Q3 2024 Udemy Inc Earnings Call
Unknown Attendee: Good day and welcome to the Udemy's third quarter 2024 conference 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.
Good day and welcome to the <unk> third quarter 2024 conference 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.
Unknown Attendee: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, and then two. Please note this event is being recorded.
After todays 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 and then two.
Please note this event is being recorded.
Dennis Walsh: I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations.
Speaker Change: I'd now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.
Unknown Attendee: Thank you, David.
Speaker Change: Thank you David joining.
Gregory Brown: 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.
Dennis Walsh: Joining me today are Chief Executive Officer, Greg Brown, Chief Financial Officer, Sarah Blanchard.
Dennis Walsh: During this conference call, we will make forward looking statements within the meaning of federal Securities laws.
Dennis Walsh: 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.
Gregory Brown: For a complete discussion of risk associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. Our forward-looking statements are based upon information currently available to us. We caution you to not place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements, except as required by applicable law.
Dennis Walsh: For a complete discussion of risks associated with these forward looking statements. We encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.
Our forward looking statements are based upon information currently available to US we caution you to not place undue reliance on forward looking statements, 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.
Gregory Brown: 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 in comparing period-to-period results of operation 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 threshold. These reconciliations, together with additional supplemental information, are available on the Investor Relations section of our website.
Dennis 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.
Dennis Walsh: A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These.
Dennis Walsh: These reconciliations together with additional supplemental information are available on the Investor Relations section of our website.
Unknown Attendee: Please note, we have provided a supplemental deck that can be found for download on the quarterly results section of our investor relations website. A replay of today's call will also be posted on the website.
Please note we have provided a supplemental deck that can be found for download on the quarterly results section of our Investor Relations website.
Dennis Walsh: A replay of today's call will also be posted on the website.
Gregory Brown: With that, I will now turn the call over to Greg.
Speaker Change: With that I will now turn the call over to Greg.
Gregory Brown: Thank you, Dennis, and good afternoon to everyone on the call. We delivered a strong Q3 with revenue and adjusted EBITDA margin exceeding the high end of our guidance range. Revenue grew 6% year-over-year, including a two-point headwind from FX, and profitability reached a new record, with adjusted EBITDA coming in significantly higher than anticipated.
Greg Brown: Thank you Dennis and good afternoon to everyone on the call.
Greg Brown: We delivered a strong Q3 with revenue and adjusted EBITDA margin exceeding the high end of our guidance ranges.
Greg Brown: Revenue grew 6% year over year, including a two point headwind from FX and profitability reached a new record with adjusted EBITDA coming in significantly higher than anticipated.
Gregory Brown: This was a direct result of our disciplined approach to driving operational efficiency throughout the business. We also achieved a new milestone of over $500 million in Udemy Business ARR. I'm immensely proud of our entire Udemy team and thankful for their unwavering commitment to our business and delivering on our mission.
Greg Brown: This was a direct result of our disciplined approach to driving operational efficiency throughout the business.
We also achieved a new milestone of over 500 million and you to me business a R. R.
Greg Brown: I'm immensely proud of our entire you'd be team and thankful for their unwavering commitment to our business and delivering on our mission.
Gregory Brown: We have a lot to be excited about as we look toward the future for Udemy, and I'm eager to provide an update on some of the strategic actions we've taken, as well as some of the other exciting developments, including the launch of our AI-powered skills mapping and AI assist. As a reminder, on our last call, we announced the strategic decision to deliver a more balanced mix of growth and profitability, while reallocating resources toward our highest return opportunity, the large enterprise customer cohort within Udemy Business. This transition is both timely and necessary as we look to deliver long-term, sustainable value for all stakeholders, particularly in an environment that remains stable but subdued.
Greg Brown: We have a lot to be excited about as we look toward the future for you to me and I'm eager to provide an update on some of the strategic actions, we've taken as well as some of the other exciting developments, including the launch of our AI powered skills mapping and AI assistant.
Greg Brown: As a reminder, on our last call, we announced the strategic decision to deliver a more balanced mix of growth and profitability, while reallocating resources towards our highest return opportunity.
Greg Brown: The large enterprise customer cohort within your business.
Greg Brown: This transition is both timely and necessary as we look to deliver long term sustainable value for all stakeholders, particularly in an environment that remains stable, but subdued.
Gregory Brown: Over the past several years, we've successfully built a strong foundation for our enterprise business and our consumer marketplace. We've also expanded our global footprint to support nearly 17,000 Udemy business customers and 75 million learners across 180 countries, which represents one of the leading market positions globally. Given the solid foundation we have in place, now is the right time to focus on operational efficiency. The opportunity in this category is massive and growing. So we're capitalizing on it to create a more resilient business model capable of delivering sustainable financial performance in any market environment. Since our Q2 call in July, we moved quickly to optimize our cost structure to align with our more focused strategy.
Greg Brown: Over the past several years, we've successfully built a strong foundation for our enterprise business and our consumer marketplace.
Greg Brown: We've also expanded our global footprint to support nearly 17000 youth business customers and 75 million learners across 180 countries, which represents one of the leading market positions globally.
Greg Brown: Given the solid foundation, we have in place now is the right time to focus on operational efficiency.
Greg Brown: The opportunity in this category is massive and growing.
Greg Brown: So we're capitalizing on it to create a more resilient business model capable of delivering sustainable financial performance in any market environment.
Greg Brown: Since our Q2 call in July we moved quickly to optimize our cost structure to align with our more focused strategy.
Gregory Brown: Ultimately, we were able to achieve over $50 million of cost savings against our initial target of $25 million. Our outperformance on these efficiency initiatives increases our confidence in our ability to deliver our target of adjusted EBITDA of $130 to $150 million in 2026. As you can see from the Q3 results, these actions are already impacting Udemy's profitability. We are significantly increasing our flexibility to allow us to operate from a position of strength and enabling us to deliver value to our customers and shareholders. We're confident that this approach will position us as a stronger, more competitive company well into the future.
Greg Brown: Ultimately, we were able to achieve over 50 million of cost savings against our initial target of $25 million.
Greg Brown: Our outperformance on these efficiency initiatives increases our confidence in our ability to deliver our target of adjusted EBITDA of $130 million to $150 million in 2026.
Greg Brown: As you can see from the Q3 results. These actions are already impacting your enemies profitability.
Greg Brown: We are significantly increasing our flexibility to allow us to operate from a position of strength and enabling us to deliver value to our customers and shareholders.
Greg Brown: We're confident that this approach will position us as a stronger more competitive company well into the future.
Gregory Brown: Turning specifically to Udemy business, with our new Chief Revenue Officer, Rob Rosenthal, in place, we're aggressively capitalizing on our category leadership and realigning our resources upmarket and into key verticals that we believe will drive the highest return. With the world of work expected to undergo rapid transformation, fueled by the widespread adoption of generative AI, Udemy is the company that will help organizations bridge the growing skills gap. A cornerstone of our strategy is our decision to focus on large enterprise customers. which we define as organizations with over 1,000 or more employees and represents approximately 75% of our Udemy business revenue.
Greg Brown: Turning specifically to eat me business with our new Chief revenue Officer, Rob Rosenthal in place, we're aggressively capitalizing on our category leadership and realigning our resources upmarket and into key verticals that we believe will drive the highest returns.
Greg Brown: With the world of work expected to undergo rapid transformation fueled by the widespread adoption of generative AI you to me is the company that will help organizations bridge the growing skills gap.
Greg Brown: A cornerstone of our strategy is our decision to focus on large enterprise customers.
Greg Brown: Which we defined as organizations with over 1000 or more employees and represents approximately 75% of argue to me business revenue.
Gregory Brown: These companies have a more strategic approach to learning and development, move fast to adopt AI and other new technologies, and are increasingly turning to Udemy to support their skills development initiatives. By prioritizing large customers and de-emphasizing the S&B segment, we're optimizing our resource allocation toward higher growth, higher margin opportunity. Today, this cohort of customers have the highest retention, win rates, and upsell rates. Historically, we've been most successful generating high-quality pipeline from customers in this category, resulting in the majority of bookings coming from this cohort.
These companies have a more strategic approach to learning and development moved fast to adopt AI and other new technologies and are increasingly turning to you to me to support their skills development initiatives.
By prioritizing large customers and deemphasizing the SMB segment.
Greg Brown: We're optimizing our resource allocation towards higher growth higher margin opportunities.
Greg Brown: Today this cohort of customers have the highest retention win rates and upsell rates.
Greg Brown: Historically, we've been most successful generating high quality pipeline from customers in this category.
Greg Brown: Resulting in the majority of bookings coming from this cohort.
Gregory Brown: Importantly. We will still support the SMB market, but we'll be addressing new opportunities through more efficient channels, such as self-service, over time. Although reallocating resources to focus up market will create temporary headwinds to the S&B and consumer portions of our business, these actions will create a stronger company and will enable long-term profitable growth for Udemy.
Greg Brown: Importantly.
We will still support the SMB market, but we'll be addressing new opportunities through more efficient channels, such as self service overtime.
Greg Brown: Although reallocating resources to focus up market will create temporary headwinds to the SMB and consumer portions of our business. These actions will create a stronger company and will enable long term profitable growth for you to me.
Gregory Brown: As we navigate an era of unprecedented technological transformation, the importance of preparing organizations for the future has never been more clear. With rapid advancements in generative AI and other emerging technologies, we're witnessing the beginning of a seismic shift in how businesses operate. In this context, enterprise learning and development has become a strategic necessity for future-proofing workforces and ensuring long-term business success.
Greg Brown: As we navigate an era of unprecedented technological transformation the importance of preparing the organization for the future has never been more clear.
Greg Brown: With rapid advancements in generative AI and other emerging technologies, we are witnessing the beginning of a seismic shift in how businesses operate.
In this context enterprise learning and development has become a strategic necessity for future proofing, workforces and ensuring long term business success.
Gregory Brown: Recent research underscores the urgency of this moment. A recent report from BCG found that only 6% of companies have trained more than 25% of their workforce on generative AI tools. Further, an astounding 46% of employees will require upscaling within the next three years, regardless of the impact of Gen-AI. As the shelf life of skills shortens, driven by digital transformation, a versatile and future ready workforce is essential and the focus on upscaling helps businesses stay competitive. This reality presents a massive opportunity and a critical responsibility for organizations to invest in upskilling and reskilling their talent.
