broader than just I T, including business skills professional skills management leadership skills very much playing into our favor and that that's exactly what we've developed the capability of platform.

Speaker Change: Our.

Speaker Change: That will serve an entire enterprise in their endeavor to transition to a skills based organization and so that ended up manifesting in a in a nice win for US and this is a nice global partner, we've got a number of those.

Gregory Scott Brown: And so that ended up manifesting in a nice win for us. And it's a nice global partner. We've got a number of those, you know, that we could speak to. And that momentum continues to gain steam. So and then to your question about maybe one of the folks in our category that has maybe... You know, I've had a difficult time of late.

Speaker Change: We could speak too and that momentum continues to gain steam so and then to your to your question around maybe one of the folks in our category that is maybe.

Speaker Change: You know had a difficult time of Blake.

Gregory Scott Brown: There's no question that we're very focused on taking advantage of and maximizing those types of opportunities. And, you know, I won't go into great detail on that, but, you know, we've seen a number of wins this last quarter, consolidation wins, if you will, or takeaways as a result of those exact types of opportunities. And just one of the many data points that gives us a lot of confidence in our ability to continue to win a disproportionate amount of the time in the large enterprise.

Speaker Change: There's no question.

Speaker Change: Focus on taking advantage and maximizing those types of opportunities and.

Speaker Change: Yeah, I won't go into great detail on that but.

Speaker Change: We've seen a number of wins this last quarter, a consolidation wins, if you will or takeaways as a result of those exact type of opportunities I. Just wanted the other many data points. It gives us a lot of confidence in our ability to continue to win a disproportionate amount of time in the large enterprise.

Speaker Change: Super helpful color. There appreciate it sure maybe as a follow up for you as we think about this pathway now $230 million to $150 million of adjusted EBITDA in fiscal 'twenty. Six can you just help us understand maybe what your assumptions are around the sort of operating environment or maybe growth environment too as you as you kind of work towards.

Ryan Michael MacDonald: Super helpful caller there. I appreciate it.

Sarah Walter Blanchard: Sarah, maybe as a follow-up for you, as we think about this pathway now to $130 to $150 million of adjusted EBITDA on fiscal 26, could you just help us understand maybe what the assumptions are around the sort of operating environment or maybe growth environment as you kind of work towards those targets? Do we need sort of the end markets, you know, across consumer and business, to just sort of remain relatively constant with where they're at today? Do you require an improvement or a slowdown? Just kind of curious about the environment or framework as you think about your pathway towards these targets.

Speaker Change: Those targets do we need sort of the end markets are you know cross consumer and U b to just sort of remain relatively constant.

Speaker Change: With where they're at today do you do you require an improvement slowdown just just kind of curious of maybe the environment or framework as you think about your pathway towards our towards these targets.

Ryan Michael MacDonald: Thanks for the question, Ryan. So, how we're thinking about it is, you know, first... On the UB side, UB, we believe, is going to continue to be a very durable double-digit, Unknown Attendee, Devin Au, Dennis Walsh, Udemy Attendee, Devin Attendee, Devin Attendee. On the consumer side, there's a little bit less visibility. Ideally, we've spoken about, you know, over time, running that flat to up a few points. That could take some time, right?

Speaker Change: Thanks for the question Ryan So how we're thinking about it is you know first on the UV side.

Speaker Change: B, we believe is going to continue to be in theory durable double digit.

Speaker Change: Growth segment for us.

Catherine: And as we focus on the enterprise the unit economics on that side of the business are already you know much stronger than on the F&B side. The retention is strong or the ability to up sell and sell in right. It just felt about it the pipeline has been building Catherine that is gonna be our fastest growing segment.

Speaker Change: Suicide, Theres, a little bit less visibility.

Catherine: Italy, we've spoken about you know over time, bringing that flat to up a few points that.

Ryan Michael MacDonald: We're going to be exiting this year in the low, you know, down probably 10, 11%. As we saw, that's our expectation as we saw those conversion rates in the second half. So, you know, we think that going forward, we're going to be able to stabilize that consumer business somewhat, drive the UB, and continue to deliver double-digit growth and really expand on that bottom line aggressively because we're focused on, you know, controlling the controllables, and we have continued to over deliver on EBITDA quarter after quarter after quarter as a public company.

