Q3 2025 Udemy Inc Earnings Call

Speaker #1: Good day , and welcome to Udemy . S third quarter 2025 Earnings call . All participants will be in a listen only mode .

Operator: Good day, and welcome to Udemy's third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After 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, then two. Please note this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Vice President, Investor Relations. Please go ahead.

Speaker #1: Should you need assistance , please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on a touchtone phone .

Speaker #1: To your question , please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Dennis Walsh , Vice President , Investor Relations .

Speaker #1: Please go ahead .

Speaker #4: Thank you . Joining me today are Udemy's Chief Executive Officer , Hugo Sarrazin and Chief Financial Sarah Blanchard . During this conference call , we will make forward looking statements within the meaning of federal securities laws .

Dennis Walsh: Thank you. Joining me today are Udemy's Chief Executive Officer, Hugo Sarrazin, and Chief Financial Officer, Sarah Blanchard. During this conference call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and 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.

Speaker #4: These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated .

Speaker #4: 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 10-q filings with the Securities and Exchange Commission .

Speaker #4: Our forward looking statements are based upon information currently available to us . We caution you to not place undue reliance on forward looking statements .

Speaker #4: We do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements except as required by applicable law .

Speaker #4: During this call , certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements , which are prepared in accordance with us generally accepted accounting principles referred to by the SEC as Financial Measures .

Dennis Walsh: During this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, which are prepared in accordance with U.S. generally accepted accounting principles referred to by the SEC as non-GAAP financial measures. We believe that these non-GAAP financial measures support management and investors in evaluating our performance and comparing period-to-period results of operations in a more meaningful and consistent manner. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These reconciliations, together with additional supplemental information, are available on the Investor Relations section of our website. A replay of today's call will also be posted to the website. With that, I will now turn the call over to Hugo.

Speaker #4: We believe that these non-GAAP financial measures support management and investors in evaluating our performance and comparing period to period results of operations in a more meaningful and consistent manner .

Speaker #4: A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These reconciliations, together with additional supplemental information, are available in the Investor Relations section of our website.

Speaker #4: A replay of today's call will also be non-GAAP website . With that , I will now turn the call over to Hugo .

Speaker #5: Thank you, Dennis. I'm proud of the Udemy, Inc. team for making solid progress during the quarter on our priority to accelerate subscription revenue growth across the entire business.

Hugo Sarrazin: Thank you, Dennis. I'm proud of the Udemy team for making solid progress during the quarter on our priority to accelerate subscription revenue growth across the entire business. As a result, consolidated subscription revenue grew 8% year over year and now makes up 74% of total. We are building a more durable business that delivers predictable and recurring revenue that creates more value for all stakeholders. For Q3, we beat our revenue guidance and delivered on our 15th consecutive quarter of better-than-expected adjusted EBITDA. Our team continues to execute with discipline while we make investment in our future growth. The Udemy Business segment revenue increased 5% year over year, and we generated $7 million of net new ARR. These results exceeded our expectation and signal our underlying strength of our enterprise business.

Speaker #5: As a result , consolidated subscription revenue grew 8% year over year , and now makes up 74% of total . We are building a more durable business that delivers predictable and recurring revenue that creates more value for all stakeholders .

Speaker #5: For Q3 , we beat our revenue guidance and delivered our 15th consecutive quarter of better than expected adjusted EBITDA . Our team continues to execute with discipline while investments in our future growth .

Speaker #5: Udemy, Inc. business segment we make revenue increased 5% year over year , and we generated 7 million of net new RR . These results exceeded our expectations and signal our underlying strength of our enterprise business .

Speaker #5: In our consumer segment, we surpassed our full-year paid subscribers target, and revenue from subscriptions increased an impressive 43% year over year.

Hugo Sarrazin: In our consumer segment, we surpassed our full-year paid subscribers' target and revenue from subscription increased an impressive 43% year over year. When people subscribe instead of just purchasing one course, they engage more, learn more, and realize better career outcomes. Bottom line, subscription customers are our best customers. That's why growing that piece of our business faster is our top priority, and we are seeing strong momentum across both segments. Our market position is built on a unique strategic foundation of two businesses, each independently compelling and highly complementary. We combine the depth and stickiness of enterprise relationships with the breadth and innovation velocity of a global consumer marketplace. On the enterprise side, companies are heavily invested in AI transformation. However, they are struggling to demonstrate ROI because many haven't developed the core workforce capabilities required to extract value from their investments.

Speaker #5: When people subscribe , instead of just purchasing one course . The engage more . Learn more , and realize better career outcomes . Bottom line subscription customers are our best customers .

Speaker #5: That's why growing that piece of our business faster is our top priority. We are seeing strong momentum across both segments. Our market position is built on a strategic foundation of two businesses.

Speaker #5: Each independently compelling and highly complementary. We combined the depth and stickiness of enterprise relationships with breadth and innovation. Velocity of a global consumer marketplace.

Speaker #5: On the enterprise side , companies are heavily invested in AI transformation . However , they are struggling to demonstrate ROI because many haven't developed a core workforce capabilities required to extract value from their investments .

Speaker #5: On the consumer side , we're addressing a different but complementary need . Individual learners must become AI native and require comprehensive support that leads to career advancement .

Hugo Sarrazin: On the consumer side, we're addressing a different but complementary need. Individual learners must become AI-native and require comprehensive support that leads to career advancement. In order to meet the needs of both organizations and individuals, a skill acceleration platform must deliver measurable outcomes. There are four critical pillars of Udemy's platform, which bring the best of AI and humans together to deliver impactful results. These include, first, skill acquisition through course collection tailored for a specific role. That's the traditional Udemy value prop. Skill mastery through hands-on practice using lab, workspace, and role-play experiences. Third, skill validation through assessment and certification. Fourth, skill amplification through human connection and expert guidance. Our integrated approach is transforming learning from a one-time event into a continuous skill-building engine that delivers strong ROI and learner outcomes. Our platform features AI learning paths, AI assistant, AI-generated assessments, AI-assisted content creation, and MCP capabilities.

Speaker #5: In order to meet the needs of both organizations and individuals , a skill acceleration platform must deliver measurable outcomes . There are four critical udemy's platform , which bring the best of AI and humans together to deliver impactful results .

Speaker #5: These include first skill acquisition through course collection , tailored for specific role . That's the traditional Udemy value prop skill mastery through hands on practice using lab workspace and role play .

Speaker #5: Third , skill validation through assessment and certification . And fourth , skill amplification through human connection and expert guidance . Our integrated approach is transforming learning from a one time event into a continuous skill building engine that delivers strong ROI and learner outcomes .

Speaker #5: Our platform features AI learning path , AI assistant , AI generated assessment , AI assisted content creation , and MCP capabilities . Udemy enables organizations to build their own content and custom path to level their own AI role plays and delivered just in time .

Hugo Sarrazin: Udemy enables organizations to build their own content and custom paths, develop their own AI role plays, and deliver just-in-time reskilling through integration with their existing LLM, their LMS, and their LXP system, creating stickiness. We are in the midst of the most important workforce evolution in a generation, with nearly 60% of global professionals needing new skills by 2030. Udemy is aiming to be the natural extension to traditional education, bridging the gap from what a learner already knows to the new skills the market demands. While LLMs excel at answering questions, Udemy excels at changing behaviors and building skills that drive real impact. We do this through structured learning journeys with measurable progress, human expertise, and community support that learners cannot get from AI alone.

Speaker #5: Reskilling through integration with their existing LLM, their LMS, and their LXP system is creating stickiness. We are in the midst of the most important workforce evolution in a generation, with nearly 60% of global professionals needing new skills by 2030.

Speaker #5: Udemy is aiming to be the natural extension to traditional education , bridging the gap from what a learner already knows to the new skills the market demands .

Speaker #5: While LMS excel at answering questions , Udemy excels at changing behaviors and building skills that drive real impact . We do this through learning journeys with measurable progress expertise and community support that learner cannot get from AI alone .

Speaker #5: We are building an enterprise grade workflow integration that embeds seamlessly into how organization actually operates . That translates into business outcome and career development .

Hugo Sarrazin: We are building an enterprise-grade workflow integration that embeds seamlessly into how an organization actually operates, which translates into business outcomes and career development. Our comprehensive platform also enables organizations to manage their talent development strategies, track progress against their strategies, and validate company-wide skill proficiency with proprietary data to support meaningful outcomes. For consumers, we are embedding personalized learning experiences into subscription offerings to support career transformations. We will enable skill acquisition through engaging experiences and validation through assessments and other services that lead to mastery and ultimately better career outcomes. The future of work requires continuous skill development, and AI makes that need more urgent, not less relevant. We are empowering all customers to stay ahead of rapidly evolving skills demand through adaptive, just-in-time learning.

Speaker #5: Our comprehensive platform also enables organizations to manage their talent development strategies , track progress against their strategy , and validate company wide skill proficiency with proprietary data to support meaningful outcomes for consumers .

Speaker #5: We are embedding personalized learning experiences into subscription offerings to support career transformations . We will enable skill acquisition through engaging experiences and validation through assessments and other services that lead to mastery and ultimately better career outcomes .

Speaker #5: The future of work requires continuous skill development , and AI makes that need more urgent , not less relevant . We are empowering all customers to stay ahead of rapidly evolving skills demand through adaptive , just in time learning .

Speaker #5: We are positioning you to meet to be an essential , lifelong learning solution for professionals that drive career advancement . With the structure and validation that LM alone cannot deliver .

Hugo Sarrazin: We are positioning Udemy to be an essential lifelong learning solution for professionals that drives career advancement with the structure, support, and validation that LLM alone cannot deliver. What is uniquely powerful about our platform is the combination of creating a more human-centric experience of our more than 85,000 expert instructors with AI. Instructors leverage our AI to develop assessment, labs, and role play that adapts in real time as each person is progressing. Innovations like our role play technology are opening entirely new markets in sales enablement and customer support by allowing them to build custom training experiences. Our AI can create realistic and bespoke practice environments tailored to our customers' business. This can include practicing a company sales methodology, rehearsing difficult client conversations, or working through a unique compliance scenario.