Greg Brown: Recent research underscores the urgency of this moment.
Greg Brown: A recent report from P. C. G found that only 6% of companies had trained more than 25% of their workforce on generative AI tools.
Greg Brown: Further an astounding 46% of employees will require upscaling within the next three years, regardless of the impact of Jennie O.
Greg Brown: As the shelf life of skills shortens driven by digital transformation, a versatile and future ready workforce is essential and the focus on upscaling helps businesses stay competitive.
Greg Brown: This reality presents a massive opportunity and a critical responsibility for organizations to invest in Upskilling and reskilling their talent.
Gregory Brown: As an example of Udemy helping a customer overcome this challenge, Whole Mutual, a South African financial services company, engaged Udemy Business in 2021 to address their upskilling needs. Since the beginning of our relationship, Ole Mutual has seen more than 18,000 employees adopt licenses and averaged approximately 47 hours of learning per user per year, which is nearly double the industry average. of the course enrollments, nearly 60% relate to developing digital and data capability skills. Organizations that prioritize skills are seeing tangible benefits such as improved retention, innovation, and business growth. Millennials and Gen Z employees, who now form a significant portion of the workforce, value autonomy, interoperability, and opportunities to learn new skills.
Greg Brown: As an example of you to me, helping a customer overcome this challenge old mutual South African financial services company engaged your enemy business in 2021 to address their upskilling needs.
Greg Brown: Since the beginning of our relationship all mutual has seen more than 18000 employees adopt licenses and averaged approximately 47 hours of learning per user per year, which is nearly double the industry average.
Greg Brown: Of course enrollments, nearly 60% relate to developing digital and data capability skills.
Greg Brown: Organizations that prioritize skills are seeing tangible benefits such as improved retention innovation and business growth.
Greg Brown: When he goes and GNC employees, who now form a significant portion of the work force value economy, internal mobility and opportunities to learn new skills.
Gregory Brown: Organizations that can provide these opportunities through robust learning and development programs are best positioned to attract and retain top-tier talent. By investing and learning in development, companies not only enhance their talent pool, but also reduce turnover, improve employee engagement, and build long-term resilience.
Greg Brown: Organizations that can provide these opportunities through a robust learning and development programs are best positioned to attract and retain top tier talent.
Greg Brown: By investing in learning and development companies not only enhanced our talent pool, but also reduce turnover improve employee engagement and build long term resilience.
Gregory Brown: A couple of great examples of organizations that are prioritizing skills development are Udemy customers, U.S. Steel, and Caliber. U.S. Steel is a manufacturing company with a workforce of more than 20,000 employees and has been a Udemy customer since 2020. U.S. Steel provides access to Udemy business courses to all non-represented employees as a way to foster a culture of continuous learning and to support internal mobility. This strategic approach to learning and development also ensures U.S. Steel employees stay current on important business, technology, and leadership skills. In the past year, employees utilized 100% of license. and 85% of employees who claim licenses were actively taking courses on the platform.
Greg Brown: A couple of great. Examples of organizations that are prioritizing skills development are you to any customers U S steel and caliber.
Greg Brown: U S steels and manufacturing company with a workforce of more than 20000 employees and its been a unique customer since 2020.
Greg Brown: U S steel provides access to your enemy business courses to all non represented employees as a way to foster a culture of continuous learning and to support internal mobility.
Greg Brown: This strategic approach to learning and development also insurers U S steel employees stay current on important business technology and leadership skills.
Greg Brown: In the past year employees utilize 100% of licenses.
Greg Brown: And 85% of employees, who claim licenses, we're actively taking courses on the platform.
Greg Brown: Yeah.
Gregory Brown: Calaver, a UK-based data technology consultant. has been a Udemy customer for two years and has made Udemy Business its primary L&D platform. Udemy plays a critical role in helping Caliber ensure its teams are certified in core technologies, have the foundational skills required to serve clients, and have the soft skills needed to deliver exceptional service. Since partnering with Udemy, Caliber employees adopted 93% of the assigned licenses and logged an astounding 300 learning hours per person.
Speaker Change: Caliber a U K based data technology consultancy.
Speaker Change: There's been a customer for two years and has made us mi business its primary LNG platform.
Speaker Change: You mean plays a critical role in helping caliber insurance teams are certified and core technologies.
Speaker Change: The foundational skills required to serve clients and have the soft skills needed to deliver exceptional service.
Speaker Change: Since partnering with you to me caliber employees adopted 93% of the assigned licenses and logged an astounding 300 learning hours per person.
Gregory Brown: One of our customers, Emphasis, an Indian multinational technology company that offers business consulting, IT and outsourcing services, has partnered with Udemy on a CSR initiative that recognizes the importance of skills development and is extending access to Udemy beyond its own workforce to the broader community. One of our largest deals of the quarter, Emphasis expanded its partnership with Udemy to 150,000 licenses as part of its Emphasis Springboard Initiative. Digital Learning Platform providing free access to educational resources, skill building courses, and certification. The program focuses on enhancing employability through digital literacy, technology, and soft skills, empowering students, women, and professionals in the community to become lifelong learners.
Speaker Change: One of our customer's emphasis and Indian multinational technology company that offers business consulting I T and outsourcing services as partner with you to me on our CSR initiative that recognizes the importance of skills development and it's extending access to you to me beyond its own workforce to the broader community.
Speaker Change: One of our largest deals of the quarter emphasis expanded its partnership with you and me to 150000 licenses as part of its emphasis springboard initiative.
Speaker Change: A digital learning platform, providing free access to educational resources skill building courses and certifications.
Speaker Change: The program focuses on enhancing employability through digital literacy technology and soft skills empowering students women and professionals in the community to become lifelong learners.
Gregory Brown: We are honored to have been selected by Emphasis as a partner to foster continuous learning and drive societal progress, equipping individuals with the tools needed to thrive in an evolving digital economy.
Speaker Change: We are honored to have been selected by emphasis as a partner to foster continuous learning and drive and drive societal progress equipping individuals' within tools needed to thrive in an D evolving digital economy.
Speaker Change: Yeah.
Gregory Brown: This brings us to an exciting product update. By offering our enterprise customers access to innovative learning tools on our Intelligent Skills platform, such as our recently launched AI Assistant, Skills Mapping, and AI-powered Learning Paths, we're helping organizations build a workforce that is not only ready for today's challenges, but also capable of adapting to tomorrow. This major product launch will provide significant value to our customers and has been met with much enthusiasm. Specifically, with the introduction of skills mapping and AI powered learning paths, we're helping leaders identify the critical skills needed for their organization. With this capability, we're enabling customers to create a skills framework, or skills tree, that provides a clear, logical structure for skills development, and ultimately match skills to top-rated courses from the Udemy Business Collection.
Speaker Change: This brings us to an exciting product uptake.
Speaker Change: By offering our enterprise customers access to innovative learning tools on our intelligence skills platform, such as our recently launched AI assistant skills mapping and AI powered learning paths, we're helping organizations build a workforce that is not only ready for today's challenges, but also capable of adapting to tomorrows.
Speaker Change: This major product launch will provide significant value to our customers and it's been met with much enthusiasm.
Speaker Change: Specifically with the introduction of skills mapping and AI powered learning fast, we're helping leaders identified the critical skills needed for their organizations.
Speaker Change: With this capability, we're enabling customers to create a skills framework or skills tree that provides a clear logical structure for skills development and ultimately match skills to top rate of courses from the Union business collection.
Gregory Brown: With the use of AI, we can now bring personalization and guided learning to organizations at scale. In addition, the AI system will help transform the experience for individuals. Helping them more easily discover and engage with relevant learning concepts. The assistant will guide the learner and will provide course and lecture summaries to help learners understand key concepts and navigate to the most relevant content. This system will also help answer course and career-related questions with step-by-step advice and simplified explanations of complex topics. Ultimately, early indications show that the assistant and the more personalized experience it creates will lead to more learner consumption and engagement on our platform.
Speaker Change: With the use of AI, we can now bring personalization and guided learning to organizations at scale.
In addition, the AI system will help transform the experience for individuals helping.
Speaker Change: Helping them more easily discover and engage with relevant learning content.
Speaker Change: The assistant will guide the learner will provide course in lecture summaries to help learners to understand key concepts and navigate through the most relevant content.
This system will also help answer of course and career related questions with step by step advice and simplified explanations of complex topics.
Speaker Change: Ultimately early indications show that the assistant and a more personalized experience. It creates will lead to more learner consumption and engagement on our platform.
Gregory Brown: We're thrilled to introduce these innovative products to our customers, but this is only the beginning. In August, we welcome Udemy's founder, Aaron Bali, back to the leadership team as our Chief Technology Officer. Aaron is excited to return to an operating role where he will drive our product strategy forward. Together, we will deliver cutting-edge solutions that empower learners worldwide to achieve their career goals and better business outcomes for enterprises.
Speaker Change: We're thrilled to introduce these innovative products to our customers, but this is only the beginning.
Speaker Change: In August we welcome you to me its founder Aron Bali back to the leadership team as our Chief Technology Officer.
Speaker Change: Aaron is excited to return to an operating role where he will drive our product strategy forward.
Speaker Change: Together, we will deliver cutting edge solutions that empower learners worldwide to achieve their career goals and better business outcomes for enterprises.
Gregory Brown: With the major launches of our AI system skills mapping behind us, now is a natural time to further streamline responsibilities on our leadership. including consolidating the chief technology and chief product officer role. We're expanding Aaron's role and he will now lead both product and engineering. Our focus on operational efficiency allows us to prioritize investments in innovative, high-impact products, like the ones I just described, that are tailored to meet customers' needs. We believe that by empowering enterprises and individuals with tools to meet their learning needs, we can unlock significant value for stakeholders.
Speaker Change: With the major launches of our AI assistant skills mapping behind US now as a natural time to further streamline responsibilities on our leadership team.
Speaker Change: Including consolidating the chief technology, and Chief product officer roles.
Speaker Change: We're expanding aaron's role and he will now lead bold product and engineering teams.