Catherine: That could take some time right, we're gonna be exiting this year yeah in the low.

Speaker Change: Down probably 10, 11% as we saw that's our expectation as we saw those conversion rates in the second half so.

Speaker Change: You know, we think that going forward, we're going to be able to stabilize that consumer business somewhat drive the UV and continue just love any double digit and really expand on that bottom line aggressively because we're focused on controlling the controllable and we have continued to offer it to them.

Speaker Change: On EBITDA quarter after quarter after quarter as a public company and so that's where our focus is and I know there's a you know there's a lot of our different scenarios from a topline perspective, when you think about our EBITDA targets and getting there faster, but just that's how we're thinking about it and and the margin expansion.

Ryan Michael MacDonald: And so that's where our focus is. And I know there are a lot of different scenarios from a top line perspective when you think about our EBITDA targets and getting there faster. But just that's how we're thinking about it. And the margin expansion is going to come from, you know, about 650 basis points; it's going to be gross margin improvement. The majority, the vast majority of that, is an instructor revenue share chain mixture.

Speaker Change: That's going to come from you know about 650 basis points is going to be gross margin improvement.

Speaker Change: The majority the vast majority of that is instructor revenue share change next shift.

Ryan Michael MacDonald: And then we've got these operating efficiency initiatives that we're undergoing right now that will deliver another three points. And then another seven and a half points of operating leverage. That's how we're thinking about it, and, you know, we're just really focused on this new strategic focus.

Speaker Change: And then we've got these operating efficiency initiatives that we're undergoing right now that'll deliver another three points and then another seven and a half out of operating leverage.

Speaker Change: 750 basis points of operating leverage over the next few years. So that's how we're thinking about it.

Speaker Change: And we're just really focused on this new strategic focus.

Operator: Excellent. I appreciate the additional context there. The next question comes from Terry Tillman with Truist Securities. Please go ahead.

Speaker Change #102: Excellent I appreciate the additional context there.

Speaker Change: The next question comes from Terry Tillman with Truth Securities. Please go ahead.

Speaker Change: Hi, This is Dominic blond salad on for Terry Thanks for taking the question. So as we think about Reacceleration for you to meet business in the back half of Baird. How should we be thinking about growth on a quarterly breakdown and what factors are driving the growth rates in each period.

Dominique Moncel: Hi, this is Dominique Moncel. I'm for Terry. Thanks for taking the question. So, as we think about re-accelerating,

Speaker Change #100: Yeah I'll take that question. So you know what we're looking at with our updated guidance is exiting the year with you be in the low double digits.

Sarah Walter Blanchard: Yeah, I'll take that question. So, you know, what we're looking at with our updated guidance is exiting the year with UB in the low double digits. And from a net new ARR or incremental ARR, that is what we will see in the fourth quarter, step up a bit. But with this shift in our focus and with the changes we're going to be making to our go-to-market organization. That re-acceleration of UB is going to take a little more time.

Speaker Change: And from a net new era or incremental <unk> that is what we will see in the fourth quarter step up a bit.

Speaker Change: But with this shift in our focus and with the changes we're gonna be they the changes we're going to be making to our go to market organization that reacceleration of UBS is going to take a little more time.

Speaker Change: Great. Thank you and could you also provide an update on international operations in the APAC region I'm, just curious as to how the demand and execution to James Japan has also held up.

Speaker Change: Yeah happy to take that.

Gregory Scott Brown: Yeah, happy to take that. So we've talked in prior announcements that we did have some softness in that region. We've shored up leadership, and feel good about the leadership we have in that region. And we continue to work through the execution aspect of what's happening in both Korea and Vietnam and then, of course, Japan, which has been operating and executing well for some time. Nothing specific to call out, but I feel good about what we're seeing.

Speaker Change: We've talked in prior announcements that we did have.