Speaker #5: What is uniquely powerful about our platform is the combination of creating a more human centric experience of our more than 85,000 expert instructors with AI instructors leverage our AI to develop assessment labs and role play that adapts in real time as each person is progressing .

Speaker #5: Innovations like our role play technology are opening entirely new markets in sales enablement and customer support . By allowing them to build custom training experiences , our AI can create realistic and bespoke practice environments tailored to our customers business .

Speaker #5: This can include practicing a company , sales methodology , rehearsing difficult client conversation or working through unique compliance scenarios . Building on our proven success in skill acquisition and skill mastery , we are evolving the platform to deliver even more robust and personalized experiences that amplify skills development .

Hugo Sarrazin: Building on our proven success in skill acquisition and skill mastery, we are evolving the platform to deliver even more robust and personalized experiences that amplify skills development. This is about human connection that delivers through learning comprehension and retention. Instructors can now offer live individual coaching sessions to millions of learners around the world. Soon, we will be launching virtual instructor-led training to allow learners to participate in structured, cohort-based experiences. At the same time, this gives instructors the ability to engage with groups of learners simultaneously. These offerings strengthen the stickiness of our platform by creating meaningful engagement for both instructors and learners. They also ensure learners receive the guidance and support that transform knowledge into real-world capabilities. One example of our four pillars in practice is Centific, a leader in advanced AI solutions. Centific is leveraging Udemy to build workforce-fluent collaboration with AI systems.

Speaker #5: This is about human connection that delivers through learning, comprehension, and retention. Instructors can now offer live individual coaching sessions to millions of learners around the world.

Speaker #5: Soon we will be launching Virtual instructor led training to allow learners to participate in structured , cohort based experiences . At the same time .

Speaker #5: This gives instructors the ability to engage with groups of learners simultaneously . These offerings strengthen the stickiness of our platform by creating meaningful engagement for both instructors and learners .

Speaker #5: They also ensure learners receive the guidance and support that transform knowledge into real world capabilities . One example of our four pillars in practice is Scentific , a leader in advanced AI solution .

Speaker #5: Scentific is leveraging Udemy to build workforce fluent into collaboration with AI . by aligning training and strategic technologies like snowflake , Microsoft , and Nvidia with business priorities .

Hugo Sarrazin: By aligning training and strategic technologies like Snowflake, Microsoft, and NVIDIA with business priorities, Centific significantly accelerated value creation. The results are impressive. Centific reduced AI project onboarding time by 20%, increased AI-driven innovation by 40%, and enabled content creation to 70% faster with generative AI. This skill-based approach underscores Centific's commitment to continuous learning, operational efficiency, and sustainable competitive advantage. We're evolving our consumer business from selling courses to enabling careers. Our subscription model creates an ongoing relationship where invested in the learner's success, not just course completion. This aligns our business model with learner outcome. To do this effectively, we are launching a career-focused subscription offering that validates learners with two specific outcomes: first, certification journey, and second, career journey.

Speaker #5: Scentific significantly accelerated value creation . The results are impressive . Scientific , reduced AI project onboarding time by 20% . Increase AI driven innovation by 40% , and enable content creation to 70% faster with generative AI .

Speaker #5: This skill based approach underscores scientific commitment to continuous learning , operational efficiency and sustainable competitive advantage . For evolving our consumer business from selling courses to enabling careers .

Speaker #5: Our subscription model creates ongoing relationships where invested in the learner . Success , not just course completion . This aligns our business model with learner outcome .

Speaker #5: To do this effectively , we are launching career focused subscription offering that validates learner with two specific outcomes . First , certification journey and second career journey .

Speaker #5: Let me start first with certification journeys , which will help people prepare for professional exam with personalized learning path practice test and exam vouchers in order to achieve universally recognized skill validation .

Hugo Sarrazin: Let me start first with certification journeys, which will help people prepare for professional exams with personalized learning paths, practice tests, and exam vouchers in order to achieve universally recognized skill validation. When learners embark on the CompTIA certification journey, which we launched in August, the average revenue per learner increased by 4X. Building on this success, we are partnering with Pearson to create a seamless certification journey for learners. On career journeys, we will structure paths for job readiness that integrates all four pillars through curated courses, hands-on projects, and assessments tied to specific roles. Many of these will be co-branded with partners, directly connecting what skills people learn to career growth and higher earning potential. The majority of Udemy's learners come to the platform to advance their career.

Speaker #5: When learners embark on the certification journey , which we launched in August , the average revenue per learner increased by four x . Building on this success , we are partnering with Pearson to create a seamless certification journey for learners on career journeys .

Speaker #5: We will structure path for job readiness that integrates all four pillars through curated courses , hands on projects and assessment tied to specific roles .

Speaker #5: Many of these will be co-branded with partners directly connecting West skills . People learn to career growth and higher earning potential . The majority of Udemy learners come to the platform to advance their career .

Speaker #5: Our partnership with Indeed is already proving the strength of this alignment, with learners showing materially higher consumer subscription start conversion rates. We are seeing an average monthly conversion rate of Indeed job seekers to subscriptions that is 16 times better than the Udemy average from our career and certification journeys to our comprehensive platform capability.

Hugo Sarrazin: Our partnership with Indeed is already proving the strength of this alignment, with learners showing materially higher consumer subscription start conversion rates. We are seeing an average monthly conversion rate of Indeed job seekers to subscription that's 16X better than the Udemy average. From our career and certification journeys to our comprehensive platform capability, everything we're building is designed with one clear goal in mind: supporting the complex needs of our customers and the more urgent workforce. While AI democratized access to information, Udemy democratized access to career transformation. We are the platform where ambition meets achievement that combines human support with structured learning that delivers validated skill mastery. Whether it is an individual professional seeking to advance their career or an enterprise looking to future-proof their talent, Udemy bridges that critical gap between where skills are today and where they need to be tomorrow.

Speaker #5: Everything we're building is designed with one clear goal in mind supporting the complex needs of our customers and the modern workforce . While AI democratize access to information , Udemy democratize access to career transformation .

Speaker #5: We are the platform where ambition meets achievement that combines humans support with structured learning that delivers validated skill , mastery . Whether it individual professional seeking to advance their career or an enterprise looking to future proof their talent .

Speaker #5: Udemy bridges that critical gap between where skills are today and where they need to be tomorrow . In closing , we are leveraging AI to strengthen Udemy's competitive position and expand our market opportunity .

Hugo Sarrazin: In closing, we are leveraging AI to strengthen Udemy's competitive position and expand our market opportunity. The future of work requires continuous learning, and Udemy is building the infrastructure to power that transformation. The opportunity ahead of us is immense, and I'm incredibly excited about what we'll accomplish together. With that, I'll turn it over to Sarah.

Speaker #5: The future of work requires continuous learning , and Udemy is building the infrastructure to power that transformation . The opportunity ahead of us is immense , and I'm incredibly excited about what will accomplish together .

Speaker #5: With that , I'll turn it over to Sarah .

Speaker #6: Thanks , Hugo . I'll cover the key financial highlights first , and then our outlook . We have a complete set of financial tables available on our Investor Relations website .

Sarah Blanchard: Thanks, Hugo. I'll cover the key financial highlights first and then our outlook. We have a complete set of financial tables available on our Investor Relations website. As we move down the P&L, note that all financial metrics other than revenue are non-GAAP unless stated otherwise. Our Q3 results demonstrate that our transformation is on track and that we're seeing great momentum across the business. I'm proud of the financial discipline that the team has shown as we've made strategic investments, building a strong foundation for future growth. Net new ARR is increasing, total subscription revenue is growing as a percentage of overall revenue, and we continue to deliver meaningful additional adjusted EBITDA margin. Diving into the specifics, third quarter revenue of $196 million landed above the high end of our guidance range. As you know, we've pivoted to becoming subscription-first, and it's delivering better-than-expected results.

Speaker #6: As we move down the PNL , note that all financial metrics other than revenue are stated otherwise . Our Q3 results demonstrate that our transformation is on track , and that we're seeing great momentum across the business .

Speaker #6: I'm proud of the financial discipline the team has shown as we've made strategic investments , building a strong foundation for future growth . Net new RR is increasing total subscription revenue is growing as a percentage of overall revenue , and we continue to deliver meaningful additional adjusted EBITDA margin .

Speaker #6: Diving into the specifics , third quarter revenue of $196 million landed above the high end of our guidance range . As you know , we've pivoted to becoming subscription first , and it's delivering better than expected results .

Speaker #6: As this becomes a larger portion of our revenue , we'll be providing greater transparency into the metric going forward . For the third quarter , we delivered $144 million of consolidated subscription revenue representing an 8% increase year over year .

Sarah Blanchard: As this becomes a larger portion of our revenue, we'll be providing greater transparency into the metric going forward. For the third quarter, we delivered $144 million of consolidated subscription revenue, representing an 8% increase year over year. Subscription revenue now accounts for 74% of our total revenue, up 600 basis points from last year. This fundamental shift in revenue quality is a foundation that sets us up for accelerated growth. Udemy Business delivered $133 million in revenue, up 5% year over year. We generated $7 million in net new ARR during the quarter, ending with a total of $527 million in ARR. We expect to see net new ARR increase again in the fourth quarter and land in the high single digits. Udemy Business pipeline heading into Q4 and 2026 remains robust. The deal size opportunity and strategic importance of reskilling initiatives continue to grow.

Speaker #6: Subscription revenue now accounts for 74% of our total revenue , up 600 basis points from last year . This fundamental shift in revenue quality is the foundation that sets us up for accelerated growth .

Speaker #6: Udemy, Inc. delivered 133 million in revenue , up 5% year over year . We generated 7 million in net new RR during the quarter , ending with a total of RR .

Speaker #6: We expect to see net new RR increase again in the fourth quarter and land in the high single digits . Udemy business Pipeline Heading into Q4 and 2026 remains robust .

Speaker #6: The deal size , opportunity and strategic importance of reskilling initiatives continue to grow . We're seeing particular strength in technology , manufacturing and financial services sectors .