Speaker Change: Our focus on operational efficiency allows us to prioritize investments in innovative high impact products like the ones I. Just described that are tailored to meet customers' needs.
Speaker Change: We believe that by empowering enterprises and individuals with tools to meet their learning needs, we can unlock significant value for stakeholders.
Sarah Blanchard: And with that, I'll turn the call over to Sarah for a financial review.
And with that I'll turn the call over to Sara for her financial review.
Sarah Blanchard: Thank you, Greg. I'll cover the key financial highlights in our outlook today.
Sara: Thank you Craig.
Sara: I'll cover the key financial highlights and our outlook today, you can find the complete set of financial tables in our news release, which is available on our Investor Relations website.
Sarah Blanchard: You can find the complete set of financial tables in our news release, which is available on our Investor Relations website. Third quarter revenue increased 6% year-over-year to $195 million. With more than 60% of our total revenue coming from outside of the U.S., we had a negative impact from FX to our year-over-year growth rate of 2 percentage points. Udemy business revenue for the quarter was $126 million, an increase of 16% year-over-year, including a two-percentage point headwind from changes in FX rates. As Greg mentioned, we ended the quarter with annual recurring revenue, or ARR, of $505 million, up 14% from a year ago, a significant milestone for the business.
Sara: Third quarter revenue increased 6% year over year to $195 million.
Sara: With more than 60% of our total revenue coming from outside of the U S. We had a negative impact from FX, our year over year growth rate of two percentage points.
Sara: You didn't even business revenue for the quarter was $126 million, an increase of 16% year over year, including a two percentage point headwind from changes in FX rates.
Speaker Change: As Greg mentioned, we ended the quarter with annual recurring revenue or <unk> of $505 million up 14% from a year ago, a significant milestone for the business.
Sarah Blanchard: Within that, ARR from large customers, or those with 1,000 or more employees, increased 15% year over year, while SMB ARR grew 11% year over year. Professional services, financial services, manufacturing, tech, and retail are the strongest verticals contributing to ARR growth. We will continue focusing on driving further penetration in those sectors where we see a vast array of use cases and significant long-term opportunity to capture market share. Our consolidated net dollar retention rate, or NDRR, at quarter end was 99 percent. The rate was 104 percent for large customers. We continue to see pressure on net dollar retention driven by upsells taking longer than historical norms in this environment.
Within that ore from large customers are those with 1000 or more employees increased 15% year over year, well F&B, Erica 11% year over year.
Speaker Change: First of all services financial services manufacturing and retail are the strongest verticals contributing to era.
Speaker Change: We will continue focusing on driving further penetration in those sectors, where we see a vast array of use cases and significant long term opportunity to capture market share.
Speaker Change: Our consolidated net dollar retention rate are N D. R. R at quarter end was 99%.
Speaker Change: The rate was 104% for large customers. We continue to see pressure on net dollar retention driven by upsell is taking longer than historical norms in this environment.
Sarah Blanchard: In the quarter, we added more than 250 net new Udemy business customers, increasing our global customer base by 10% year-over-year to more than 16,800. Within that, our base of large customers increased by 11% to more than 5,000. Gross margin for our Udemy business segment came in at 74% for the third quarter, up 600 basis points from the prior year, primarily due to the instructor revenue share change that went into effect on January 1 of this year. Third quarter consumer revenue of $69 million was down 8% on a year-over-year basis, including a negative 3 percentage point impact from FX.
Speaker Change: In the quarter, we added more than 250, net new U to meet business customers, increasing our global customer base by 10% year over year to more than 16800 within that our base of large customers increased by 11% to more than 5000.
Speaker Change: Gross margin for you to meet business segment came in at 74% for the third quarter up 600 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: Third quarter consumer revenue of 69 million was down 8% on a year over year basis, including a negative three percentage point impact from FX.
Sarah Blanchard: The year-over-year decline was primarily driven by lower individual course purchases and was somewhat offset by growth from our personal plan subscriptions. During Q3, average monthly visitors grew 14% year-over-year to more than 39 million. Although the Marketplace remains vibrant, with strong traffic growth and more than 5,000 courses being added each month, we are taking steps to strengthen our consumer offering. We are building on our Marketplace experience and investing in skills-based career development that meets the needs of today's learners. Leveraging the depth and breadth of our marketplace, we now offer a comprehensive suite of 500 certification prep programs, and that number is continuing to grow.
Speaker Change: The year over year decline was primarily driven by lower individuals' horse purchases and was somewhat offset by growth from our personal plan subscriptions.
Speaker Change: During Q3 average monthly visitors grew 14% year over year to more than 39 million.
Speaker Change: Although the marketplace remains vibrant with strong traffic growth and more than 5000 courses being added each month, we have taken steps to strengthen our consumer offering.
We're building on our marketplace experience and investing in skills based career development that meets the needs of today's finer.
Speaker Change: Leveraging the depth and breadth of our marketplace. We now offer a comprehensive suite of 500 certification programs and that number is continuing to grow.
Sarah Blanchard: These courses are designed to equip learners with everything they need to pass their certification exams and have attracted more than 6 million enrollments to date.
Speaker Change: These courses are designed to a clip on earth with everything they need to pass a certification exams and have attracted more than 6 million enrollments to date.
Sarah Blanchard: As we move down the P&L, note that all financial metrics are non-GAAP unless stated otherwise. Q3 total company gross margin was 64%, a 400 basis point improvement from Q3 2023. The improvement was driven by an instructor revenue share change, as well as a continued revenue mix shift to Udemy Business, which accounted for approximately 65% of total revenue in the quarter, an increase of 600 basis points year over year. As previously shared, we expect total company gross margins to increase to approximately 70% in 2026. Total operating expense was $119 million, or 61% of revenue. FX for the quarter was approximately 1,200 basis points higher than Q3 of last year, primarily driven by higher personnel and marketing.
Speaker Change: As we move down the P&L note that all financial metrics are non-GAAP unless stated otherwise.
Speaker Change: Q3 total company gross margin was 64% a 400 basis point improvement from Q3 2023.
Speaker Change: The improvement was driven by an instructor of new share change as long as the continued revenue mix shift to you to me business, which accounted for approximately 65% of total revenue in the quarter, an increase of 600 basis points year over year.
Speaker Change: As previously shared we expect total company gross margins to increase to approximately 70% in 2026.
Total operating expense was $119 million or 61% of revenue.
Speaker Change: Capex for the quarter was approximately 200 basis points higher than Q2 of last year, primarily driven by higher personnel and marketing expenses.
Sarah Blanchard: On the bottom line, we deliver net income of approximately $10 million, or 5% of revenue. Adjusted EBITDA was approximately $12 million, or 6% of revenue, representing nearly 200 basis point expansion year-over-year. The better-than-expected Adjusted EBITDA result was driven by our ongoing focus on operational efficiency and the cost-savings actions we began implementing during the quarter. We expect these actions to result in restructuring charges of approximately $18 million, which primarily consists of personnel expenses. Approximately $11 million was recognized during Q3. We expect to recognize another six million during Q4, and the final charge will be incurred during the first quarter of 2025.
Speaker Change: And the bottom line, we delivered net income of approximately $10 million or 5% of revenue.
Speaker Change: Adjusted EBITDA was approximately $12 million or 6% of revenue, representing nearly 200 basis point expansion year over year.
Speaker Change: The better than expected adjusted EBITDA result, what's your and by our ongoing focus on operational efficiency and the cost savings actions, we began implementing during the quarter.
Speaker Change: We expect these actions to result in restructuring charges of approximately 18 million, which primarily consists of personnel expenses.
Speaker Change: <unk> 11 million was recognized during Q3.
Speaker Change: We expect to recognize another $6 million during Q4 and the final charge will be incurred during the first part of 2025 cash.
Sarah Blanchard: Cash payments related to these expenses will be spread across the next several quarters.
Speaker Change: Cash payments related to these expenses will be spread across the next several quarters.
Sarah Blanchard: Which brings us to our key cash flow and balance sheet items. We ended the quarter with $358 million of cash, cash equivalents, restricted cash, and marketable security. Free cash flow in the third quarter was negative $10 million, driven by collections, timing, and lower billings, but was positive $32 million on a year-to-date basis. During Q3, we used $51 million in cash to buy back 6.3 million shares through a repurchase program, and are nearing completion of the $150 million authorization.
Speaker Change: Which brings us to our key cash flow and balance sheet items. We ended the quarter of 358 million of cash cash equivalents restricted cash and marketable securities free.
Speaker Change: Free cash flow in the third quarter was negative $10 million driven by collections timing, a lower billings well with positive 32 million on a year to date basis.
Speaker Change: During Q3, we used $51 million in cash to buy back $6 3 million shares through our repurchase program and are nearing completion of the $150 million authorization we.
Sarah Blanchard: We will continue to discuss with our board any plans for future capital return programs. Turning to our guidance. We are raising our full year 2024 outlook. For revenue, we now expect to be in the range of $780 to $783 million, or nearly 7% growth at the midpoint, including an expected negative two percentage point impact from FX. For modeling purposes, we expect Udemy business revenue growth to be up approximately 17%, while consumer revenue is expected to be down approximately 6% year over year. On the bottom line, we are increasing our outlook by approximately $12 million from the midpoint of our prior range, as we now expect to deliver full-year adjusted EBITDA margin of approximately 4.5% of revenue.
Speaker Change: We will continue to discuss with our board any plans for future capital return program.
Speaker Change: Turning to our guidance, we are raising our full year 'twenty 'twenty four outlook.
Speaker Change: For revenue, we now expect to be in the range of $780 to 783 million or nearly 7% growth at the midpoint, including an expected negative two percentage point impact from FX.
Speaker Change: For modeling purposes, we expect you to meet business revenue growth to be up approximately 17%, while consumer revenue is expected to be down approximately 6% year over year.
Speaker Change: On the bottom line, we are increasing our outlook by approximately $12 million from the midpoint of our prior range as we now expect to deliver full year adjusted EBITDA margin of approximately four 5% of revenue.