Speaker Change #105: You know some some softness in that region, we've shored up leadership feel good about the leadership, we have in that region and we continue to work through the execution aspect of what's happening in both Korea, Vietnam, and then of course, Japan, which has been operating and executing well for some time.

Rob: Nothing specific to call out and I feel good about what we're seeing are Rob now our new CRO has in the saddle has been a true Japan spent a full week and I believe 10 days over there with customers and partners that came back with a lot of optimism around the upside potential there. So yeah, nothing nothing material to call out with respect to APAC other than what I just mentioned.

Gregory Scott Brown: Rob now, our new CRO is in the saddle, has been to Japan, spent a full week, I believe 10 days over there with customers and partners. I came back with a lot of optimism around the upside potential there. So yeah, nothing material to call out with respect to APAC other than what I just mentioned.

Speaker Change: Great to hear thank you.

Operator: And the next question comes from Josh Baer with Morgan Stanley. Please go ahead.

Speaker Change: And the next question comes from Josh Baer with Morgan Stanley. Please go ahead.

Joshua Phillip Baer: Great, thank you for the question. I was wondering if you could maybe help... You know, appreciate the bridge that we have, but as far as the annual margin expansion from 2024, either out to the 2026 EBITDA dollar guide or the 20% in 27, any help in thinking about the past there?

Joshua Phillip Baer: Great. Thank you for the question I was wondering if you could maybe help you know them.

Speaker Change: Appreciate the bridge that we have but but as far as like the annual margin expansion from a 'twenty 'twenty four either out to the 2026 EBITDA dollar guide or the 20% and 27 like any help in thinking about.

Speaker Change #110: In the past there.

Speaker Change: Yeah, Josh Thanks for the question.

Sarah Walter Blanchard: Yeah, Josh, thanks for the question. You know, in this focus on pulling our market expansion forward, you should expect to see significant margin expansion in both 2025 and 2026. And so, you know, you can think about the gross margin. You know what that looks like in that expansion. And you could expect, not perfectly, but, you know, roughly linear expansion over those few years.

Speaker Change #111: This focus on pulling our margin expansion forward.

Speaker Change #104: You should expect to see significant margin expansion in both 2025 and 2026 and so you can think about the gross margin you know what that looks like it in that expansion.

Speaker Change: Could expect not perfectly, but you know roughly linear expansion are over those few years.

Speaker Change #103: Okay got it and then a follow up like with with that in mind, so kind of talking about maybe.

Joshua Phillip Baer: Okay, got it. And then a follow-up like this, so kind of talking about maybe 550 basis points of annual expansion or something like that to just get from three and a half and 24 to 20% in 27. You're like 14 15% in 2026. You have an EBITDA range there of 130 to 150. You know, at the high end, that's over a billion in revenue, which is like a 15% growth CAGR.

Speaker Change #113: 550 basis points of annual expansion or something like that to just get from three and a half in 24% to 20% and 27, you like 14, 15% in 2026 and you have an EBITDA range, there 130 to $1 50.

Speaker Change #103: At the high end, that's over $1 billion in revenue, which is like a 15% growth CAGR.

Joshua Phillip Baer: But Q4 is ending at 3% growth. So I was just hoping you could talk a little bit more about what it's going to take to really accelerate from 3% growth this year to 15% over the next couple of years.

Speaker Change #117: But Q4 is exiting at 3% growth. So I was just hoping you could talk a little bit more about.

Speaker Change #109: What it's going to take to really accelerate from 3% exiting this year to 15% over the next couple of years.

Speaker Change #119: Yeah. So you know, we're not putting any targets out for our revenue growth rates in 'twenty, five and 'twenty six right now 25 will happen at the end of this year.

Sarah Walter Blanchard: Yeah, so, you know, we're not putting any targets out for revenue growth rates of 25 and 26 right now. 25 will happen at the end of this year.

Speaker Change #114: And there is a wide variety.

Sarah Walter Blanchard: And there is a wide variety of potential revenue growth rates that will allow us to get to that 130 to 150 million in EBITDA. And so when you're thinking about the growth for us, again, UB is going to remain a double-digit growth company, but we are exiting this year at about 12% growth rate. So just thinking about that and that, you know, accelerating over some period of time, but not quickly.

