Udemy Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 10 speakers on the call.

Operator

Good day, and welcome to Udemy's First Quarter twenty twenty five Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. At this time, I'd like to turn the floor over to Udemy's Vice President, Investor Relations, Mr.

Operator

Dennis Walsh. Please go ahead, sir.

Speaker 1

Thank you. Joining me today are Udemy's Chief Executive Officer, Hugo Sarazan 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 that 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 ks and Form 10 Q filings with the Securities and Exchange Commission.

Speaker 1

Our forward looking statements are based upon information currently available to us. We caution you to not place undue reliance on forward looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward looking statements, except as required by applicable law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U. S. Generally Accepted Accounting Principles referred to by the SEC as non GAAP financial measures.

Speaker 1

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 on the website. With that, I'll now turn the call over to Hugo.

Speaker 2

Thank you, Dennis, and good afternoon, everyone. I'm honored to be here today for my first earning call as CEO of Udemy, and I would like to thank our board, leadership team, and all our employees and instructors across the globe for their warm welcome. Looking at our results for Q1, I am very pleased that we've exceeded the high end of our guidance for both revenue and adjusted EBITDA, and I want to congratulate the Udemy team for delivering these results. I'll use this time to share a bit about myself, why I chose to join Udemy, my initial observation, and insight into my long term vision. I have more than thirty years experience working in tech.

Speaker 2

For more than two decades at McKinsey, I worked with some of the most iconic companies in Silicon Valley to innovate, scale, and globalize their business. During that time, I guided organization through B2B and B2C commercial transformation and played a key role in strategy, setting, product development, and large scale M and A. I also worked extensively with private equity firms investing in tech, including many of the edtech and human capital management companies that transacted in the past decade. To give you a sense of the scale at which I have operated directly, I spent several years in leadership role at UKG, a leading global HCM company, where I led product technology teams of more than 6,000 employees globally, serving more than 80,000 organizations. In the first quarter of twenty twenty three, the last time UKG's results were disclosed, quarterly revenue surpassed $1,000,000,000 for the first time.

Speaker 2

During my time, I spent countless hours with HR and people leader and developed an acute understanding of their needs and challenges, which will serve me well at Udemy. I successfully launched eight innovative AI products and led many strategic acquisitions, significantly scaling the business. As I reflect on what excites me about Udemy and its future, three things stand out. First, Udemy's mission deeply resonates with me. My father was the first person in his entire family to attend university, and through his relentless commitment to continuous learning, he ultimately became a university professor himself.

Speaker 2

This instilled in me a profound appreciation for accessible quality learning, and how it can transform a person and a whole family's life. Second, the global opportunity for reskilling is massive and expanding. Businesses are spending billions on workforce training, and individuals are investing in critical skill development to launch their career and adapt to the evolving market. AI is accelerating the shift, and I want to be part of that. This brings me to the third reason I'm excited to leverage my experience in delivering AI solutions to solve enterprise wide challenges in what is the most significant technology inflection point in Udemy's history.

Speaker 2

We have an incredible opportunity right now to implement an AI roadmap that will supercharge our engine to drive the reskilling of the global workforce. Since joining Udemy, I have connected with our employees, many of our top instructors, more than 100 customers and prospects around the world, and many partners. It has been an incredible experience, and I'm even more excited by our scale, speed of content delivery, and the impact we provide. All these factors will enable us to both redefine and lead this category, and I see even more opportunity than I initially envisioned. Although it is premature for me to lay out the long term plans, you can expect continuity where it matters, and evolution where it is needed.

Speaker 2

Udemy is transforming from a content provider to an AI powered reskilling platform that is business critical, with every new product and feature evaluated through an AI lens for increased productivity, value, and time to market. This transformation leverages the core strengths that made us an industry leader. As it relates to continuity, we will continue to target large enterprise in key verticals, as we have discussed previously. We are already seeing tremendous customer traction, including our largest deal of the quarter was a multi year enterprise wide expansion with one of the world's largest professional service firms. This was a high 7 figure total contract value deal.

Speaker 2

The customer selected Udemy as a preferred reskilling platform to support their transition to a skilled based organization. They cited our unique ability to deliver measurable business outcomes, including increasing consultants billable hours. The second example is ConnectWise, a software company in The US that empowers MSPs and IT service management. They selected Udemy as their skilling partner. They expanded licenses wall to wall to all employees to support up skilling in priority areas such as AI and automation integration, as well as technical up skilling for product innovation.

Speaker 2

A third example is Model N, a US test revenue management software company that selected Udemy to support their organization wide GenAI upskilling for individuals in all functions. Udemy's GenAI skill packs, skill mapping, and advanced technical content were the key differentiators that led them to selecting us. Finally, a large robotic process automation leader consolidated their learning ecosystem from three vendor to Udemy for their reskilling platform. The consolidation stemmed from our ability to deliver breadth of cutting edge content and measurable outcome. As you can see, the common theme these examples share is that the customer has a strategy in place to drive tangible business outcome, and the Udemy platform is purpose built to deliver those results.