Sarah Blanchard: The over performance from Q3 and additional cost savings that we are already beginning to realize from the operational efficiency actions are the primary drivers. With respect to the fourth quarter, we expect revenue to be between $193 and $196 million, or approximately 3% year-over-year growth at the midpoint. Assuming exchange rates remain constant, FX is expected to negatively impact Q4 revenue growth by 2 percentage points. On the bottom line, we're targeting an adjusted EBITDA margin of approximately 6% of revenue.
Speaker Change: The over performance from Q3, and additional cost savings that we are already beginning to realize from the operational efficiency actions are the primary drivers.
Speaker Change: With respect to the fourth quarter, we expect revenue to be between 193 and $196 million or approximately 3% year over year growth at the midpoint.
Assuming exchange rates remain constant FX is expected to negatively impact Q4 revenue growth by two percentage points.
Speaker Change: On the bottom line, we're targeting an adjusted EBITDA margin of approximately 6% of revenue.
Sarah Blanchard: Although we plan to provide our formal 2025 guidance on our Q4 call in February, today we wanted to provide some additional context for how our results may unfold next. As Greg discussed, we are purposely shifting our focus from aggressive growth to accelerating operational efficiencies to deliver profitability. In September, we completed a comprehensive review of our cost structure, and as a result, have identified over $50 million in annualized structural cost savings against our run rate. This represents an additional $25 million in savings from when we first outlined our plan on our Q2 earnings call. To break down the $50 million, approximately $40 million in cost savings are related to reducing organizational layers, relocating certain roles to lower-cost locations, and optimizing our go-to-market structure.
Speaker Change: Although we plan to provide a formal 2025 guidance on our Q4 call in February today, we wanted to provide some additional context for how our results may unfold next year.
Speaker Change: As Greg discussed we have purposely shifting our focus from aggressive growth accelerating operational efficiencies to deliver profitability.
Speaker Change: In September we completed a comprehensive review of our cost structure and as a result have identified over 50 million in annualized structural cost savings against that run rate.
Speaker Change: This represents an additional 25 million in savings from when we first outlined our plan on our Q2 earnings call.
Speaker Change: To break down the $50 million approximately 40 million in cost savings are related to reducing organizational layers relocating certain roles to lower cost locations and optimizing our go to market structure.
Sarah Blanchard: We also identified an additional $10 million in cost savings related to other expenses such as marketing spend, professional services, software, and T&E. These actions allow Udemy to be a more nimble organization and better serve our global customer base. In addition, we are optimizing our go-to-market strategy, focusing on regions and sectors that represent the most growth potential, specifically large enterprises, where we see stronger pipeline growth, larger deal sizes, and higher retention and upsell rate. By over-delivering on our expense reduction initiative, we have the flexibility to reinvest some of these savings back into high-impact growth areas and are in the process of hiring for key roles in lower-cost geographies such as Mexico, India, and Turkey.
Speaker Change: We also identified an additional 10 million in cost savings related to other expenses, such as marketing spend professional services software and T D.
Speaker Change: These actions allow you to me to be a more nimble organization and better serve our global customer base and.
Speaker Change: In addition, we are optimizing our go to market strategy, focusing on regions and sectors that represent the most growth potential specifically large enterprises, where we see stronger pipeline growth larger deal sizes, and higher retention and up sell rates.
Speaker Change: Hi over delivering on our expense reduction initiative, we have the flexibility to reinvest some of these savings back into high impact growth areas and are in the process of hiring for key roles in lower cost geographies, such as Mexico, India and Turkey.
Sarah Blanchard: In 2025, we expect to deliver approximately $70 million in adjusted EBITDA, providing a clear path to achieving our 2026 target. As a reminder, beyond the structural cost and efficiency actions we have taken, we expect that 2025 Addressed EBITDA will also benefit from approximately 200 basis points of improvement to gross margin from our revenue mixed shift towards Udemy business and our previously announced changes to instructor revenue share. On the top line, as we shift resources to focus most on the large enterprise opportunity in Udemy business, we wanted to highlight a few discreet headwinds to revenue growth during the 2025 transition year.
Speaker Change: In 2025, we expect to deliver approximately $70 million and adjusted EBITDA, providing a clear path to achieving our 2026 target.
Speaker Change: As a reminder, yeah on the structural cost efficiency actions. We've taken we expect that 2025 adjusted EBITDA will also benefit from approximately 200 basis points of improvement to gross margin from a revenue mix shift towards <unk> to be both us and our previously announced changes to instruct a revenue share.
Speaker Change: And the topline as we shift resources to focus most on the large enterprise opportunity and you're to me business. We wanted to highlight a few discrete headwinds to revenue growth during the 2025 transition here.
Sarah Blanchard: Specifically, for Udemy Business, the combination of a $20 million reduction in quota capacity in SMB and the continued softness in EMEA is creating a few points of headwind to our overall revenue growth projections for 2025. While we are experiencing these headwinds in the near term as we focus resources on market and transition teams to the new structure, we expect large customers to continue to outperform the other cohorts. To highlight our progress and the effectiveness of our shift and focus on market, going forward we will provide additional insight into this cohort. On the consumer side, we expect that we will experience high single-digit revenue decline rates in the next year.
Speaker Change: Specifically for you to repossess the combination of a $20 million reduction in quota capacity in F&B and the continuous office and meal is creating a few points of headwind to our overall revenue growth projections for 2025.
Speaker Change: While we are experiencing these headwinds in the near term as we focus resources up market and transition teams to the new structure, we expect large customers to continue to outperform the other cohorts.
Speaker Change: To highlight our progress and the effectiveness of our shift in focus on market going forward, we will provide additional insight into this cohort.
Speaker Change: And the consumer side, we expect that we will experience high single digit revenue decline rates into next year. This represents approximately three points of headwind against our overall growth.
Sarah Blanchard: This represents approximately three points of headwind against our overall growth, although we continue to be prudent with investments related to that segment. Longer term, we are investing in building a career-based development experience for learners across the globe. Looking ahead, we expect the work we've done to restructure the organization will help us navigate near-term market conditions while setting the foundation for long-term success. Our goal is to deliver $130 to $150 million in adjusted EBITDA by 2026 and continue expanding towards our target of 20% adjusted EBITDA margin in 2027. In summary, the strategic shift we've made, combined with our ongoing operational efficiency efforts, are allowing us to focus on what matters most, capturing the massive opportunity in enterprise and individual skills development, particularly in the age of AI.
Speaker Change: We continue to be prudent with investments related to that segment longer term, we are investing in building our career based development experience for learners across the globe.
Speaker Change: Looking ahead, we expect the work we've done to restructure the organization will help us navigate near term market conditions, well setting the foundation for long term success.
Speaker Change: Our goal is to deliver 130 to 150 million in adjusted EBITDA by 2026th and continue expanding towards our target of 20% adjusted EBITDA margin in 2027.
Speaker Change: In summary, the strategic shifts we've made combined with our ongoing operational efficiency efforts are allowing us to focus on what matters, most capturing the massive opportunity in enterprise and individual skills development, particularly in the age of AI.
Sarah Blanchard: We are confident that the work we are doing will further strengthen the foundation of our business and enhance our customer experience globally.
Speaker Change: We are confident that the work we are doing will further strengthen the foundation of our business and enhance our customer experience globally.
Sarah Blanchard: As you can tell, we are as excited as ever about our future opportunity and Udemy's ability to lead this category while delivering sustainable long-term growth, increasing profitability, and creating lasting value for all stakeholders.
As you can tell we are as excited as ever about our future opportunity and <unk> ability to lead this category well delivering sustainable long term growth, increasing profitability and creating lasting value for all stakeholders.
Unknown Attendee: So with that, we'll open up the call for your questions.
Speaker Change: So with that we'll open up the call for your questions moderator.
Unknown Attendee: Moderator. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are 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: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and who would like to withdraw. Your question. Please press star and then two.
Jason Tilchen: Our first question comes from Jason Tilchen with Canaccord Genuity.
Speaker Change: Our first question comes from Jason Tillson with Canaccord Genuity. Please go ahead.
Gregory Brown: Please go ahead. Good afternoon, thanks for taking the question. I'm curious if you could share a little more detail around how some of these new AI enabled capabilities are changing the conversations the sales team's having with larger enterprises, and when you may expect some of those conversations to lead to an impact, a more direct impact on growth going forward for the enterprise.
Jason Tillson: Good afternoon. Thanks for taking the question I'm curious if you could share a little more detail around how some of these new AI enabled capabilities are changing the conversation as the sales team is having with larger enterprises and when you may expect some of those conversations to lead to impact a more direct impact on growth going forward for the enterprise segment.
Gregory Brown: Yeah, thanks for the question. So first, I'd say we're already seeing the impact on sales process, sales cycles and our ability to Establish value associated with these AI capabilities, from the standpoint that organizations for some time now have been looking for... Product Capability, like our skills mapping, that enables them to assess skills, develop a hyper personalized learning experience based on the skills gap, and then assess again to certify and then provide a badge or certificate associated with skills acquisition. Skills mapping brings that to life. Right. So we now have automated what has been primarily a manual process for most organizations.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: So first I'd say, we're already seeing the impact on sales process sales cycles and our ability to.
Speaker Change: Establish value associated with these AI capabilities from the standpoint that organizations for some time now have been looking for.
Speaker Change: Product capability like our skills mapping that enables them to assess skills develop a hyper personalized learning experience based on the skills gap and then assess.
Speaker Change: Again to certify and then provide a badge or a certificate associated with skills acquisition skills mapping brings out to lifestyle right. So we now have automated what had been primarily a manual process for most organizations. So theres a lot of excitement about that from.
Gregory Brown: So there's a lot of excitement about that from a L&D leadership perspective within the companies we serve. At the same time, you know, the AI learning assistant, you know, having an assistant along for the ride for individuals and within organizations to, again, personalize that learning experience, but also to have the ability to ask questions to, you know, and be engaged in that learning process throughout, which is what the AI assistant is. All of it, really, what we're seeing in early signals, both in the beta, as well as live with customers, increase not only adoption, but more importantly, active usage and engagement on the platform, and we expect that to persist.
Speaker Change: LNG leadership perspective within the companies we serve.
Speaker Change: At the same time.
Speaker Change: Learning assistant you know, having a an assistant along for the ride for individuals and within organizations.
Speaker Change: Again personalized learning experience, but also to have the ability to ask questions to ask.