Speaker Change #103: Potential revenue growth rates that will allow us to get to that $130 million to $150 million in EBITDA and so when you're thinking about the growth for US again, you V is going to remain a double digit growth, but we are exiting this year about 12%.

Speaker Change #103: Growth rate, so just thinking about that and that accelerating over some period of time, but not not quickly.

Sarah Walter Blanchard: Multiple Scenarios for Consumer. We're focused on the bottom line. We have a clear path to it, and we'll be providing more detail on 25 and 26 in the upcoming quarter. Okay, that's how

Speaker Change #103: Multiple scenarios for consumer we're focused on the bottom line, we have a clear path to it and we'll be providing more detail on 25 and 26 in upcoming.

Speaker Change #103: I mean for us.

Joshua Phillip Baer: Okay, that's helpful. Thank you. Thank you, Sarah.

Speaker Change #131: Okay. That's helpful. Thank you. Thank you Sir.

Joshua Phillip Baer: Thanks, Josh.

Joshua Phillip Baer: And the next question comes from Jeff Mueller with Baird. Please go ahead.

Operator: And the next question comes from Jeff Mueller with Baird. Please go ahead.

Sue Polygon: Yeah, thank you, Sue, and Polygon for Jeff. Under the new strategic plan, I guess, what can you do differently under the new model that you aren't already doing to drive up-sell at existing clients besides just increased capacity?

Jeffrey P. Meuler: Yes, Thank you assume polygon for Jeff.

Speaker Change #108: Under the new strategic.

Jeffrey P. Meuler: Plan I guess, what can you do differently under the new molecule aren't already doing to drive upsell our existing clients.

Speaker Change #115: Just increase capacity.

Speaker Change #107: It's a good question.

Gregory Scott Brown: Good question. You know, so I think a lot of it has to do with the focus we're going to apply and the process and the rigor that we're going to implement under Rob's leadership in terms of how we land and expand into our class of enterprise customers. And we now have a broad platform, and the vast majority of our revenue to date has been through SEAT. Expansion, well, landing with our core product and then expanding core product seats.

Speaker Change #107: So I think a lot of it has to do with the focus we're going to apply in the process and the rigor that we're going to implement under Rob's leadership in terms of how we're landing and expanding into our class of enterprise customers and we now have a broad platform and the vast majority of our revenue to date has been through C.

Speaker Change: Expansion.

Speaker Change: Landing with our core product and then expanding core products seats, we're going to get much better at selling our additional products and capabilities allow you to me business Pro leadership Academy as well as.

Gregory Scott Brown: We're going to get much better at selling our additional products and capabilities, a la Udemy Business Pro and Udemy Leadership Academy, as well as the new set of products, AI products that are coming online in the back half of the year. So we're going to have more to sell. We're going to get really good at selling those products through our enterprise customers as well as accelerate seat expansion. Remember, we're less than 10% penetrated in the 5,000 plus customers we have in that segment.

Speaker Change: The new set of products AI products that are coming online in the back half of the year. So we're gonna have more to sell we're gonna get really good at selling those products through our enterprise customers as well as accelerating seat expansion remember, we're less than 10% penetrated.

Rob: And the 5000 plus customers we have in that segment. So there's tremendous opportunity for both seat expansion and new product expansion into this classic customers in and with the focus that we're gonna be applying with rob's experience and expertise having done this for 25 years at high growth companies like Adobe and S E T.

Gregory Scott Brown: So there's tremendous opportunity for both seed expansion and new product expansion into this class of customers. And with the focus that we're gonna be applying, with Rob's experience and expertise, having done this for 25 years at high-growth companies like Adobe and SAP, I've got a lot of confidence; we have a lot of confidence in our ability to do just that. So focus is a great thing, and we're applying focus now, and with the win rates that we've seen in our enterprise customer segment, keep in mind right now we're growing at more than twice the rate at over twice the scale of any of our public peers. And we're adding more customers every quarter into that segment than any of those folks in a material way. So we've got a position of strength that we're building off of, and we expect to extend that.