Sarah Blanchard: We're seeing particular strength in technology, manufacturing, and financial services sectors. These industries are rapidly implementing AI solutions, which is driving urgent upskilling needs. Our total net dollar retention rate was 93%, while net dollar retention for large customers was 97%. There are two headwinds that were anticipated in this metric. First, we are still seeing some pressure from downsells from COVID-era contracts as we work through the rest of those this year. Second, we have been working through previously announced go-to-market team transitions, and that work is now behind us. In addition, as we shared last quarter, we have brought on an outside organization to efficiently address SMB churn. We continue to see stability in gross dollar retention, and given the early signals that indicate our go-to-market optimization is on track, we are optimistic that net dollar retention will stabilize in the fourth quarter.

Speaker #6: These industries are rapidly implementing AI solutions , which is driving urgent upskilling needs . Our total net dollar retention rate was 93% , while net dollar retention for large customers was 97% .

Speaker #6: There are two headwinds that were anticipated in this metric . First , we are still seeing some pressure from down cells from Covid era contracts as we work through the rest of this year .

Speaker #6: Second , we have been working through previously announced go to market team transitions , and that work is now behind us . In addition , as we shared last quarter , we have brought on an outside organization to efficiently address SMB churn .

Speaker #6: We continue to see stability in gross salary retention . And given the early signals that indicate our go to market optimization is on track , we're optimistic that dollar retention will stabilize in the fourth quarter and the consumer side , the segment generated 63 million in revenue this quarter .

Sarah Blanchard: On the consumer side, the segment generated $63 million in revenue this quarter. We ended the third quarter with nearly 295,000 paid subscribers, exceeding our year-end target of 250,000. Revenue from subscriptions was up 43% year over year and now accounts for 19% of the segment's revenue. This is a 400 basis point increase from the prior quarter. Our strategic pivot to subscription products is strongly supported by unit economics. Today, our transactional business operates at about a one-time LTV to CAC ratio. In contrast, our subscription products currently deliver an LTV to CAC that is well above three times. Given the compelling unit economics and strong demand signals we are seeing, we're accelerating our pivot to a subscription-first approach.

Speaker #6: We ended the third quarter with nearly 295,000 paid subscribers , exceeding our year end target of Revenue from subscriptions was up 43% year over year , and now accounts for 19% of the segment's revenue .

Speaker #6: This is a 400-basis point increase from the prior quarter. Our strategic pivot to subscription products is strongly supported by unit economics.

Speaker #6: Today , our transactional business operates at about a one time LTV to cap ratio . In contrast , our subscription products currently deliver an LTV to cast that is well above three times .

Speaker #6: Given the compelling unit economics and strong demand signals , we are seeing , we're accelerating our pivot to a subscription first approach . Not only is this a more financially sound business model , it also allows us to deliver a fundamentally better value to learners as it encourages continuous engagement that is essential for achieving meaningful outcomes .

Sarah Blanchard: Not only is this a more financially sound business model, it also allows us to deliver a fundamentally better value to learners as it encourages continuous engagement that is essential for achieving meaningful outcomes. Moving on, our total gross margin also continued to improve. It was 67% in Q3, up from 64% in the prior year. This 300 basis point improvement demonstrates the inherent leverage in our business model as we scale our higher margin revenue streams. Operating expenses were $112 million, or 57% of revenue, a 400 basis point improvement compared to the third quarter of 2024, reflecting our continued focus on operational efficiency. On the bottom line, we delivered GAAP net income of approximately $2 million. This is a meaningful improvement from a loss of $25 million in Q3 2024. Adjusted EBITDA was $24 million, or 12% margin compared to 6% in the prior year.

Speaker #6: Moving on , our total gross margin also continued to improve . It was 67% in Q3 , up from 64% in the prior year .

Speaker #6: This 300 basis point improvement demonstrates the inherent leverage in our business model as we scale our higher margin revenue streams . Operating expenses were 112 million , or 57% of revenue .

Speaker #6: A 400 basis point improvement compared to the third quarter of 2020 . For reflecting our continued focus on operational efficiency . On the bottom line , we delivered GAAP net income of approximately 2 million .

Speaker #6: This is a meaningful improvement from a loss of 25 million in Q3 2020 . For . Adjusted EBITDA was 24 million , or 12% margin , compared to 6% in the prior year .

Speaker #6: This 600 basis point improvement reflects execution on our strategy . The continued shift up market , evolution of our revenue mix and our ongoing operational discipline .

Sarah Blanchard: This 600 basis point improvement reflects execution on our strategy, the continued shift up market, evolution of our revenue mix, and our ongoing operational discipline. Our balance sheet remains strong with $372 million in cash and marketable securities at the end of the quarter. Free cash flow generation was $12 million, or 6% of revenue. We expect our cash generation to continue to improve as our subscription revenue base scales and provides enhanced working capital dynamics. Also, we bought back $4 million shares under our new $50 million stock repurchase program. Now for our outlook. As we execute on our strategic pivot, we expect our consolidated subscription revenue for 2025 will grow in the high single digits year over year. As mentioned, we are accelerating our consumer subscription-first approach due to compelling early signals, which is creating a short-term headwind for the consumer segment's revenue growth.

Speaker #6: Our balance sheet remains strong , with $370 million in cash and marketable securities at the end of the quarter . Free cash flow generation was 12 million , or 6% of revenue .

Speaker #6: We expect our cash generation to continue to improve as our subscription revenue base scales and provides enhanced working capital dynamics . Also , we bought back 4 million shares under our new $50 million stock repurchase program .

Speaker #6: Now for our outlook as we execute on our strategic pivot , we expect our consolidated subscription revenue for 2025 will grow in the high single digits year over year .

Speaker #6: As mentioned , we are accelerating our consumer subscription first approach due to compelling early signals , which is creating a short term headwind for the consumer segments .

Speaker #6: Revenue growth for the quarter . We expect total revenue of 191 to 194 million . This brings our full year 2025 range to 787 to 790 million .

Sarah Blanchard: For the quarter, we expect total revenue of $191 to $194 million. This brings our full year 2025 range to $787 to $790 million. The midpoint of the full year guidance implies Udemy Business revenue will increase approximately 6% year over year, an improvement from our prior guidance, while consumer revenue will decline about 9%. On the bottom line, Q4 adjusted EBITDA is expected to be $18 to $20 million, or a 9% margin at the midpoint. We are therefore raising our full year 2025 adjusted EBITDA guidance to a range of $92 to $94 million, or a 12% margin at the midpoint. Looking ahead to 2026, while we are not ready to issue formal guidance, we'd like to provide some directional insight on how our strategy will impact our outlook for next year.

Speaker #6: The midpoint of the full year guidance implies Udemy, Inc. revenue will increase approximately 6% year over year , an improvement from our prior guidance .

Speaker #6: While consumer revenue will decline about 9% on the bottom line, Q4 adjusted EBITDA is expected to be $18 to $20 million, or a 9% margin at the midpoint.

Speaker #6: We are therefore raising our full year 2020 adjusted EBITDA guidance to a range of 92 to 94 million , or 12% margin at the midpoint .

Speaker #6: Looking ahead to 2026, while we are not ready to issue formal guidance, we'd like to provide some additional insight on how our strategy will impact our outlook for next year.

Sarah Blanchard: Ultimately, with our pivot to accelerate recurring revenue, we believe the consolidated subscription revenue growth in 2026 will be closer to double digits and will account for approximately three quarters of total revenue. The momentum in consumer subscriptions is strong, so we are accelerating that push. This means we are intentionally reducing transactional course sales in favor of recurring subscription revenue, which will slow near-term segment growth. In addition, as we direct more customers toward annual subscription products, a meaningful portion of that revenue will be deferred to future periods. We believe this short-term impact is the right trade-off for building a more predictable, higher-value business that better serves our learners' long-term success. Finally, we are updating our profitability targets to reflect increased strategic investments in our transformation. At the same time, we are focused on maintaining strong cash generation and operational discipline.

Speaker #6: with our pivot to accelerate recurring revenue , we believe the consolidated subscription revenue growth in 2026 will be closer to double digits and will account for approximately three quarters of total revenue .

Speaker #6: The momentum in consumer subscriptions is strong , so we accelerating that push . This means we are intentionally reducing transactional core sales in favor of recurring subscription revenue , which will slow near-term segment growth .

Speaker #6: In addition , as we direct more customers toward annual subscription products , a meaningful portion of that revenue will be deferred to future periods .

Speaker #6: We believe this short term impact is the right trade off for building a more predictable , higher value business that better serves our learners long term success .

Speaker #6: Finally , we are updating our profitability targets to reflect increased strategic investments in our transformation . At the same time , we are focused on maintaining strong cash generation and operational discipline .

Speaker #6: We have been significantly increasing adjusted EBITDA margin over the past three years , and believe we have achieved a margin that is sustainable and provides the right balance between a strong bottom line and reinvesting in growth .

Sarah Blanchard: We have been significantly increasing adjusted EBITDA margin over the past three years and believe we have achieved a margin that is sustainable and provides the right balance between a strong bottom line and reinvesting in growth. We are on track to deliver more than $90 million in adjusted EBITDA this year and expect to deliver at least that amount in 2026, even with the additional investments. In summary, Q3 demonstrates the progress we're making in our strategic pivot toward higher quality, more predictable recurring revenue streams. We continue to execute a transformation that will create significant value for all stakeholders. The underlying fundamentals of our business are strengthening, and we have the flexibility to invest in strategic opportunities that will drive our future growth and ability to capture the massive AI skills opportunity ahead. With that, we'll open up the call for your questions. Moderator?

Speaker #6: We are on track to deliver more than 90 million in adjusted EBITDA this year , and expect to deliver at least that amount in 2026 , even with the additional investments summary , Q3 demonstrates the progress we're making in our strategic pivot toward higher quality , more predictable , recurring revenue streams .

Speaker #6: We continue to execute a transformation that will create significant value for all stakeholders . The underlying fundamentals of our business are strengthening , and we have the flexibility to invest in strategic opportunities that will drive our future growth and ability to capture the massive AI skills .

Speaker #6: Opportunity ahead . So with that , we'll open up the call for your questions . Moderator .

Speaker #7: Thank you .

Moderator: Thank you. 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 speaker phone, 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. At this time, we will pause momentarily to assemble our roster. Your first question today will come from Ryan MacDonald with Needham & Company. Please go ahead.

Speaker #1: We will now begin the question and answer session to ask a question . You may press star , then one on your touchtone phone .