Speaker Change: We are engaged in that learning process throughout which is what the eye assistant is all of it really what we're seeing in early signals both in the data as well as live with customers increase not only adoption, but more importantly, active usage and engagement on the platform and we expect that to persist we're really excited about.
Gregory Brown: We're really excited about, you know, the progress right now to date, and we're just getting going. Right now, we have about 1,000, a little over 1,000 enterprises that have lit up skills mapping and AI assistant, and we're ramping in. So, early days, but early signals are very positive.
Speaker Change: You know the progress right now to date and we're just getting going right. Now we have about 1000, a little over 1000 enterprises that have lit up skills mapping and AI assistant and we're wrapping in so early days, but early signals are very positive.
Speaker Change: Great. Thank you very much.
Speaker Change: Okay.
Stephen Sheldon: And the next question comes from Stephen Sheldon with William Blair. Please go ahead. Hey, thanks.
Speaker Change: And the next question comes from Stephen Sheldon with William Blair. Please go ahead.
Stephen Sheldon: Hey, Thanks, just as we think about you to meet business I guess, how would you characterize corporate LNG the.
Gregory Brown: Just as we think about Udemy business, I guess, how would you characterize corporate L&D? I think you may be noted that the environment is stable but subdued. So have you seen any early signs of a pickup, and if not, what do you think it will take for that to happen?
Stephen Sheldon: The spending environment there comparing this quarter to the first half of the year, Greg I think I think it may be noted that the environment is stable, but subdued. So have you seen any early signs of a pickup and if not what do you think it will take for that to happen.
Gregory Brown: Yeah, thanks for the question. Yeah, I did mention that, you know, we are seeing, you know, continued scrutiny on budgets within organizations as as companies rationalize not only their L&D spend, but the rationalizing spend across the entire enterprise. I mean, and we're doing the same thing. We're no different.
Greg Brown: Yeah. Thanks for the question Yeah.
Greg Brown: Yeah I did mention that we are seeing continued.
Speaker Change: Continued scrutiny on budgets within organizations as as companies rationalize not only their LNG spend but they're rationalizing spend across the entire enterprise and we're doing the same thing we're no different.
Gregory Brown: But this streamlining for us presents an opportunity. in that we've talked for some time now about the opportunity for us to be a consolidator of L&D content, more importantly strategy, and to be the platform that organizations look to as they're thinking more strategically about developing a skills development capability. And I'll give you an example. One of the largest tech companies in the world, Fortune 100 tech company, this last quarter made a decision to pivot and really start investing in developing a strategy with a more outcome-driven approach. And as a result of that, we replaced our largest competitor, and this is a 40,000-seat deal.
Speaker Change: But the streamlining for us presents an opportunity.
Speaker Change: We talked for some time now about the opportunity for us to be a consolidator.
Speaker Change: You know LNG content, more importantly strategy and to be the platform that organizations look to as they're thinking more strategically about developing a skills development capability in.
Speaker Change: I'll give you. An example, you know one of the largest tech companies in the World Fortune 100 company. This last quarter made a decision to pivot and really start investing and developing a strategy to more outcome driven approach and as a result of that we replaced our largest competitor.
Speaker Change: And this is a 40000 seat deal.
Gregory Brown: And the reason that they chose us in terms of the platform was the breadth and depth of the content. The breadth of our platform, not just on the technical skills development side, but the business skills development side, and through the process, the adoption they saw in the organization of our platform vis-a-vis our primary competitor. And we're seeing these types of examples manifest on a continuous basis.
Speaker Change: And the reason that they chose us in terms of the platform was the breadth and depth of the content.
Speaker Change: Breath of our platform not just on.
Speaker Change: The technical skills development side, but the business skills development side.
Speaker Change: And through the process the adoption they saw in their organization of our platform Visa V. Our primary competitor and we're seeing these types of examples manifest.
Speaker Change: Continuous basis that being said.
Gregory Brown: That being said... We're in the midst of two major transformations right now. One is the skills-based organization transformation, which I just alluded to. And the other one's AI, this transformation to organizations, really on the front end of determining how they're gonna leverage generative AI to transform how they operate internally, as well as into the products and services that they deliver. And these transformations take time. And we're seeing that. So in terms of the market being subdued, Although we're seeing positive signs and have more examples, like the ones I just shared with you, this transformation that we're going through in both endeavors is on the front end of the cycle, and it's going to take some time.
Speaker Change: We're in the midst of.
Speaker Change: Two major transformations right now one is the skills based organization transformation, which I just alluded to and the other ones AI. This transformation to organizations really on the front end up determining how they're gonna leverage generative AI to transform how they operate internally as well as into the products and services that they deliver and these.
Speaker Change: Just take time.
Speaker Change: And we're seeing that so in terms of the market being subdued.
Speaker Change: No.
Although we're seeing positive signs that have more examples like the ones I've just shared with you on.
Speaker Change: This you know this this transformation that we're going through in both endeavors.
Speaker Change: It is on the front end of the cycle and it's going to take some time. So that's what we're seeing and we expect that to continue for a bit don't know necessarily when the cycle is going to turn back up but we know that there's strong demand.
Gregory Brown: So that's what we're seeing, and we expect that to continue for a bit. Don't know necessarily when the cycle's going to turn back up, but we know that there's strong demand for what we provide for learning and development organizations that have a strategic need for platforms like ours.
Speaker Change: For what we provide for learning and development organizations have a strategic need for platforms like ours.
Unknown Attendee: Got it. Yeah, that's helpful.
Speaker Change: Got it yeah. That's helpful. And then just a quick follow up appreciate the early color on 2025, I didn't hear anything about Ub growth expectation so.
Unknown Attendee: And then just a quick follow up, appreciate the early color on 2025.
Unknown Attendee: I didn't hear anything about UV growth expectation. So if you did, I missed that. Is there any way to frame the potential? What a growth range could look like for UV as we think about 2025?
Speaker Change: If you did I missed it.
Speaker Change: Is there any way to frame the potential what sort of growth range could look like for UV as we think about 2025.
Sarah Blanchard: Yeah, so we really right now are in the midst of our 2025 planning, but we did want to help, you know, align expectations around a few discrete headwinds that we have during this transition year, some of which really pertain to the UB side of things. In going through this restructuring to align our business to the current conditions and really focus on the strong opportunity that we see in enterprise, we have reduced our S&B capacity by about $20 million, and we do continue to see weakness in EMEA. And so the combination of those is going to cause multiple points of overall headwinds and overall growth on the revenue side and more impact on the UB side.
Speaker Change: Yeah. So.
Speaker Change: We really right now are in the midst of our 2025 planning, but we did want to help you know align expectations around a few discrete headwinds that we have during this transition year, some of which really pertain to the U b side of things.
Speaker Change: And going through this restructuring to align our business to the current conditions and really focus on the strong opportunity that we see and at our price we have reduced our F. N b capacity by about 20 million and we do continue to see weakness in EMEA are and so the combination of those.
Speaker Change: <unk> is going to cause multiple point of overall headwinds and overall growth on the revenue side and more impact on the UV side.
Sarah Blanchard: And then just to round it out, on the consumer side, we are expecting high single-digit decline conservatively, which is another three points of overall revenue headwind. So just taking those two into consideration, that gives you some insight into how we're thinking about next year, which is a transition year as we're executing against this restructuring and getting those resources focused up market. But despite those headwinds, we're excited about where we are. We've done a lot of work that sets us up to deliver the bottom line that we shared at $70 million in 2025 and a clear path to our 2026 target of $130 million to $150 million.
Speaker Change: And then just to round it out.
On the consumer side, we are expecting high single digit decline conservatively, which is another three points of overall revenue headwind. So just taking those two into consideration that gives you.
Speaker Change: Some insight into how we're thinking about next year, which is a transition year as we are executing against this restructuring and getting those resources are focused upmarket.
Speaker Change: But despite those headwinds.
Speaker Change: We're excited about where we are we've done a lot of work that's tucked up sets us up to deliver the bottom line that we shared a $70 million in 2025, and a clear path to our 2026 target at 130 to 150 or so.
Sarah Blanchard: So again, we're in the midst of planning, but that's how we're thinking about 2025.
Speaker Change: Again, we're in the midst of planning, but that's how we're thinking about 2025.
Unknown Attendee: Got it.
Speaker Change: Got it thanks for taking my questions.
Unknown Attendee: Thanks for taking my question.
Joshua Baer: 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.
Gregory Brown: Thank you for that question.
Josh Baer: Thank you for the question I was hoping you could actually talk about the integration with workday seems pretty interesting just wondering if it's similar to you know the typical integration with our learning platform or are there other elements of the partnership and then just also wondering like too.
Gregory Brown: I was hoping you can actually talk about the integration with Workday. Seems pretty interesting. Just wondering if it's similar to, you know, the typical integration with a learning platform, or are there other elements of the partnership? And then just also wondering, like, to get all the advantages of that, do you have to be a Workday customer and a Udemy customer? Just any details on that would be pretty interesting.
Josh Baer: You get all the advantages of that do you have to be a workday customer Ana you to meet customers just any details on that would be pretty interesting things.
Gregory Brown: Yeah, Josh. Good question. So yeah, you know, we're excited about the partnership and relationship we have with Workday as well as, you know, the new integration we just announced. And really what this is about is it, it maps our Udemy business content to the Workday Skills Cloud, and it's got a couple unique advantages, and that enables learners to display the skills that they've developed within the platform, within their environment. It also allows and provides admins the ability to view those employee skills that have been developed and actually that are in flight of being developed. And so, you know, what they're excited about, and we're equally excited about, is it really promotes internal mobility.
Speaker Change: Hi, Josh Good question. So yeah, we're excited about the partnership and relationship we have with workday as well as the new integration, we just announced and really what this is about is it it maps, our union business conscience of the workday skills.
Josh Baer: Skills cloud.
Speaker Change: And it's got a couple of unique advantages in that enables learns to display the skills that they've developed within the platform within their environment. It also allows provides admins the ability to view those employee skills that have been developed and actually that are in flight are being developed and so you know what they're excited about and we're equally excited about it.
Speaker Change: Is it really promotes internal mobility.