Rob: I've got a lot of confidence we have a lot of confidence.

Rob: And our ability to do just that so yeah.

Speaker Change: Focus is a great thing and now we're applying focus now and with the win rates that we've seen in our enterprise customer segment.

Speaker Change: Keep in mind right now we're growing at more than twice twice the rate at over twice the scale of any of our public peers.

Speaker Change: And we're adding more customers every quarter into that segment than than any of those folks you know in a material way. So you know we've got a we've got a position of strength that we're building off of and we expect to extend that.

Sue Polygon: Understandable. And then with the reallocation of resources up market, is there retraining that's involved there? And sort of what's the timeline to maybe have those people reach full capacity, if that's the case? We've already got a strong workforce.

Speaker Change: Understood.

Speaker Change #133: And then with the reallocation of resources up market is there a retraining that's involved there and sort of what's the timeline to maybe applicable reach full capacity if that's the case.

Gregory Scott Brown: We've already got a strong contingent of account executives selling into our enterprise and strategic accounts. Is there some additional training around sales processes that Rob and his team are going to be layering in? Yes, there is.

Speaker Change #133: We've already got a strong contingent of account executives selling into our enterprise and strategic accounts.

Speaker Change: Is there some additional training around sales process that Rob and team are going to be layering and yes. There is but that's going to be on the fly and continuing to you know.

Sue Polygon: But that's going to be on the fly and continuing to improve how we engage, land, and expand and sell value up to the C-suite, you know, as we continue to move through the months and quarters ahead. So, yeah, I mean, there's no doubt there's an investment there, and that will be ongoing. But, you know, I've done this for a long time and led go-to-market teams for a long time. But that's always an ongoing process. Alright, so that's always an evolution that organizations are going to continue to have. Appreciate the callers.

Speaker Change #139: To improve how we engage land and expand and sell value up to the C. Suite you know as we continue to move through the months and quarters ahead. So yeah. I mean, there's no doubt there's an investment there and that will be ongoing but you know I've done. This a long time and led go to market teams for a long time and that's always an ongoing process.

Speaker Change #139: So that's always an evolution that the organizations are going to continue to have.

Speaker Change #124: Appreciate the color. Thanks.

Speaker Change #125: You got it.

Speaker Change: Yeah.

Speaker Change #120: Again, if you have a question. Please press Star then one our next question comes from Noah Herman with J P. Morgan. Please go ahead.

Operator: Again, if you have a question, please press star, then 1. Our next question comes from Noah Herman with J.P. Morgan. Please go ahead.

Noah Ross Herman: Hey, Greg and Sarah. Thanks so much for taking the questions. So just on the point about optimizing the go-to-market organization, can you just elaborate if maybe you have to hire additional sales leadership to really execute the new go-to-market playbook as you're sort of reshuffling the deck a little bit? And if so, what is the timeline for the transformation?

Noah Ross Herman: Hey, Greg and third thanks, so much for taking the questions.

Gregory Scott Brown: Thanks.

Noah Ross Herman: Just on the point about optimizing the go to market organization.

Noah Ross Herman: Can you just elaborate if maybe you have to hire additional sales leadership to really execute the new go to market playbook as we're sort of reshuffling the deck, a little bit and if so what is it really the timeline for the transformation.

Noah Ross Herman: It's a good question. We don't expect material changes in leadership on the sales side to be able to execute. Are we going to be reshaping the motion and

Speaker Change #129: That's it's a good question, we don't expect material changes.

Noah Ross Herman: In leadership on the sales side to be able to execute.

Speaker Change #120: Our plan.

Speaker Change #143: Are we gonna be reshaping.

Speaker Change #120: The motion.

Speaker Change #120: Yes.

Gregory Scott Brown: Augmenting processes to be able to, [inaudible] focus on us and not trying to sell equally into all segments but getting really, really good at focusing on and executing well in the enterprise segment. So, you know, Rob is in the process of working with our teams to determine if we need to shift some heads from one segment to the other, and that'll be an ongoing process, and that's always an ongoing process.