Speaker #1: 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 #1: At this time we will pause momentarily to our roster . And your first question today will come from Ryan MacDonald with Needham . Please go ahead .

Speaker #8: Hi . Thanks for taking my questions and congrats on a nice quarter . Sarah , maybe in Hugo , maybe to start in the consumer segment , can you just add a little more color onto sort of what the initiatives you're taking as you're accelerating the transition to consumer subscription ?

Ryan MacDonald: Thanks for taking my question and congrats on a nice quarter. Sarah and Hugo, maybe to start in the consumer segment, can you just add a little more color onto what the initiatives you're taking as you're accelerating the transition to consumer subscription? How are you looking to incentivize existing transactional customers to convert to the subscription? Any update or are you still focused on finding other ways to monetize that consumer revenue stream in terms of like advertising? I think that was talked about last quarter as well, maybe just updates on that consumer segment strategy a bit more. Thanks.

Speaker #8: How are you looking to incentivize existing transactional customers to convert to the subscription ? And then , you know , any update , or are you still focused on finding other revenue ways to monetize that , that consumer revenue stream in terms of like advertising ?

Speaker #8: I think that was talked about last quarter as well . But maybe just updates on on that , that consumer segment strategy a bit more .

Speaker #8: Thanks .

Speaker #5: Perfect . Ryan , thank you for the question . As stated , we're really pleased with the 43% year over year growth of subscription .

Hugo Sarrazin: Perfect. Ryan, thank you for the question. As stated, we're really pleased with the 43% year-over-year growth of subscription. It is pretty comprehensive. Ranjit and team are really looking at where we are gathering customers or changing the strategy from acquisition all the way to retention. We're changing call to action. We're changing the positioning when we bring potential customers to the website, what they see, how they see. We've changed the way the shopping cart is optimized. We've changed the ways we are reactivating existing customers. We're expanding the number of established. You get the idea. A lot of things that are classic digital marketing strategy are being used to transform the efficiency of the engine end to end. That's kind of one part of the answer. The second, we've pushed to diversify the sources of customers. The Indeed partnership is a really, really interesting example.

Speaker #5: It is pretty comprehensive . Ranjeet and Team are really looking at where we are gathering customers or changing the strategy from acquisition to all the way to retention .

Speaker #5: We're changing call to action . We're changing the positioning when we bring potential customers to the website . What they see , how they see we've changed the way the shopping cart is optimized .

Speaker #5: We've changed the are reactivating existing customers . We're expanding the number of establishments . So you get the idea . Like a lot ways we of things that are classic digital marketing strategy are being used to transform , you know , the efficiency of the engine end to end .

Speaker #5: So that's kind of one part of the answer . The second we've pushed , you know , to diversify the sources of customer , the indeed partnership is a really , really interesting example .

Speaker #5: We are capturing people at the moment of need . That's why we're seeing the conversion be so , so great . We think the economy where it is , there's going to be a lot of transition and that will play very , very nicely .

Hugo Sarrazin: We are capturing people at the moment of need. That's why we're seeing the conversion be so great. We think with the economy where it is, there's going to be a lot of transition, and that will play very, very nicely, and there's more partnerships to be announced. On the ad programs, we're very pleased with the progress to date. We're in 170 countries. As we discussed last time, in our first step, we went for the freemium courses and inserted ads in the video, and now we're in the process of optimizing that. We're going to move to phase two very soon where we're going to monetize different parts of the experience. Next year, we'll be into the sponsorship, which we've alluded to. A lot of good progress on that. There is also really good news on our desire to create subscriptions that are targeted to specific outcomes.

Speaker #5: And there's more partnerships to be announced on the ad programs . We're very pleased with the progress to date . We're in 170 countries as we discussed last time , we in our first step , we went for the freemium courses and inserted ads in the video .

Speaker #5: And now we're in the process of optimizing that . We're going to move to phase two very soon , where we're going to monetize different parts of the experience .

Speaker #5: And then next year we'll be into the sponsorship , which we've alluded to . So a lot of good progress on that . There is also a really good news on , you know , our desire to create subscription that are targeted to specific outcome .

Speaker #5: And I'll just lean in on the one with certification . It is really , really exciting in August when we launched the CompTIA example partnership , it's the first one we've mentioned for times , the of monetization versus the non integrated offer .

Hugo Sarrazin: I'll just lean in on the one with certification. It is really, really exciting in August when we launched the CompTIA example partnership. It's the first one. We've mentioned four times the kind of monetization versus the non-integrated offer. We're about to do something similar with Pearson across more certification opportunities, and we think that's going to continue to accelerate this transition.

Speaker #5: We're about to do something similar with Pearson across more certification opportunity , and we think that's going to continue to accelerate this transition .

Speaker #8: Excellent . Appreciate the color there . Maybe a follow up on on Udemy business . I know there was a lot of excitement last quarter in terms of the state of the net , new pipeline .

Ryan MacDonald: Excellent. Appreciate the color there. Maybe a follow-up on Udemy Business. I know there was a lot of excitement last quarter in terms of the state of the net new pipeline. It sounds like there's still that excitement there. While you're managing through sort of the renewal process with some of the COVID contracts, can you just provide an update on how you're feeling about sort of the balance of net new pipeline progression as we're heading into Q4 and into next year here, and how the rate of renewal is trending on those renewals relative to your expectations in the fourth quarter thus far? Thanks.

Speaker #8: It sounds like there's still that excitement there . While you're managing through sort of the renewal process with some of the Covid contracts .

Speaker #8: Can you just provide an update on how you're feeling about sort of the balance of net new pipeline progression as we're heading into Q4 and into next year here ?

Speaker #8: And how the rate of renewal is trending on the on those renewals relative to your expectations , you know , in fourth quarter thus far .

Speaker #8: Thanks .

Speaker #6: Thanks for the Ryan . I'll take that one . So on net dollar retention , we saw what was expected in the third quarter as we continued to move through .

Sarah Blanchard: Thanks for the question, Ryan. I'll take that one. On that dollar retention, we saw what was expected in the third quarter as we continued to move through. We're getting to the tail end of these COVID-era contracts. We are seeing stable gross dollar retention, which we have seen quarter after quarter after quarter. That is great. We are seeing that pipeline build continue. Importantly, what we're seeing is the % of that pipe that is expansion deals within our existing customers that has meaningfully improved over the past quarter, and that continues. We do still have that pressure from some of these COVID contracts, but we're getting to the back of that. We have a lot of confidence in the fourth quarter and seeing that stabilization of net dollar retention as expected.

Speaker #6: Really , we're getting to the tail end of these Covid area contracts or contracts . And so we are seeing stable gross salary retention , which we have seen quarter after quarter after quarter .

Speaker #6: That is great . We are seeing that pipeline build continue . And importantly , what we're seeing is the percent of that pipe that is expansion deals within our existing customers that has meaningfully improved over the past quarter .

Speaker #6: And that continues . So we do still have that pressure from some of these Covid contracts , but we're getting to the back of that .

Speaker #6: We have a lot of confidence in the fourth quarter , and seeing that stabilization of not dollar retention as expected , we've got the new approach that our customer success team has brought into our customers to make sure that we're doing those implementations right , that we are aligning their outcomes , that they're looking for with their business priorities , with our implementation .

Sarah Blanchard: We've got the new approach that our Customer Success team has brought into our customers to make sure that we're doing those implementations right, that we are aligning their outcomes that they're looking for with their business priorities with our implementation. We also announced that on the SMB side, we are working now with an outside business process optimization firm. I would say we've made progress across all fronts. We're happy with where we are. As we look into next year, the go-to-market team transition is complete. We have the new approach in place. The BPO will be fully ramped. We will have worked through the COVID deals. We're optimistic for next year.

Speaker #6: And we also announced that on the SMB side , we are working now with an outside business process optimization firm . And so I would say we've made progress across all fronts .

Speaker #6: We're happy with where we are . And as we look into next year , you know , the go to market team transition is complete .

Speaker #6: We have the new approach in place . The BPO will be fully ramped . We will have worked through the Covid deals . And so we're optimistic for next year .

Speaker #8: Appreciate the color . Thanks .

Ryan MacDonald: Appreciate the color. Thanks.

Speaker #6: Thanks for the question.

Sarah Blanchard: Thanks for the question.

Speaker #1: And your next question . Today will come from Yefu Li with Cantor Fitzgerald . Please go ahead .

Moderator: Your next question today will come from Yi Fu Lee with Cantor Fitzgerald. Please go ahead.

Speaker #9: Thank you for taking my question . Hugo Sarrazin , congrats on a productive three . Q and strong pace consumer subscriber acceleration . Hugo .

Yi Fu Lee: Thank you for taking my question, Hugo and Sarah. Congrats on a productive Q3 and strong pace consumer subscriber acceleration. Hugo, maybe if I could kindly start with you on a macro high-level question. Can you kindly comment on the L&D budgets you are seeing in the field? We see all the innovations Udemy is upgrading across the platform, but in the beginning of the prepared remarks, you mentioned the organization invested heavily into AI, but ROI has not materialized yet. How has this dynamic impacted Udemy and other edtech peers? I guess the question I'm asking is, what needs to happen to sort of cross the chasm to double down for both enterprise and consumer spending to accelerate this? I also have a follow-up for Sarah later.

Speaker #9: Maybe if I could kind of start with you on a macro high level question , can you kindly comment on the LED budgets you are seeing in the field ?

Speaker #9: We see all the innovations Udemy is upgrading across the platform , but in the beginning of the prepared remarks , you mentioned organization invested heavily into AI , but ROI has not yet .

Speaker #9: So how has this dynamic impact Udemy and other EdTech peers like , guess the question I'm asking is what needs to happen to sort of cross the chasm to double down for both enterprise and consumer spending , to accelerate this .

Speaker #9: And I also have a follow up for Sarah later .

Speaker #5: Okay . Thank you . Thank you for the question . Listen , you heard me the last two quarters . I love to be in the field .