Gregory Brown: And that's something they care a lot about. That's one of the primary value propositions that they have and we jointly have.
Speaker Change: And that's something they care a lot about that's one of the primary value propositions that they have and we jointly have so you know we've worked closely with workday for some time and this is just the next step in the evolution of our partnership.
Gregory Brown: So, you know, we've worked closely with Workday for some time, and this is just the next step in the evolution of our partnership.
Gregory Brown: And do you need to be a both a Udemy customer and a Workday customer to take advantage of the impact that I just mentioned?
Speaker Change: And do you need to be are you both of you to meet customer and a workday customer to take advantage of the impact that I just mentioned the answer's, yes.
Gregory Brown: The answer is yes. Okay, got it.
Speaker Change: Okay got it and and like how do you.
Gregory Brown: And like, how do you, how should we think about, like Workday's initiatives or any learning management system, or HCM vendor and like their focus on skills, and like developing their own skills cloud, like versus Udemy's efforts to map everything out? And like, which one does the customer tend to adopt or like looking to use from the platform, like the learning platform or the content provider? And like, how should we think about the different approaches there?
Speaker Change: How should we think about like work days initiatives or any learning management system.
Speaker Change: Or HCM vendor and like their focus on skills and like developing their own skills cloud like versus you'd amies efforts to map everything out.
Speaker Change:
Speaker Change: And like which one does the customer tend to adopt or like looking to use from the platform like the learning platform or the content provider and like how should we think about the different approaches there.
Gregory Brown: Yeah, that's a good question as well. So our strategy has been and will continue to be to integrate with all of the LMSs, the LXPs, the technologies that our customers use to deliver learning and provide a learning experience for their employees. All right, so that's, you know, that's, I think, something that is very unique and a little bit different. We integrate, actually, even with some folks that we view as competitors, because they've got their own LXP. All right, so that's, you know, I guess point one.
Yeah, that's a good question as well so our strategy.
Speaker Change: Has been and will continue to be to integrate with all of you know the message the Alex Pease. This technologies that our customers use to deliver learning and provide a learning experience for their employees.
Speaker Change: And so that's you know.
Speaker Change: That's I think something that is very unique and a little bit different we integrate actually even with some folks that we view as competitive because they've got their own L O Alex Pease.
Speaker Change: Alright, So that's you know I guess 0.1.
Gregory Brown: And then as far as what was the second, I lost the second part of the question. Just wondering, like the end customer, if they're going to really lean into the learning management system, like the platforms, skills, offerings, or are they going to look to the content, like content provider? Yeah, good question. It really is on a case by case basis. If, for instance, in workdays, in that example, if they've got the ability within their James Booth, Jamestown Public Schools.
Speaker Change: And then as far as what was the second I lost the second part of the question.
Speaker Change: Just wondering like the end customer or if they're going to really lean into the learning management system like the platforms skills offerings or are they going to look to the content like content provider.
Speaker Change: You've been watching it really is on a case by case basis. If for instance, and workdays in that example, if they've got the ability within there.
Speaker Change: Product sales skills cloud to map skills to learning and we integrate and then the customer can choose a we'll help them choose strategically because with all of our partners. We engage with our customers jointly will provide insight into the optimal approach based on the outcomes, they're trying to achieve for other platforms that don't.
Unknown Attendee: jamesbooth.com Unknown Attendee, David Walsh, Unknown Attendee, David Walsh, Unknown Attendee, David Walsh, Great, thank you.
Speaker Change: Have the capability to map skills.
Speaker Change: Learning content and develop a personalized learning path then we're gonna be the optimal choice for that so it really is going to be on a case by case basis in and again you know we worked very closely with all the partners. We just mentioned you know degreed cornerstone you know theres a number of folks out there that we work closely with our.
Speaker Change: In market and we'll continue to do so.
Speaker Change: Great. Thank you.
Ryan Macdonald: The next question comes from Ryan MacDonald with Needham and Company. Please go ahead. Thanks for taking my questions. Greg, maybe first for you, you talked about having the benefits of having the new CRO in and sort of getting that motion going, you know, recognizing that these budgets obviously don't turn on a dime. But can you talk about maybe some of the processes that or new processes you've been putting in place as you've sort of focused up market on these larger customers? And then, you know, how quickly might you'll see that kind of filter through into the pipeline conversion as we're going into next year?
Speaker Change: The next question comes from Ryan Macdonald with Needham and company. Please go ahead.
Ryan Macdonald: Alright, Thanks for taking my questions. Greg maybe first for you you talked about having the benefits of having the new zero in and sort of getting that motion going.
Ryan Macdonald: Recognizing that these budgets, obviously don't turn on a dime, but can you talk about maybe some of the processes that are new processes, you've been putting in place as you are sort of focused up market on these larger customers and then how quickly might you will see that kind of filter through into the pipeline conversion as we're growing into next year.
Gregory Brown: That's a good question. Thank you, Ryan. So Rob's been intently focused on developing sales capability across our sales organization and customer success.
Speaker Change: Yeah. That's a good question. Thank Ryan So Rob has been intently focused on developing sales capability across our sales organization and customer success.
Gregory Brown: to be very, very capable and strong at selling into the key verticals that we've highlighted that we have knocked lead bowling pins down in, that we have a leadership position in, and whether it be financial services, professional services, consulting, and so on and so forth. And really what that includes is account planning capability, sales enablement, and everything that goes along with developing a high-functioning, hyper-focused, hyper-capable sales organization and selling not just to these enterprises, but specifically to the buyers that we sell into, the chief learning officers, chief people officers, as well as the technical buyers that we've historically been very strong and capable of selling into.
Speaker Change: To be very very capable and strong at selling into the key verticals that we've highlighted that we have knocked lead bowling pins down in Oh, we have a leadership position in and whether it be financial services professional services consulting and so on and so forth and really what that includes is account planning capability sales enablement and everything that goes.
Speaker Change: Along with developing a high functioning hyperfocus hyper capable sales organization selling not just to these enterprises, specifically to the buyers that we sell into the chief learning officers Chief people officer as well as the technical buyers that we've historically been very strong and capable of selling into so it's up leveling the support and resources.
Gregory Brown: So it's up-leveling the support and resources we're providing our sales organization, and in some cases, you know, it's also up-leveling the sales organization itself, right, making sure we have the right talent and the right roles for us to be successful as we move forward. So a concerted effort there. Love what we're seeing in terms of the impact Rob's having, and expect that to really start to have an impact next year into, you know, I would say the numbers and what we're going to be delivering, but, you know, more to come on that.
Speaker Change: We're providing our sales organization and in some cases.
Speaker Change: It's also up leveling the sales organization itself right, making sure we have the right talent in the right roles for us to be successful as we move forward. So a concerted effort there love what we're seeing in terms of the impact raw is having and expect that to really start to have an impact next year and into.
Speaker Change: Yeah, I would say the numbers and what we're gonna be delivering but more to come on that.
Speaker Change: I appreciate it and maybe as a follow up for Sarah appreciate all the con text for for 2025, and how we're starting to frame that up.
Sarah Blanchard: And maybe as a follow-up for Sarah, I appreciate all the context for 2025 and how we're starting to frame that up. When you think about Udemy business in particular, can you just explain maybe a little bit more detail the environment you're sort of expecting relative this year as you're starting to build out that framework? And maybe it's on the point of sort of EMEA weakness, you know, is that just a continued elongation of sales cycles or are we seeing instances of heightened levels of churn in that region?
Speaker Change: You think about Europe meat business in particular can you just explain maybe a little bit more detailed environment, you're sort of expecting relative to this year as you're starting to build out that framework and maybe on the point of sort of EMEA weakness.
Speaker Change: That just the continued elongation of sales cycles, where are we seeing instead.
Speaker Change: Instances of heightened heightened levels of churn.
Speaker Change: In that region. Thanks.
Sarah Blanchard: Yeah, thanks for the question. So we are expecting next year from an environmental perspective to be very similar to this year. Elongated sales cycles.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: So we are expecting next year from an environmental perspective to be very similar to the SCR. A long dated sales cycle are you asked about churn or gross dollar retention remains has remained stable I think we've lost about a point and a half over the last six quarter or so.
Sarah Blanchard: You asked about churn. Our gross dollar retention has remained stable. I think we've lost about a point and a half over the last six quarters. But the upselling, we expect it to continue to be pressured and the sales cycles to be longer. When we're thinking about UB growth overall, next year, there is going to be an impact because we reduced some of our growth market team, particularly around SMB number one. And number two, there is some amount of movement happening even up market, as we've taken some of our, you know, star reps from SMB and moving them up market.
Speaker Change: But the up selling we expect it to continue to be pressured in the sales cycles to be longer when we're thinking about UV growth. Overall next year, there is going to be an impact because we reduced some of our smaller market team, particularly around SMB number one and number two there is.
Speaker Change: Some amount of movement happening even up market as we've taken some of our star reps from F&B and moving them up market. So that is going to impact the numbers.
Sarah Blanchard: So that is going to impact the numbers. But from a long term perspective, you know, we do think UB is going to be a double digit grower. So it's just taking time to work through this transition year. And then, you know, AI, sorry, organizations are going to have to AI enable their workforces over time. It is going to take time, but we're setting ourselves up to be the player that they partner with. So a bit of a transition year for next year, both on the UB side and some impact on consumer, but really excited about the long term opportunity there.
But from a long term perspective, we do think you'd be it is going to be a double digit grower. So its just taking time to work through this transition year.
Speaker Change: And then Oh, sorry organizations are going to have to.
Speaker Change: AI enable their workforces overtime. It is going to take time, but we're setting ourselves up to be the player that they partner with us so a bit of a transition year for next year, both on the UV side and and some impact on consumer but really excited about the long term opportunity there.
Unknown Attendee: Appreciate the cover. Thanks.
Speaker Change: I appreciate the color. Thanks.
Terry Tillman: And the next question comes from Terry Tillman with Truist. Please go ahead. Yeah, thanks for taking my questions. And Sarah, just kind of following up to a couple of prior questions. You talked about a couple of points of impact, I think, to the business in 25. Was that for UB? Because My simple math would be, if it's 16 to 18 percent growth this year, then it's kind of like 14 to 16 percent growth next year, also understanding there's some headwinds. Is that the right way to think about UB, initially?