Speaker Change: Augmenting processes, it's available to you.

Speaker Change #132: Execute and do what I've alluded to now which is land and expand more efficiently and effectively into the segment. Yeah, we surely will and so I mean, there may be some small changes that we make as we move forward from a personnel standpoint leadership, but really it's about.

Speaker Change: Focus for us and not trying to sell equally into all segments, but getting really really good at.

Speaker Change: Focusing on and executing well into the enterprise segment. So you know Robyn is in process of working with our teams to determine if we if we need to shift some heads from one segment to the other and that'll be an ongoing process and that's always an ongoing process, where we see opportunity.

Gregory Scott Brown: Where we see opportunity, we're going to lay our heads in. We're going to recruit account executives, and we're going to do that as aggressively as we can where the opportunity presents itself, and that, you know, that's just a process that'll unfold over the next quarters and months.

Speaker Change #138: Labour heads in we're gonna layer account executives and now we're going to do that as aggressively as we can where the opportunity presents itself then.

Speaker Change #138: And that's you know that's that's just a process that will unfold over the next quarters and months ahead.

Speaker Change #121: Yeah, No that's really helpful and just maybe for Sir just on the guidance I'm understanding everything happening with the consumer segment, but for the large customer cohort.

Noah Ross Herman: Yeah, that's really helpful. And just maybe for Sarah, just on the guidance, you know, understanding everything happening with the consumer segment, but for the large customer cohort, what exactly are you embedding in the guidance that's really changing on a sequential basis, you know, outside of the key initiative that you're implementing? Was there any change that you saw in terms of pipeline or impact from macro that's really being baked into the guidance now? Thank you. Yeah, thanks for the question. You know, we have continued to see each other.

Speaker Change #134: What exactly are you embedding in the guidance, that's really changing on a sequential basis outside of the.

Speaker Change #126: Key initiatives that you're implementing but was there any change that you saw in terms of pipeline or impact from macro that's really being baked into the guidance now. Thank you.

Speaker Change #130: Yeah. Thanks for the question.

Sarah Walter Blanchard: Yeah, thanks for the question. You know, we have continued to see the macro be a challenging environment. And by that, I mean, we have continued to see deals take longer to close. And some of them are a little bit smaller than they have been.

Speaker Change #127: You know we have continued to see the macro would be a challenging environment and by that I mean, we have continued to see deals take longer to close.

Speaker Change #121: Some of them are a little bit smaller than they have been historically, it's taken a little bit longer to upsell them. So we have factored that into the guidance as well as the impact of this strategic shift upmarket. So both of those have been taken into consideration.

Sarah Walter Blanchard: Historically, it's taken a little bit longer to upsell, and so we have factored that into the guidance, as well as the impact of this strategic shift upmarket. So both of those have been taken into consideration, and we're really focused on, you know, driving that growth efficiently. Greg talks about the LTV and the retention and the efficiencies of that enterprise segment. And so we're really focused on capturing that market really efficiently.

Speaker Change #121: And we're really focused on driving that growth efficiently you heard.

Gregory Scott Brown: Greg talk about the L. T V and the retention and the efficiencies of that enterprise segment, and so we're really focused on capturing that market really efficiently.

Gregory Scott Brown: Okay.

Speaker Change #136: Our next question comes from Devin Al with Keybanc. Please go ahead.

Operator: Our next question comes from Devin Au with KeyBank. Please go ahead.

Devin Au: Hey, thanks for taking my question. Just wanted to get more clarity on the conversion, free-to-pay conversion slowdown in consumers. When did you see kind of that conversion slowdown in a quarter, and how has it deteriorated thus far this quarter? I just want to get more clarity on kind of what happened there just because you guys picked up the guide last quarter, but now you're seeing a slowdown there, so just maybe help us bridge what happened there.

Devin Au: Hey, Thanks for taking my question I, just wanted to get more clarity on the conversion of free to paid conversion slowdown in consumer when did you see kind of that conversion slow down in the quarter and thus far this quarter has it deteriorated I just want to get more clarity on on kind of what happened there.