Hugo Sarrazin: Okay. Thank you. Thank you for the question, Hugo. You heard me, the last two quarters, I love to be in the field. I love to go in all our territories, spend a lot of time with customers. I'm back from last week at Unleashed. I went across Europe. It's an interesting dichotomy. It is a moment in time where the L&D teams are being asked to do more, all this AI transformation. They're asked to respond to a lot of uncertainty. At the same time, they're being told to do with less. There is pressure. There's real pressure. This is a group that's very anxious. At the same time, I like what is happening because we have a solution, an end-to-end solution that is broader than others. We do the technical stuff, and we do the non-technical stuff. We have a catalog that is way broader.

Speaker #5: I love to go and all our territories spend a lot of time with customers . And I'm back from last week at unleashed , you know , went across Europe .

Speaker #5: It's it's an interesting dichotomy . It is a moment in time where the lad teams are being asked to do more . All this AI transformation , they're asked to respond to a lot of uncertainty and at the same time they're being told , you know , to do with less .

Speaker #5: So there is pressure , there's real pressure . This is a group that's very anxious and at the same time , I like what is happening because we have a solution , an end to end solution that is broader than others .

Speaker #5: We do the technical stuff, and we do the non-technical stuff. We have a catalog that is way broader, and then we do things like the mastery with AI and roleplay.

Hugo Sarrazin: We do things like the mastery with AI role play. We do the things with assessment and validations. We've got more to offer. Our ROI is better. Therefore, when they need to consolidate, our win rate goes up. I am liking that dynamic macro. It's going to help us in general. The second thing I'll say is we've been on this go-to-market transformation to move up market. As part of that, there are some bullets under the heading. One of them is more value engineering so that we pitch the ROI case. The second is you need to pursue economic buyers in L&D and outside of L&D. We've done a lot of training around that.

Speaker #5: We do the things with assessment validations . We've got more to offer . So our ROI is better . And therefore when they need to consolidate , we those are our win rate goes up .

Speaker #5: So I am liking that dynamic macro . It's going to it's going to help us in general . The second thing I'll say is we've been on this go to market transformation to move up market .

Speaker #5: As part of that , there are some bullets under the , you know , the heading . One of them is more value engineering so that we pitch the ROI case .

Speaker #5: The second is you need to , you know , pursue economic buyers in l d and outside of LMD . And we've done a lot of training around that .

Speaker #5: And what we're seeing . And one of the reasons we have more 100 K deals than , than , than in the past .

Hugo Sarrazin: What we're seeing, and one of the reasons we have more $100,000 deals than in the past, and you see it in the economic buyer data that we have, is we're now also doing a good job outside of L&D. We're diversifying, and that's really good. I'll give you, just to bring this to life, an example from Europe, a leading retailer, six vendors, six L&D vendors. They did a consolidation, and we increased our number of seats three times. That's the kind of stuff.

Speaker #5: And you see it in the economic buyer data that we have is we're now , you know , also doing a good job outside of LMD .

Speaker #5: So we're diversifying and that's that's really good . And I'll give you just to bring this to life , an example from Europe , a leading retailer , six vendors , six LMD vendors , they did a consolidation .

Speaker #5: And you know, we increased our number of seats three times. That's the kind of.

Speaker #9: Stuff could you could you give us more color on , like what are the type of vendors you consolidating ? And when you say outside of LMD budget , right .

Yi Fu Lee: Hugo, could you give us more color on what are the types of L&D vendors you're consolidating? When you say outside of L&D budget, right, who are you taking? Are these like the business lines you're taking the budgets from, the extra budget piece?

Speaker #9: Who are you talking like , are these like the business lines you're taking the budgets extra budget , please .

Speaker #5: Yeah . So so let me hit the second one . It is , you know it , leader engineering leader . It is marketing leader .

Hugo Sarrazin: Let me hit the second one. It is IT leader, engineering leader, marketing leader, sales leader, enablement leader. It's all of the above. We need to have conversation with people who have business issues and be able to articulate our value in terms of the business outcome. Let me kind of give you an example. When we talk to a sales leader, we can say, by taking the following sets of learning paths and learning programs on Udemy, your ramp to have a salesperson productive is shortened in half, and this is how much it's worth to you. When we call to a call center, you've got attrition. You've got all these people that you need to train up on new accounts and on new policies. We can speed the time it takes for you to have these agents be more productive, or we can reduce the average handle time.

Speaker #5: It is sales leader . It is enablement leader . It's all of the above . So we need to have conversation with people who have business issue and be able to articulate our value in terms of the business outcome .

Speaker #5: So, let me kind of give you an example. When we talk to a sales leader, we can say that by taking the following sets of paths and learning programs on Udemy, your ramp to have a salesperson productive is shortened in half.

Speaker #5: And this is how much it's worth to you . Or when we call it a call center is , you know , you've got attrition , you've got all these people that you need to train up on new accounts and on new policies .

Speaker #5: We can speed the time it takes for you to have these agents be more productive , or we can reduce the average handle time .

Speaker #5: That's what I mean by going outside of L and it's real , you know , real business cases .

Hugo Sarrazin: That's what I mean by going outside of L&D. It's real business cases.

Speaker #9: That makes sense . This . Thank you for the extra color , Hugo . On that . Let me move on to Sarah before I pass on the call .

Yi Fu Lee: That makes sense. Thank you for the extra color, Hugo, on that. Let me move on to Sarah before I pass on the call. Hey, Sarah, on the economics financial side, should we, you know, obviously outperforming on the GAAP net income, EBITDA, free cash flow possibility. Should we, Sarah, going forward, get used to this trend, growing at a profitable growth rate? The second part of the question, Sarah, is you've mentioned, and you sound very confident, net new ARR, we're going to return to high single digit the final quarter. What gives you confidence? I think you kind of hit on it from the last caller. Can you reiterate what are the things that give you confidence that by year end, it's going to reaccelerate and it's even better in 2026? That's it for me. Thank you, Hugo and Sarah.

Speaker #9: Hey , Sarah , on the economics financial side , should we , you know , like , obviously outperforming on the GAAP net income , EBITDA , free cash flow possibility .

Speaker #9: So should like Sarah going forward . Should we get used to this trend like growing at a profitable growth rate ? And the second part of your question , Sarah , is , you know , like you've mentioned and you sound very confident .

Speaker #9: Net new RR we're going to return to high single digit . The final quarter . What gives you confidence ? I think you kind of hit on it from the last caller .

Speaker #9: Can you reiterate like what are the things that give you confidence that by year end it's going to re-accelerate and it's even better in 2026 ?

Speaker #9: And that's it for me . Thank you . Hugo and Sarah .

Speaker #6: Yeah, thanks for the questions. So let's start with our bottom line. We have continued to outperform in the bottom line.

Sarah Blanchard: Yeah. Thanks for the questions. Let's start with our bottom line. We have continued to outperform in the bottom line. That's a huge testament to the partnership across the business and really driving operational discipline. As we look into 2026, it's a great moment. You heard Hugo talking about these companies are really undergoing these AI transformations. L&D leaders are under pressure, business leaders are under pressure to ensure that their teams are adapting AI. We are going to invest on the back of that. We will deliver. We're on pace to deliver about $93 million for 2025. We will deliver more than that next year. We are investing in really further differentiating our offering in the world of AI and LLMs.

Speaker #6: It's a huge testament to the partnership across the business and really driving operational discipline. As we look into 2026, it's a great moment.

Speaker #6: You heard Hugo talking about these companies are really undergoing these AI transformations . Lad leaders are That's a under pressure , but business leaders are under pressure to ensure that their teams are adapting AI .

Speaker #6: And so we are going to invest on the back of that . We will deliver . We're on pace to deliver about 93 million for 2025 .

Speaker #6: We will deliver more than that next year . But we are investing in really further differentiating our offering in the world of AI and LMS .

Speaker #6: And so you can expect that to continue to see a robust roadmap and some really exciting things coming out from us that will allow us to continue delivering growth on both UB and consumer subscriptions from a net new RR , from a net new RR perspective , we delivered two in the first quarter .

Sarah Blanchard: You can expect to continue to see a robust roadmap and some really exciting things coming out from us that will allow us to continue delivering growth on both Udemy Business and consumer subscriptions. From a net new ARR perspective, we delivered two in the first quarter. We delivered one in the second quarter. We delivered seven this quarter, a huge testament to the work to transform that go-to-market team. Very, very happy with the progress that team has made. We continue to see our pipeline grow. The pipeline for $100,000-plus deals grow. Our deal sizes are up.

Speaker #6: We delivered one in the second quarter , we delivered seven this quarter , a huge testament to the work to transform that go to market team .

Speaker #6: Very, very happy with the progress that the team has made. We continue to see our pipeline grow. The pipeline for deals over $100,000 continues to grow.

Speaker #6: Our deal sizes are up, and so when we look into next year, that really gives us the confidence that we're through that transformation and that we're bringing some really exciting capabilities to market at a time when the market is looking for them.

Operator: When we look into next year, that really gives us the confidence that we're through that transformation and that we're bringing some really exciting capabilities to market at a time when the market is looking for them.

Speaker #9: Thanks again . Thanks again . I'll get back on the Q .

[Company Representative]: Oh, thanks again, Sarah. Thanks again, Hugo. I'll get back on the queue.

Speaker #5: If I want to just I didn't answer your question . When we do consolidation , play , you know how from who and how does it look .

Hugo Sarrazin: Hey, Yi Fu, I want to just say I didn't answer your question.

[Company Representative]: Yeah.

Hugo Sarrazin: When we do consolidation play, you know, how from who and how does it look? There are two types of vendors we consolidate. Often, there are smaller vendors that are local and niche. The real play, and that's how you get the example I gave you, three times increase in seats, is when we take out our major competitors. Because we're both technical and non-technical, we have a good value proposition against the folks who are purely or mostly technical, and vice versa. We have a good value proposition vis-à-vis people who are mostly business or more broad. We can come in and offer more specific technical expertise. By the way, in the world of AI, this is a super, super, super, super important point. All the leaders I've spoken to tell me versions of this.

Speaker #5: So there vendors . We consolidate . Often there's smaller vendors that are local and Nishi , and then the real plays . And you get the example I gave you is three times increase in seats is when we take out , you know , our major competitors because we're both technical and non-technical .

Speaker #5: We have a good value proposition against the folks who are purely or mostly technical and vice versa . We have a good value proposition vis a vis people who are mostly business or more broad , and we can come in and offer more specific technical expertise .