Speaker Change: And the next question comes from Terry Tillman with Truest. Please go ahead.
Speaker Change: Yeah. Thanks for taking my questions and sorry, I, just kind of following up to a couple of prior questions you talked about a couple of points of impact.
Speaker Change: To the business and twenty-five was that for you be because.
My simple math would be if its 16% to 18% growth. This year than it is kind of like 14% to 16% growth next year also understanding there's some headwinds is that the right way to think about you'd be initially and then I had a follow up.
Sarah Blanchard: And then add a follow-up.
Sarah Blanchard: Yeah, so the few points of headwind is across total growth, not just UV, so the UV impact is going to be larger. Okay.
Speaker Change: Yeah.
Speaker Change: The the viewpoint of headwind is across total growth not just U V. So the UV impact it's going to be larger.
Speaker Change: Okay.
Gregory Brown: And then just a follow-up question on, you know, the CRO has been in, and maybe this is for Craig, but the CRO has been in the spot for the seat for five months. I think there was an earlier question or a couple of questions, and we're all curious in terms of what kind of impact they can have on the business. But if you had to think about over the next 12 or so months, do you think dollar-wise it would have more impact from you all just getting more out of your large customers or doing more with getting net new large customers?
Speaker Change: Okay, and then just a follow up question on the CRA has been and maybe this is for Greg, but the euro has been in the spot for the seed for five months I think there was a earlier question or a couple of questions and we're all curious in terms of what kind of impact. They can have on the business, but if you had to think about over the next 12 or so months.
I think dollar wise it would have more impact from you all just getting more out of your large customers.
Speaker Change: We're doing more with getting that new large customers. Thank you.
Gregory Brown: Thank you.
Gregory Brown: Yeah, I, you know, I think that's A fairly straightforward question from my standpoint is getting more out of our existing customers. We talked in the past that we're less than 10% penetrated in our enterprise customers, enterprise being those customers over 1,000 employees, and we've got over 5,000 of them.
Speaker Change: Yeah, I you know I think that's.
Greg Brown: A fairly straightforward question from my standpoint is getting more out of our existing customers. We've talked in the past that we're less than 10% penetrated.
And our enterprise customers enterprise being those customers over 1000 employees and we've got over 5000 of them. So it really is about getting more efficient at.
Gregory Brown: So it really is about getting more efficient at selling through our existing customer base and, as I mentioned earlier, developing the capability to have strategic conversations with the chief heads of learning and the heads of people with respect to how you and we can and should be the partner they're turning to to develop that skills-based organization capability as they're making that transition to a skills-based approach. And we see tremendous opportunity. Rob continues to signal back to us how encouraged he is based on the customer conversations he's having at the interest in us continuing to help them develop in the technical side of the house, but how massive the opportunity is on the business skills side.
Greg Brown: Selling through our existing customer base and as I mentioned earlier developing the capability to have strategic conversations with chiefly heads of learning and the heads of people with respect to how you and we can and should be the partner, they're turning to to develop that skills based organization capability as they're making that transition.
Greg Brown: You know to a skills based approach and we see tremendous opportunity Rob continues to signal back to us how encouraged he is based on the customer conversations. He is having at the interest in us continuing to help them develop and the technical side of the house, but how massive the opportunity is on the business skill side.
Gregory Brown: And we're investing into that from a product capability as well.
Greg Brown: And when we're investing into that from a product capability as well, but nonetheless.
Gregory Brown: But nonetheless, you know, that's that's where we're going to see the biggest the biggest impact is in our existing customer base, especially in those five verticals where we've already knocked down the lead dominoes. We already have a dominant position and we're going to extend that.
Greg Brown: That's where we're going to see the biggest the biggest impact is in our existing customer base, especially in those five verticals, where we've already knocked down to Lee Domino's, we already have a dominant position and we're going to extend that.
Speaker Change: Thanks, that's helpful.
Noah Herman: The next question comes from Noah Herman with J.P. Morgan. Please go ahead. Thanks for taking the questions.
Speaker Change: The next question comes from Noah Herman with J P. Morgan. Please go ahead.
Noah Herman: Alright, thanks for taking the questions can you provide a little bit more color on the performance on a geographical basis I think in your prepared remarks, you called out India. But then you also mentioned that you are making a few key hires in other regions as well so it would be great to just get more color.
Gregory Brown: Can you provide a little bit more color on the performance on a geographical basis? I think in your prepared remarks, you called out Umea, but then you also mentioned that you're making a few key hires in other regions as well.
Gregory Brown: So it'd be great to just get more color around what areas are performing well and where you think there's room for improvement. Yeah, so, you know, as we did share the the area that we are seeing, you know, the most kind of muted growth, if you will, is on the is in the EMEA region. We have higher growth coming from APAC and LATAM. And that's where we're building out some of the teams and hiring some of these key leaders to help us take advantage. There is, you know, massive opportunity across the globe. But because we're such a global business, with 60% of our revenue outside of North America, you know, different regions move differently.
Noah Herman: Around what areas are performing well and where do you think theres room for improvement.
Speaker Change: Yeah. So you.
Speaker Change: You know as we did share the the area that we are seeing you know the most kind of unit growth. If you will is on the is in the EMEA region.
Speaker Change: We are have higher growth coming from APAC and Latam and that's what we're building out are some of the teams and and hiring some of these key leaders to help us take advantage there is massive opportunity across the globe, but because we're such a global business with 60% of our revenue outside of North America.
Speaker Change: Different regions move differently and so what we're seeing right now is it's more strength for myself perspective in APAC and Latam.
Gregory Brown: And so what we're seeing right now is more strength from a growth perspective in APAC and LATAM.
Unknown Attendee: Unknown Attendee Got it.
Speaker Change: Got it and then maybe.
Sarah Blanchard: And then just quickly on the net dollar retention, especially for the large customer cohort, can you just maybe unpack a little bit of the dynamics going on there? I think it was a sequential decrease of four points, slight uptick versus last quarter, just anything you can maybe provide around seat growth, pricing, anything to unpack there would be helpful. Yeah, so, you know, we see continued lengthening, or it's not worse, but the continued long sales cycles around upsells and smaller deal sizes out of the gate. And so what we're seeing is organizations are taking smaller bites at the apple at a time and taking longer.
Just quickly on the net dollar retention.
Speaker Change: Especially for the large customer cohort can you just maybe unpack a little bit about the dynamics going on there I think it was a sequential decrease of four point slight uptick versus last quarter.
Speaker Change: You can maybe provide around seat growth pricing and an excellent path there would be helpful.
Speaker Change: Yeah. So you know we see a continued.
Speaker Change: Lengthening or its not worse, but the continued long sales cycles around upsell and smaller deal sizes out of the gate and so what we're seeing as organizations are taking smaller bites at the Apple at a time and taking longer and what we're focused on is really supporting these customers helping them.
Sarah Blanchard: And what we're focused on is really supporting these customers, helping them implement and drive adoption, engagement and usage and drive those business outcomes. We know when we do that, we are able to increase retention. But it is just taking longer right now.
Speaker Change: Implement and drive adoption engagement and usage and drive those business outcomes, we know when we do that.
Speaker Change: We are able to increase retention.
Speaker Change: But it is just taking longer right now.
Sarah Blanchard: Upskilling is such a critical need, it is accelerated by AI. But there is also the pressure of everybody really scrutinizing their budgets. And so it's the balance of that is what you're seeing in net dollar retention. But we remain focused on ensuring that our customers are getting value out of what we're delivering to them so that we can continue to drive growth in those accounts.
Speaker Change: Scaling is such a critical need it is accelerated by AI.
Speaker Change: There is also the pressure of everybody really scrutinizing their budgets and so it's the balance of that is what you're seeing in net dollar retention, but we remain focused on ensuring that our customers are getting value out of what we are delivering to them. So that we can continue to drive growth in those accounts.
Yifu Li: Again, if you have a question, please press star and then one. The next question comes from Yifu Li with Cantor Fitzgerald. Please go ahead.
Speaker Change: Again, if you have a question. Please press star and then one the next question comes from E Food Lee with Cantor Fitzgerald. Please go ahead.
Gregory Brown: Thank you for taking my question and congrats on the strong set of results in light of the tough macro environment. I guess the question for Greg or Sarah is, following from the previous question on net retention rate, I understood the macro environment is crummy right now, but consider the macro environment stays the same, what are some of the drivers you could pull that can stop, I would say stop the bleeding and the net retention rate? And when do you think it will bottom? And then I have a quick follow-up.
Speaker Change: Thank you for taking my question and congrats on the strong set of results in vinyl.
Speaker Change: The macro environment I guess, a question for Greg or Sarah as you know following.
Speaker Change: Following up on the previous question on net retention rate on the macro environment has put me right now I like it because they know the macro environment stays the same what are the some of the drivers you could poll that can like Scott I will say stop the bleeding and the net retention rate and and when do you think it will bottom.
Speaker Change: And then I have a quick follow up as well.
Sarah Blanchard: So there's two things, you know, the first again, which I just spoke about is focusing on retention, delivering more value to our customers, such that we maintain a strong retention number and grow that over time. On the growth side, you know, you heard Greg talking about, we're really strong on the tech side. But what we've been building out is our capabilities around the business skills and the soft skills. And so that's going to lead to more opportunity to expand over time. And so we're in a transition year, we've got some teams transitioning, Q4, Q1, Q2.
Speaker Change: Yeah. So there's two things you know the first again, which I just spoke about is focusing on retention.
Speaker Change: Living more value to our customers such that we maintain a strong.
Speaker Change: Our retention number and grow that over time.
Speaker Change: On the growth side, you heard Greg talking about were really strong on the tech side, but what we've been building out our capabilities around the business scales in the off skeleton. So that's going to lead to more opportunity to expand overtime and so were trends that were in a transition year. We've got some teams transitioning Q.
Sarah Blanchard: And as you focus up market, the sales cycles are longer, as you know, they're nine to 12 months. And so it's going to take some time to work through all of this.
Speaker Change: For Q1, Q2, and as you focus up market. The sales cycles are longer as you know there are nine to 12 months and so it's going to take some time to work through all of this but our strategy of ensuring that we are creating the capabilities that are both important for enterprise customers and <unk>.