Speaker Change #112: Because you guys pick.

Speaker Change #140: Pick up the guide last quarter, but now you're seeing slowdown there. So just maybe help us bridge what happened there.

Sarah Walter Blanchard: Thanks for the question, Devin. So we really did see, you know, Q1 was strong, as we stated, and we did raise our expectations for consumers for the year. April was, I'm going to say, okay. And then we saw that deceleration or suppression of the conversion rates in May and June. We continue to see big talk, and our expectation for the rest of the year is that it's going to remain tough, that the consumer environment is going to be hard.

Speaker Change #144: Yeah. Thanks for the question Devin. So we really did see you know Q1 was strong as we stated and we did bring up our expectations on consumer.

Speaker Change #112: For the year.

Speaker Change #142: April was I'm going to say okay.

Speaker Change #142: And then we saw that deceleration or suppression of the conversion rates in May and June we continue to see at the top.

Speaker Change #142: And our expectation for the rest of the year that it is that it's gonna have remained talk that the consumer environment is going to be hard one thing I will mention is we do have a new head of consumer and he hold together his plan along with the team and so we're gonna be.

Sarah Walter Blanchard: One thing I will mention is we do have a new head of consumer, and he's pulled together his plan along with the team. And so we're going to be launching some new strategic initiatives. But we don't want to press the pedal on spend. You know, we've been pulling back on that marketing spend. We're operating that business pretty thoughtfully until some of these strategic initiatives allow us to have an LTV that we feel comfortable spending into. But again, our focus right now is keeping consumers stable, that marketplace vibrancy, and really focusing on our new strategic initiatives.

Devin Au: helpful. And then just one quick follow-up on the enterprise side, I think you alluded to the recovery timeline of enterprise ARR growth is going to get pushed out. I mean, how much of that, you know, extended timeline is driven by the changes that you're making on the go-to-market side? And how much of that is, you know, really just the step down that you're seeing in the macro environment? Thanks. Yeah, so, you know, we're not going to break down.

Speaker Change #142: Launching some new strategic initiatives, but we don't want to press the pedal on spend you know we've been pulling back that marketing spend we're operating that business. That's that's pretty thoughtfully until some of these strategic initiatives allow us to have an LTV that we feel comfortable spending into.

Speaker Change #112: But again, our focus right now is keeping consumer stable that marketplace vibrancy and really focus focusing on our new strategic initiatives.

Speaker Change #118: Helpful. And then just one quick follow up on the enterprise side I think you alluded to the recovery timeline of enterprise growth is kind of got pushed out I mean, how much of that extend the timeline is driven by the changes that you're making on the go to market side and how much of that is you know really.

Speaker Change #137: The step down that you are seeing in the macro environment. Thanks.

Speaker Change #135: Yeah. So you know, we're not going to breakdown between those two categories, but what I will say as you know in our last call. We did say that we expect our incremental RR to be pretty flat and keeps you in Q3.

Sarah Walter Blanchard: Yeah, so, you know, we're not going to break down between those two categories, but what I will say is, in our last call, we did say that we expected our incremental ARR to be pretty flat in Q2 and Q3, and then step up a bit in Q4. And that is still our expectation, a little more muted with this focus on the new, the focus up market. But this is consistent with how we have been seeing net new ARR throughout this year.

Speaker Change #118: And then step up a bit in Q4 and that is still our expectation a little more muted with this focus on the news that the focus up market.

Speaker Change #118: But this is consistent with how we were seeing a net new a RR throughout this year.

Speaker Change #118: Okay.

Speaker Change #118: This concludes our question and answer session I would like to turn the conference back over to Greg Brown for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Greg Brown for any closing remarks.

Gregory Scott Brown: Yeah, I'd like to thank everybody for joining the call today and we look forward to the next update for Q3 in November.

Gregory Scott Brown: Yeah, I'd like to thank everybody for joining the call today, and we look forward to the next update for Q3 in November.

Speaker Change #122: Thanks, so much.

Speaker Change #141: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.