Speaker #5: And by the way , in the world of AI , this is a super , super , super , super important point . And all the leaders I've spoken to , you know , tell me versions of of this , we we've gone beyond , you know ChatGPT and Claude and copilot on and doing a bunch of experiments .

Hugo Sarrazin: We've gone beyond turning ChatGPT and Claude and Copilot on and doing a bunch of experiments. They want to scale. The only way you scale is if you can package the technical training around AI. We have 4,000 classes. It's more than anybody else with the adaptive skills. If you combine the two, you can scale. If you're only doing prompt engineering and the very specific technical things, you are going to remain in purgatory hell of these little pilots.

Speaker #5: They want to scale . And the only way you scale is if you can package the technical training around AI . And we have 4000 classes .

Speaker #5: It's more than anybody else with the adaptive skills . And if you combine the two , you can scale . If you're only doing prompt engineering and the very technical things you're going to , you know , remain in purgatory , hell of these little pilots .

Speaker #9: That make sense ? Thank you . Thank you again , Hugo . For extra color .

[Company Representative]: That makes sense. Thank you. Thank you again, Hugo, for the extra call up.

Speaker #1: And your next question today will come from Josh, Bear with Morgan Stanley. Please go ahead.

Dennis Walsh: Your next question today will come from Josh Baer with Morgan Stanley. Please go ahead.

Speaker #10: Great . Thanks for the question and congrats on some really strong subscription revenue numbers . I wanted to ask on the on the EBITDA side , you know , we have seen really strong performance this year .

Hugo Sarrazin: Great. Thanks for the question and congrats on some really strong subscription revenue numbers. Wanted to ask on the EBITDA side, you know, we have seen really strong performance this year, guidance raised for the year. When thinking about 2026 now, we're kind of anchored toward where you're going to end up for this year. Not too long ago, we were looking for $130 million to $150 million, so a big change there. I was hoping you could provide any sort of context or a bridge. Just wondering how much is from the transition to consumer subscription, like within the consumer, some impacts from that versus other top-line headwinds versus increased investments. The follow-up would be, you know, where specifically are those investments going?

Speaker #10: Guidance raised for the year . But when thinking about 26 now , we're kind of anchored toward where you're going to end up for this year .

Speaker #10: Not too long ago , we were looking for 130 to 150 , so a . big a big change there . I was hoping you could provide any sort of context or bridge .

Speaker #10: Just wondering how much is from the transition to consumer subscription, like within the consumer. Some impacts from that versus other top-line headwinds versus increased investments.

Speaker #10: And then the follow up would be , you know , where specifically are those investments going ?

Speaker #6: Yeah , great question . Thanks , Josh . So a lot has happened in the past . Let's say 12 months . That puts us in a place where we are laying out next year , being more EBITDA than we're delivering this year .

Operator: Yeah. Great question. Thanks, Josh. A lot has happened in the past, let's say, twelve months, that puts us in a place where we are laying out next year being more EBITDA than we're delivering this year, but really shifting away from the continued very significant margin expansion quarter after quarter after quarter to doing some more investments. We have a new CEO. We have a new strategy. We've gone through a go-to-market team transition. There's a lot within that 2026 expectation of the bottom line. You're right that we do have some headwinds that we're speaking about because we've pivoted very quickly to subscriptions first. Because it's going so well, we're accelerating that. That is a few points of growth on the consumer side that we're giving up.

Speaker #6: But really shifting away from the continued very significant margin expansion quarter after quarter after quarter doing some more investments . We have a new CEO , we have a new strategy , and we've gone through a go to market team transition .

Speaker #6: So there's a lot within that 2026 expectation of the bottom line . You're we do have some headwinds that we're speaking about because we've pivoted very quickly to subscriptions it's going so well , we're accelerating that .

Speaker #6: And that is a few points of growth on the consumer side that we're giving up. But what we expect to see is, towards the middle of next year, that inflection point where the subscription revenue growth will start to outpace that decline.

Operator: What we expect to see is towards the middle of next year, that inflection point where the subscription revenue growth will start to outpace that decline we're seeing on the transactional side. That did impact our top line, that subscription first, and the go-to-market team transition. When it comes to our investment priorities, like I said, really further differentiating in a world now that is AI and LLM and is very different than it was eighteen months ago and twenty-four months ago, as we all know. Some of those things that we are looking to invest in first is this platform that we're talking about that's end-to-end delivering skills acquisition, mastery, and validation, and allowing organizations to monitor the progress of their teams across the skills that they need to hit their business priorities, deliver even more ROI, and create that stickiness.

Speaker #6: We're seeing on the transactional side . But we did , you know that did impact our top line . That subscription first and the go to market team transition when it comes to our investment priorities .

Speaker #6: Like I said, really further differentiating in a world now that is AI and LM and is very different than it was 18 months ago and 24 months ago.

Speaker #6: As we all know . And some of those things that we are looking to invest in first is this platform that we're talking about that's end to end delivering skills acquisition , mastery and validation .

Speaker #6: And allowing organizations to monitor the progress of their teams across the skills that they need to hit their business priorities, deliver even more ROI, and create that stickiness.

Speaker #6: We're investing in the personalization engine that you heard us talking about . We AI tools and role playing assessments , and there's more that we can do to really bring to life this personalized journey to help individuals hit their career goals , get their certifications , and then amplify that with the human plus AI .

Operator: We're investing in the personalization engine that you heard us talking about. We have AI tools and role-playing assessments. There's more that we can do to really bring to life this personalized journey to help individuals hit their career goals, get their certifications, and then amplify that with the human plus AI. Bringing our instructors across the globe closer to the learners allows not only better learning outcomes but those instructors to monetize in new ways across our platform. The last thing I'll say is you've heard us talking about partnerships over the last few quarters, investing in building out that ecosystem on both the Udemy Business side and the Udemy consumer side. Hugo, anything you'd wanna add on the partnership side?

Speaker #6: So bringing our instructors across the globe closer to the learners , allowing not only better learning outcomes , but those instructors to monetize in new ways across our platform .

Speaker #6: And the last thing I'll say is you've heard us talking about partnerships over the last few quarters , investing in building out that ecosystem on both the Udemy business side and the Udemy consumer side .

Speaker #6: Hugo , anything you'd want to add on the partnership side ?

Speaker #5: Thank you . Sarah . In general , I'll make a point before I go on the partnership . We also are making a deliberate EBITDA versus growth trade off right now .

Hugo Sarrazin: Thank you, Sarah. In general, I'll make a point before I go on the partnership. We also are making a deliberate, you know, EBITDA versus growth trade-off right now. We see a very big market opportunity around reskilling the whole workforce. We need to be playing offense, and we need to be growing the business really fast. That's just kind of a macro theme. We're using the opportunity to build our moat. Our moat is this platform end-to-end in a way that no other, you know, online catalog has today. We think it's really, really important to do that. To do that, we'll need some investment. We've done some already. We'll do more. In terms of partnership, there's some really exciting stuff that's happening. You've heard me mention Pearson, which helps deliver some of these end-to-end validation as part of the platform and some of these new subscriptions.

Speaker #5: We we see a very big market opportunity around reskilling the whole workforce . We need to be playing offense and we need to be growing the business really fast .

Speaker #5: So that's just kind of a macro theme . And we're using the opportunity to build our moat and our moat . Is this platform end to end in a way that no other online catalog has today .

Speaker #5: And we think it's really , really important to do that and to do that , we'll need some investment . We've done some already .

Speaker #5: We'll do more in terms of partnerships . There's some really exciting stuff that's happening . We've heard me mention Pearson , which helps deliver some of these end to end validation as part of the platform and some of these new subscription .

Speaker #5: We have things with Walkera around assessment glean around enterprise AI . We've also done a partnership to expand the reach of our offering with M trains .

Hugo Sarrazin: We have things with Workera around assessment, Glean around enterprise AI. We've also done a partnership to expand the reach of our offering with MTrains. We offer compliance now, so we become a one-stop shop on some of the things. In some cases, it creates a nice, defensive play for us. We're tweaking, adapting. We're going to be smart about it, and that's why we're signaling that, you know, no less than is what you heard. We're being smart about it.

Speaker #5: We offer compliance now , so we become a one stop shop on some of the things and in some cases , you know , it creates a nice defensive play for us .

Speaker #5: So we're we're tweaking , adapting . We're going to be smart about it . And that's why we're signaling that , you know , no less than is what you heard .

Speaker #5: And you know , we're being smart about it .

Speaker #10: Great. Thank you for the answers.

Hugo Sarrazin: Great. Thank you for the answers.

Speaker #1: And your next question today will come from Stephen Sheldon with William Blair . Please go ahead .

Dennis Walsh: Your next question today will come from Steven Sheldon with William Blair. Please go ahead.

Speaker #11: Hey , thanks . Just want to start with within Udemy business . And just a clarification . Just wanted to clarify the fourth quarter IRR comments that you made .

Sarah Blanchard: thanks. I just want to start within Udemy Business and just a clarification. Just wanted to clarify the fourth quarter ARR comments that you made, Sarah, for the high single-digit increase. I'm assuming based upon a prior answer that that's a sequential ARR dollar increase, or was that a year-over-year growth expectation?

Speaker #11: Sarah , for the high single digit increase , I'm assuming based upon a prior answer , that that's a sequential IRR dollar increase , or was that a year over year growth expectation ?

Speaker #6: That's right . That's net new error . So sequential dollar increase .

Operator: That's right. That's net new ARR, so sequential dollar increase.

Speaker #11: Okay . Perfect . And then on consumer yeah great to see the traction on subscription . So just wanted to ask how long it might take before you see overall consumer revenue stabilization and a return to growth I guess based upon a prior answer you know it sounds like you could potentially hit that inflection in 2026 .

Sarah Blanchard: Okay. Perfect. On consumer, great to see the traction on subscription. I just wanted to ask how long it might take before you see overall consumer revenue stabilization and a return to growth. I guess based upon a prior answer, it sounded like you could potentially hit that inflection in 2026 in consumer where subscription revenue more than offsets the non-sub revenue. Was that more for the total company including Udemy Business? High level, when could we expect a potential return to consumer revenue growth overall? Is that next year? Is it still a couple of years out? Any detail there.