Gregory Brown: But our strategy of ensuring that we are creating the capabilities that are most important for enterprise customers, and for especially within our key verticals, that is going to play itself out very well in the upcoming years. And I'll just add that, you know, look, I talked earlier about the AI products, AI assistant, and skills mapping. Once we get our customer base, all 17,000 strong, enabled with these capabilities, we're already seeing, as I mentioned earlier, strong signals of, not only increased adoption, but active usage and engagement on the platform, right? And engagement will, without question, positively impact net dollar retention and provide more opportunity to upsell.
Speaker Change: Poor, especially within our key verticals that is going to play itself out very well in the upcoming years and I'll just add that you know look I talked earlier about the AI products AI assistant and skills mapping.
Speaker Change: Once we get our customer base all 17000 strong enabled with these capabilities, we're already seeing as I mentioned earlier strong signals of.
Speaker Change: Not only increase adoption, but active usage and engagement on the platform right and engagement will without question positively impact net dollar retention and provide more opportunity to upsell.
Gregory Brown: So, really excited about these capabilities for that reason as well, right? And there's more coming, right? As we flow through the year, we're gonna be developing more capabilities that are gonna have a similar type impact.
Speaker Change: So really excited about these capabilities for that reason as well right and and and Theres more calmer right as we flow through the year, we're gonna be developing more capabilities, they're going to have a similar type of impact. So yeah look we're encouraged but we got some work to do and we'll continue to share those developments as they progress.
Gregory Brown: So, look, we're encouraged, but we've got some work to do and we'll continue to share those developments as they progress.
Unknown Attendee: Thanks for the honest feedback, Aaron and, sorry, Greg and Sarah.
Speaker Change: That's my honest feedback and sorry, okay.
Gregory Brown: And my follow-up question is about Aaron Bali, the return of the CTO. I understand, you know, AI is a hot topic right now. What are some of the other product roadmaps, like, you think he's going to look into beyond the AI, you know, hot topic right now?
Speaker Change: And my follow up question is about every in Bali, but we tend not to see T. O. I understand you know AI AI is a hot topic right now what are some of the other product Roadmaps like you think she's gonna look into beyond the AI Hot topic right now.
Gregory Brown: Yeah, thanks for the question. So first, I'll say I couldn't be more excited to have Aaron come back into the business. Aaron's been on the board since, you know, he left his operating role years ago. And to have Aaron come back with that founder passion and sense of commitment and optimism for what we can build and what he believes is going to be the next phase of growth and innovation from a product perspective. It's just great to have Aaron in the building and in the company.
Yeah. Thanks for the question.
Speaker Change: So first I'll say I couldn't be more excited to have Aaron come back into the business Aaron has been on the board.
Speaker Change: Since he left us operating role years ago and to have Aaron come back without founder passion and.
Speaker Change: And sense of commitment and.
Speaker Change: Our optimism.
Speaker Change: For what we can build in and what he believes is going to be the next the next phase of growth and innovation from a product perspective, it's just great to have Aaron in the building and end up in the company with respect to our product roadmap. We're not prepared to go through a product roadmap capabilities, specifically, but I can tell you by bringing the products in development organizations together.
Gregory Brown: With respect to our product roadmap, we're not prepared to go through product roadmap capabilities specifically. But I can tell you, by bringing the product and development organizations together, it's going to enable us to move faster and more nimbly with respect to the innovation that we're going to bring to life and how we deliver that in a variety of form factors. So, and I know that's fairly general. Right now, it needs to be. Aaron's only been back in the business for a few weeks now. But we're moving fast and in upcoming announcements and calls, we'll be able to share more.
Speaker Change: And enable us to move faster and more nimbly with respect to the innovation that we're going to bring to life and how we deliver that in a variety of form factors, So and I know that's fairly general right now it needs to be on its only been back in the business for a few weeks now, but we're moving fast and in our upcoming.
Speaker Change: Announcements and calls we'll be able to share more but there's a lot of excitement in the business to have air in Bakken in the company.
Gregory Brown: But there's a lot of excitement in the business to have Aaron back in the company.
Unknown Attendee: Thanks for that, Greg, and keep up the good work.
Greg Brown: That's what I thought, Greg and I'll keep it to Google.
Greg Brown: Thank you.
Devin Au: The next question comes from Devin Au with KeyBank. Please go ahead.
Speaker Change: The next question comes from Devin Al with Keybanc. Please go ahead.
Gregory Brown: Hi, Greg. Hi, Sarah. Thanks for taking the questions here. I wanted to focus on just the expansion piece with the newbie Obviously, you've... expanded your product portfolio quite a bit with now with AI capabilities. So I'm just kind of curious if you can provide more details on exactly what you have done, what you plan to do among your go to market to drive more expansion or product upsell moving forward.
Devin Al: Hi, Greg Hi, Sarah Thanks for taking our questions here I wanted to focus on just the expansion piece within Ub.
Speaker Change:
Speaker Change: Obviously your view.
Speaker Change: Expanded your product portfolio quite a bit with that now with AI capabilities. So I'm kind of curious if you can provide more details on exactly what you have done or do you plan to do them on their go to market to drive expansion of our product up sell moving forward.
Yeah.
Gregory Brown: Yeah, I mentioned a little bit earlier what Rob's focused on is enabling our organization, now that we have a broader platform of capabilities, to effectively engage with the senior leaders and organizations around the world in, let's just say, a more efficient, high-impact way. And being able to share case studies, I'll give you another example. I mean, these are the types of stories and the types of case studies that really do change the conversation. We had this last quarter, we had a South African mining company end up coming to our platform and choosing us for the breadth and depth of our content.
Speaker Change: Yeah, I mentioned little bit earlier, what Rob is focused on is enabling our organization now that we have a broader platform capabilities to effectively engage with the senior leaders and organizations around the world.
Speaker Change: And let's just say a more efficient and high impact way and being able to share case studies I'll give you. Another example, I mean these are the types of stories and the types of case studies that really do change. The conversation. We had this last quarter, we had a south African mining company.
Speaker Change: End up coming to our platform in choosing us for the breadth and depth of our content.
Gregory Brown: And what they saw in the first six months of deployment was a 10% increase in internal mobility. And they're able to immediately... tie that to bottom line impact, right? It's being able to have those kind of conversations at the right level within organizations about how we can impact their ability to develop skills across the enterprise. Again, where historically we've been primarily focused on the tech side of skills development, now with the breadth of our platform, we can have a very different conversation than we had in the past, especially now that we have the AI capabilities, obviously online and rolling out.
Speaker Change: And what they saw in the first six months of deployment was a 10% increase in internal mobility and they were able to immediately.
Speaker Change: Tie that to the bottom line impact.
Speaker Change: It's being able to have those kind of conversations at the right level within organizations about how we can impact their ability to develop skills across the enterprise right.
Speaker Change: Right again, where historically, we've been primarily focused on the tech side of skills development now with the breadth of our platform. We can have a very different conversation.
Speaker Change: Then we had in the past, especially now that we have the AI capabilities.
Speaker Change: Obviously online and rolling out so.
Gregory Brown: So again, it's about changing the narrative and changing the conversation and having it with the right level so we can actually start to see first-time deals sizes increase. We see those expansions expand to, as I mentioned earlier, that organization, 40,000 seats, versus historically our motion has been more land and then small expansions over a period of time. We believe now that with the breadth of our platform, we can go to land or initially we can close those big deals up front for organizations that are looking to be strategic about skills development. So we now have the platform to be able to actually have that conversation in the first dialogue with an organization, whereas in the past it wasn't quite there yet.
Speaker Change: Again, it's about changing the narrative and changing the conversation and having it with the right level. So we can actually start to see.
Speaker Change: First time deals sizes increase right, we see those expansions expansion as I mentioned earlier that organization 40000 seats versus historically, our motion has been more land and then small expansions over a period of time, we believe now that with the breadth of our platform. We can go.
Speaker Change: Go to a land or initially we can close those big deals upfront for organizations that are looking to be strategic about skills development. So.
Speaker Change: We now have the platform that's available to actually have that conversation in the first dialogue with an organization, whereas in the past it wasn't quite there yet.
Unknown Attendee: I appreciate the additional color here, Greg.
Speaker Change: I appreciate the additional color Greg just one quick follow up looking at the sequential net add in and you'd be customers are it seems like that that has stepped down a bit. This quarter can you just unpack that a little bit as the step down there mainly just driven by some of the strategic reallocation of resources from SMB to large enterprise.
Gregory Brown: Just one quick follow-up, looking at the sequential net ad and UB customers, it seems like that has stepped down a bit this quarter. Could you just unpack that a little bit?
Gregory Brown: Is the step down there mainly just driven by some of the strategic reallocation of resources from SMB to large enterprise, or could that be macro-driven? and Colorado would be helpful. Thank you.
Speaker Change: Or.
Speaker Change: Could that be macro driven any color there would be helpful. Thank you.
Gregory Brown: Yeah, it's a great question. And the majority of that was definitely the SMB impact where we pulled back on those resources. So we did expect to see a step down in the number of net ads from a Lego perspective.
Speaker Change: Yeah, It's a great question and the majority of that was definitely the S. M B impacts, where we pulled back on those resources.
Speaker Change: So we did expect to see a step down in the number of net adds from a logo perspective and going forward, what you'll expect it that will moderate over time as we are focused upmarket and and so we will have less net customer adds in total over time with less F&B sellers out there.
Gregory Brown: And going forward, what you'll expect is that will moderate over time, as we are focused up market, and and so we will have less net customer ads in total over time with less SMB sellers out there.
Unknown Attendee: Thanks for calling.
Speaker Change: Thanks for the color.
Unknown Attendee: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Greg Brown for any closing remarks.
Gregory Brown: I would like to turn the conference back over to Greg Brown for any closing remarks. Yeah, I'd just like to thank you all for joining today, and we look forward to updating you all again on our Q4 call in February.
Greg Brown: Yeah, I'd just like to thank you all for joining today and we look forward to updating you all again on our Q4 call in February.
Unknown Attendee: Take care.
Speaker Change: Take care.
Unknown Attendee: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.