Speaker #11: In consumer , where subscription revenue more than offsets the non-sub revenue , or was that more , I guess more for the total company , UB ?

Speaker #11: I guess just just high level . When could we expect a potential return to consumer revenue growth overall ? Is that next year ?

Speaker #11: Is it still a couple of years out? Just any detail there?

Speaker #6: Yeah. So, you know we are expecting to see the decrease in transactional revenue be overtaken by the increase in subscription revenue mid next year.

Operator: Yeah. We are expecting to see the decrease in transactional be overtaken by the increase in subscription mid-next year sometime. We have, you know, we're still optimizing as we are building out this subscription first. You heard Hugo talk about all the things we're doing in the subscription side of things, and so that is impacting. Again, the unit economics of that business are so much more compelling. In addition to that, the learner journey and the experience for those learners is going to be so much stickier as we really look to build this continuous skill-building engine and this companion for our learners. That's the trade-off we're making.

Speaker #6: Sometimes we have, we're still optimizing as we are building out this subscription. First, you heard Hugo talk about all the things we're doing in that.

Speaker #6: the unit economics of that business are so much more compelling . And in addition to that , the the learner journey and experience for those learners is going to be so much stickier as we really look to build this continuous skill building engine in this companion for our learners .

Speaker #11: so with that imply a return to consumer growth at some point next year .

Sarah Blanchard: Would that imply a return to consumer growth at some point next year?

Speaker #6: It we're not ready to put an exact date on that yet , but we'll be getting close .

Operator: We're not ready to put an exact date on that yet, but we'll be getting close.

Speaker #11: Yeah . Thank you .

Sarah Blanchard: Got it. Thank you.

Speaker #1: And your next question today will come from Jason Tilkin with Canaccord Genuity . Please go ahead .

Dennis Walsh: Your next question today will come from Jason Tilchen with Canaccord Genuity. Please go ahead.

Speaker #12: Good afternoon . Thanks for taking my question . I'm wondering in the deck , you referenced hundreds of enterprise customers that have started adopting the AI role plays , hoping you could just talk a little bit about both some of the unique use cases where this is being deployed and also how this is translating into greater wallet share at some of these customers .

Moderator: Good afternoon. Thanks for taking my question. I'm wondering, in the deck, you referenced the hundreds of enterprise customers that have started adopting the AI role plays. Hoping you could just talk a little bit about both some of the unique use cases where this is being deployed, and also how this is translating into greater wallet share at some of these customers. Thanks.

Speaker #12: Thanks .

Speaker #5: Yes . Why don't I get us started ? The . The imagination of people never cease to amaze me . It's kind of like my starting point .

Hugo Sarrazin: Yeah. Why don't I get us started? The imagination of people never ceases to amaze me. It's kind of like my starting point. We have more than 10,000 role plays. I don't claim to say that these are all unique. There's a lot of overlap. We've also provided the ability for enterprise to build their own unique role plays. Some of them will be, you know, a variation of the out-of-the-box ones. Let me give you a couple of examples. The first one is performance reviews, practice difficult conversations during performance reviews. There's the out-of-the-box version. Or if you're PepsiCo, you can load the policy document of PepsiCo, and the role play will be done in a way that is consistent with the language used and the grid used at PepsiCo. That counts as two just to help with the 10,000.

Speaker #5: We have more than 10,000 role plays. I don't claim to say that these are all unique. There's a lot of overlap.

Speaker #5: We've also provided the ability for enterprise to build their own unique role play . Some of them will be , you know , variation of .

Speaker #5: The out of the box ones . So let me give you a couple of examples . The first one is performance reviews . Practice difficult conversations during performance reviews .

Speaker #5: There's the out of the box version . Or if your PepsiCo , you can load the policy document of PepsiCo and the role play will be done in a way that is consistent with the language used and the grid use at PepsiCo .

Speaker #5: So that counts as two . This has to help with the 10,000 . We have example where you have I'll give you a an example of a consulting company that is building with their own internal LM , you know , their decks , their , their customer facing PowerPoint documents .

Hugo Sarrazin: We have an example where you have, I'll give you an example of a consulting company that is building with their own internal LLM, you know, their decks, their customer-facing PowerPoint documents. They're loading that up in AI role play to do a practice in advance of going to a customer. Again, very, very specific, very in the moment, very valuable to them to have a rehearsal in advance of a difficult or challenging customer. That's the range of things. I could keep going, but I'll answer the second part of your question. Right now, what we have done is we've made this available to our customer as part of these different offerings. We will next year have a tiered offer where we're going to monetize different behavior.

Speaker #5: And they're loading that up in AI role play to do a practice in advance of going to a customer . So again , very , very specific , very in the moment , very valuable to them to have a rehearsal in advance of a difficult or challenging customer .

Speaker #5: So that's , that's that's the range of things I keep going . But I'll answer the second part of your question right now , what we have done is we've made this available to our customer as part of these different offerings .

Speaker #5: We will, next year, have a tiered offer where we're going to monetize different behaviors. I'm not going to go into too much detail about what it is, but you can imagine a typical SaaS model where there's a minimum that you can do without paying more, and then you get to pay if you use it more. It's going to allow us to monetize this more with the usage and the value that the customer is going to get.

Hugo Sarrazin: I'm not going to go into too much what it is, but you can imagine typical SaaS model, where there's a minimum that you can do without more, and then you get to pay if you use it more. It's going to allow us to monetize this more with the usage and the value that the customer is going to get. The last thing I'll say is we are building a specific version of AI role play that can be offered standalone, targeted at different non-L&D buyers because it is solving a very specific use case. The pricing of that will be matched to the value that is being delivered to that economic buyer.

Speaker #5: The last thing I'll say is we are building a specific version of AI role play that can be offered standalone, targeted at different non-land buyers because it is solving a very specific use case.

Speaker #5: The pricing of that will be matched to the value that is being delivered to that economic buyer.

Speaker #12: Great . That's very helpful . And one quick follow up for Sarah in terms of the increase in investments that you referenced , I want to make sure I sort of understand is this primarily focused on product or any other areas where there could be some incremental investments ?

Moderator: Great. That's really helpful. One quick follow-up for Sarah. In terms of the increased investments that you referenced, I just want to make sure I sort of understand it. Is this primarily focused on product, or are there any other areas where there is going to be some incremental investments as we head into next year?

Speaker #12: As we head into next year ?

Speaker #6: Yeah , it's a great question . It's primarily focused on product . There will be some investments on the partnership side , although those do pale in comparison to the product investments .

Operator: Yeah. It's a great question. It's primarily focused on product. There will be some investments on the partnership side, although those do pale in comparison to the product investments.

Speaker #12: Great . Thank you .

Sarah Blanchard: Great. Thank you.

Speaker #1: Again , if you have a question please press star . And then one . And your next question today will come from Nafeesa Gupta with Bank of America .

Dennis Walsh: Again, if you have a question, please press star and then one. Your next question today will come from Nafeesa Gupta with Bank of America. Please go ahead.

Speaker #1: Please go ahead .

Speaker #13: Hi . Thank you . Hi , Sarah . And Hugo , my first question is with this focus on subscriptions and UB . But there is also lower revenue share for instructors in both of them .

Ryan MacDonald: Hi, thank you. Hi, Sarah and Hugo. My first question is, with this focus on subscriptions and Udemy Business, there is also lower revenue share for instructors in both of them, which will further go down to 15% next year. Are you seeing any kind of increased churn amongst instructors because of your focus on these two?

Speaker #13: And which will further go down to 15% next year. So, are you seeing any kind of increased churn amongst the instructors because of your focus on these two?

Speaker #5: Yeah . Thank you for the question . You know , we our strategy is very , very , very focused on human plus AI .

Hugo Sarrazin: Yeah. Thank you for the question. You know, our strategy is very, very, very focused on human plus AI. We remain committed to the instructor community. We've engaged them in very constructive conversation. They understand that the world around them is also changing. They're feeling it from their, you know, their business point of view. What we're doing is a few things. One, we're working with them to create new sources of revenue monetization. Some of it is taking stuff that they do off-platform and moving it to Udemy. That's why you heard reference to one-on-one coaching, some of the cohort work. Those are going to be done at a different revenue share than the one that you referenced. That's kind of one thing.

Speaker #5: So we remain committed to the instructor community . We've engaged them in very constructive conversation . They understand that the world around them is also changing .

Speaker #5: They're feeling it from their , you know , their business point of view . What we're doing is a few things . One , we're working with them to create new sources of revenue monetization .

Speaker #5: Some of it is taking stuff that they do off platform and moving it to Udemy. That's why you heard reference to one-on-one coaching.

Speaker #5: Some of the cohort work . Those are going to be done at a different revenue share than the one that you reference . So that's kind of one thing .

Speaker #5: The second thing is we're you know , we've introduced a new production hub , a series of tools and services to make their lives easier in this AI world where they can kind of participate in , in and get some efficiencies .

Hugo Sarrazin: The second thing is we've introduced a new production hub, a series of tools and services to make their life easier in this AI world where they can kind of participate in and get some efficiencies. We have more to come on that front. There are a few other conversations. They're very active. They're very clear about their needs, their desire, and, you know, we want to grow the business with them.

Speaker #5: And we have more to come on that front . And then there's a few other conversations . They're very active . They're very clear about their needs , their desire , and we want to grow the business with them .

Speaker #13: Got it . I have a follow up . So any any thoughts on acquiring traffic through AI platforms ? I mean , a couple of your competitors and peers are integrating with large platforms to acquire more traffic .

Ryan MacDonald: Got it. I have a follow-up. Any thoughts on acquiring traffic through AI platforms? I mean, a couple of your competitors and peers are integrating with large platforms to acquire more traffic. Any thoughts you have on that?

Speaker #13: Any thoughts you have on that ?

Speaker #5: Yeah . Great question . Thank you . Let me first say this is a validation of our strategy . We were very excited to see that move for two quarters in a row .

Hugo Sarrazin: Yeah. That's a great question. Thank you. This is a validation of our strategy. We were very excited to see that move. For two quarters in a row, we've been very clear that an online catalog is not sufficient in this world. We were moving to move into, you know, these different ways of competing, which included AI and then being an AI platform. We've initially focused on the B2B space, which is, you know, plays to our strength where we already have moat. That's why we've introduced the MCP. The good news is given that we've got all the MCP, we've got the ability if we want to, on the consumer side, to also be part of, you know, ChatGPT or Perplexity or Claude. I mean, we need to step back a bit and think about what is happening.

Speaker #5: We've been very clear that an online catalog is not sufficient in this world . And we were moving to move into , you know , these different ways of competing , which included AI and then being an AI platform .

Speaker #5: We've initially focused on the B2B space, which is, you know, plays to our strengths, where we already have a moat.

Speaker #5: And that's why we've introduced the MCP . The good news is , given that we've got all the MCP , we've got the ability now , if we want to on the consumer side , to also be part of ChatGPT or perplexity or cloud .

Speaker #5: But we need to step back a bit and think about what is happening with every technological evolution. Whether it's the internet, mobile, or social, it introduces not only a set of new technology and new protocols, but also a new set of distribution platforms.

Hugo Sarrazin: Every technology evolution, whether it's the internet, mobile, social, introduced not only a set of new technology and new protocols, but just a new set of distribution platform. You know, for search, it was Google. For mobile, it was Apple, which created the Apple Store. We need to kind of make sure that we are very thoughtful in how we're going to play. Nobody remembers who was the first one on the Apple Store. Not relevant. There will be choices. What we're focused on is on building a really, really, really distinctive experience on that, you know, chat, consumer experience that plays to our consumer strategy. Again, we're very happy. We're growing 43% year over year. We're focused on careers and certification. We're linking this to job outcomes.

Speaker #5: You know , for search . It was Google for mobile , it was Apple , which created the Apple Store . And we need to kind of make sure that we are very thoughtful in how we're going to play .

Speaker #5: Nobody remembers who was the first one on the Apple Store . Not relevant . There will be choices . And what we're focused on is on building a really , really , really distinctive experience on that .

Speaker #5: You know , chat consumer experience that plays to our consumer strategy . And again , we're very happy . We're growing 43% year over year .

Speaker #5: We're focused on careers and certification . We're linking this to job outcomes . And we want to make sure that , you know , beyond some of the funnel name recognition and branding , which we are clear on the monetization .

Hugo Sarrazin: We want to make sure that, you know, beyond top of the funnel, name recognition, and branding, we are clear on the monetization. Right now, nobody has a monetization answer, so we don't feel the rush to kind of put ourselves in the middle of that.

Speaker #5: And right now, nobody has a monetization answer. So we don't feel the rush to kind of put ourselves in the middle of that.

Speaker #13: Thank you .

Operator: Thank you.

Speaker #1: Your next question today will come from Devin O. with KeyBanc Capital Markets. Please go ahead.

Dennis Walsh: Your next question today will come from Devin Au with KeyBanc Capital Markets. Please go ahead.

Speaker #14: Hey , thank you . Thanks for taking my question . Maybe just one quick one on UB . The commentary around the large customer pipeline sounded encouraging .

Moderator: Hey. Thank you. Thanks for taking my question. Maybe just one quick one on UB. The commentary around the large customer pipeline sounded encouraging. I think you mentioned the pipeline for that segment is up quarter over quarter. When I look at the net add for that customer segment, it has stepped down quite a bit from last quarter. Is that just like a timing thing? Perhaps maybe deals shipping out, or did you see perhaps increased churn? Maybe just help us reconcile the strong commentary versus the step down in net add. Thank you.

Speaker #14: I think you mentioned the pipeline for that segment is up quarter over quarter , but when I look at kind of the the net ad for that customer segment , it has stepped down quite a bit from last quarter .

Speaker #14: Is that just like a timing thing? Perhaps, maybe deals shifting out? Or did you see perhaps increased churn? Maybe just help us reconcile the strong commentary versus the step down in net ads?

Speaker #14: Thank you .

Speaker #6: Yeah, it's a great question. And I did also mention that the portion of that pipeline growing is on the expansion side.

Operator: Yeah, it's a great question. I did also mention that the portion of that pipeline growing is on the expansion side. There's a combination of adding new logos and expansion. We are so excited when we continue to build on the value that we're already delivering with existing customers. What you're seeing there is the expansion dynamic that's happening.

Speaker #6: And so there's a combination of adding new logos and expansion. We are so excited as we continue to build on the value that we're already delivering with existing customers.

Speaker #6: And so, what you're seeing there is the expansion dynamic that's happening.

Speaker #5: And the consolidation .

Hugo Sarrazin: Yeah, the consolidation.

Speaker #14: Great . Thank you .

Sarah Blanchard: Great. Thank you.

Speaker #6: Thanks for the question .

Operator: Thanks for the question.

Speaker #1: And your final question today is a follow-up from Yefu Li of Cantor Fitzgerald. Please go ahead.

Dennis Walsh: Your final question today is a follow-up from Yi Fu Lee of Cantor Fitzgerald. Please go ahead.

Speaker #9: Thanks . Hey , Hugo and Sarah , just one quick follow up on the subscription . When you mentioned subscription online to learn outcome that two products .

[Company Representative]: Thanks. Hey, Hugo and Sarah. Just one quick follow-up on the subscription. When you mentioned subscription online to learn outcomes, there are two products, right? I know it's still new. You're still going through it, certification journey and career journey. Can you tease us a little bit more, like, what are you thinking in terms of, like, partnership with, like, educational institution, university, etc.? Are you going with, like, let's say, partnership with, like, leading institutions, like, in America, etc.? In the career journey, are you partnership with, like, you know, large tech firms, like, let's just say, you know, Google, Microsoft of the world for the certification? Just wanna get some understanding on that. I know it's still new.

Speaker #9: Right. I know it's still new. You are still going through your certification journey and career journey. Can you tease us a little bit more?

Speaker #9: Like what are you thinking in terms of like partnership with like educational institution , university , etc. ? Are you going with like let's say partnership with like leading institutions like in America , etc.

Speaker #9: and in the career journey , are you partnership with like , you know , large tech firms like , let's just say Google , Microsoft of the world for the certification , just want to get some understanding on that .

Speaker #9: I know, I know, it's still new.

Speaker #5: Yeah . So let me let me take that on certification . The big on lock is historically players like Udemy worked on certification prep and you get , you know , millions of people getting into our platform to do certification prep .

Hugo Sarrazin: Yeah. Let me take that. On certification, the big unlock is historically, players like Udemy have worked on certification prep. You get millions of people getting into our platform to do certification prep. The process of getting certified was a different process, a disconnected process. What we are now doing is we're connecting the two in a very, very, very tight way. We're embedding it in the process of taking a class to kind of bring you along and encourage you to get to that certification. Instead of having one out of ten learners really completing, we have a much higher number. This is a big pain point, not only on the consumer side but on the enterprise. The number of L&D leaders who have told me, "It's great.

Speaker #5: Then the process of getting certified was a different process , a disconnected process . And what we are now doing is we're connecting the two in a very , very , very tight way .

Speaker #5: And we're embedding it in the process of taking a class to kind of bring you along and encourage you to get to that certification.

Speaker #5: So instead of having one out of ten , you know , learners really completing , we have a much higher number . And this is a big pain point , not only on the consumer side , but on the enterprise .

Speaker #5: The number of LD leaders who have told me it's great , I get all these wonderful numbers that X , Y , Z did the the certification prep , but I have no data to confirm .

Hugo Sarrazin: I get all these wonderful numbers that XYZ did the certification prep, but I have no data to confirm." You would think the learner, the employees, would be incented to tell their employer that they completed an AWS architect certification. It doesn't happen all the time. We're closing the loop, and we're validating the outcome. This is what they wanted to see. That's an example of why we're kind of, like, trying to align ourselves more closely to close the loop and make it clear. On the career outcome, in the past, we would create, you know, quasi bundle. Others do the same, like, these are the classes that you need to take to become a data scientist. That's cool, interesting.

Speaker #5: And you would think the learner, the employees would be incented to tell their employer that they completed an AWS Architect certification. It doesn't happen all the time.

Speaker #5: So we're closing the loop and we're validating the outcome . This is what they wanted to see . So that's that's an example of why we're kind of trying to , you know , align ourselves more closely to close the loop and make it clear on the career outcome .

Speaker #5: You know , in the past , we would create , you know , quasi bundle and others do the same of like , these are the classes that you need to take to become a data scientist .

Speaker #5: That's cool. Interesting. But now, if we can link it to the coaching, you need to be able to become a great data scientist.

Hugo Sarrazin: Now, if we can link it to the coaching you need to be able to become a great data scientist, if we introduce you to a community of other peers, if we link you to jobs offered from different sources to get to the outcome that you're looking, we can more credibly say that our product has a better ROI. That's the direction of travel. That's why we think also we're going to create some moat in a very, very, very interesting way because we're helping solve people's problems. In this moment in time, you're seeing all these new grads that are finishing university, not getting jobs. We're seeing a lot of them come to our platform almost as a finishing school.

Speaker #5: If we introduce you to a community of other peers, and if we link you to job offers from different sources to help you achieve the outcome you’re looking for, we can more credibly say that our product has a better ROI.

Speaker #5: That's that's that's the direction of travel . And that's why we think also we're going to create some moat in a very , very , very interesting way because we're helping solve people's problems .

Speaker #5: And in this moment in time, you know, you’re seeing all these new grads that are finishing university, not getting jobs.

Speaker #5: We're seeing a lot of them come to our platform. You know, almost as a finishing school. They're like they're building their portfolio of projects.

Hugo Sarrazin: They're building their portfolio of projects, and they're getting the coaching that they need to get the outcomes that they're hoping, which is a job and be part of the workforce. We want to be that solution.

Speaker #5: They're they're and they're getting the coaching that they need to get the outcomes that they're hoping , which is a job , and be part of the workforce where you want to be .

Speaker #5: That solution .

Speaker #1: This concludes our question and answer session. I would like to turn the conference back over to Hugo Sarrazin for any closing remarks.

Dennis Walsh: That concludes our question and answer session. I would like to turn the conference back over to Hugo Sarrazin for any closing remarks.

Speaker #5: I just want to say thank you and see you next work.

Hugo Sarrazin: I just want to say thank you, and see you next quarter.

Dennis Walsh: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.