Speaker 2

As we continue to make progress moving upmarket and focusing on key verticals, we will also continue to grow our bottom line. The cost initiatives we put in place over the past few quarters and the shift of market will allow us to deliver meaningful margin expansion this year and in 2026. While our foundation is sound, the pace and scale of our execution hasn't always matched the rapidly evolving market opportunity. In today's dynamic environment, we need to accelerate innovation, particularly in AI. We need to tighten our execution and sharpen our focus on enterprise value creation.

Speaker 2

My experience transforming and scaling complex global businesses has prepared me to lead through this type of inflection point. A few initial areas where we will be taking action in the near term include: first, increasing our emphasis on consumer subscription, which saw revenue rise nearly 40% year over year in Q1. This shift represents a fundamental evolution of our business model towards more predictable, high quality recurring revenue. Professionals are increasingly embracing continuous carrier focused skill development to be successful in today's rapidly evolving environment. Second, we will be expanding our partnership ecosystem.

Speaker 2

Partners will be able to leverage Udemy's global reach and technology infrastructure to create, distribute, and monetize specialized content and experience, while Udemy generates revenue through both content sales and platform fees. Third, we are executing comprehensive global market activation. With over 60% of our revenue coming from outside of The U. S, Udemy is truly a global company, but there is more we can do. We will be implementing full stack localization strategy across high potential markets.

Speaker 2

This means developing market specific product experiences, creating culturally relevant campaigns, building a localized web and mobile interface, and developing tailored go to market approaches. And finally, we will pursue strategic growth opportunities. While historically we primarily relied on organic growth, there are opportunities to explore broader strategic initiatives that could deepen our impact. As we assess these opportunities, we will remain highly disciplined in ensuring that any actions we take align with our mission, simplify our competitive advantage, and create value for all stakeholders. Now, let me dive into the AI trends, which are a huge opportunity for Udemy.

Speaker 2

As everybody knows, AI is already disrupting learning in the EdTech market. While some may believe that this disruption is simply about AI generated content creation, it is much more. It enhances the value of a platform player like Udemy. AI enables us to augment the value we deliver to learners and creators alike. First, AI is creating a need for new types of skills that didn't exist before.

Speaker 2

This means increased reskilling demand in an expanded addressable market, and Udemy intends to take advantage of that. Second, AI removes the constraint of traditional linear video learning and enables us to make the experience more personalized and therefore more effective. For example, historically, we did not tailor courses to someone's starting point beyond choosing a beginner's course, an intermediate's course, or an advanced course. With AI, we can evaluate the learner's knowledge with AI generated assessment, leveraging our deep body of content and engagement for millions of learner. Then we can tailor the curriculum and the learning path to a learner's need.

Speaker 2

We can modify the modality such as a short form, a role play, and a lab, and then use feedback loop to confirm skill master and retention. This approach leads to significantly better outcome and therefore better ROI. And third, Udemy is a two sided AI platform. AI also enables our content creator to use new modalities more easily. They can repurpose content, they can deliver more engaging reskilling experience, and provide AI coaches that complement the instructor.

Speaker 2

We have many exciting examples of AI powered capabilities that are now part of our reskilling platform. Thousands of enterprise customers are already using our skill mapping and AI driven learning path to measure, manage, and maximize their reskilling investment. Our AI innovations are reducing program creation time by 80% on average, while enabling L and D teams to deliver targeted, high impact development journeys that align with strategic business outcomes. Also, we introduced Career Accelerators this week. These curated role specific learning path built on Udemy's skill marketplace support more personalized learning experiences by guiding learners towards career outcomes.

Speaker 2

The first set of accelerators, which includes AI focused module, are now live with many more launching this year. Before the end of Q2, Udemy highly anticipated AI assisted role play will be available across the Udemy business platform. This will empower our instructor to create custom content that is truly engaging. We are confident that our approach will unleash significant innovation at a scale that publisher models cannot match. Then from a demand perspective, we have the opportunity to be the essential AI reskilling partner across the enterprise, as well as for individual.

Speaker 2

Udemy has an unmatched combination of content breadth, learner engagement, and structured learning path. We currently have nearly 1,700 AI and machine learning courses available on Udemy Business, including more than 900 on GenAI, and approximately 4,000 GenAI courses on our marketplace. Our AI content drives exceptional engagement, generating 10,000,000 courses enrollment to date, and adding new enrollment at a rate of 10 per minute. In a fast moving category like AI, the marketplace model of Udemy provides us with a significant advantage. Beyond raw content volume, we've developed many curated Gen AI skill pack tailored to specific roles in AI foundation, providing the structure, rescaling experience, enterprise need for systematic workforce transformation.

Speaker 2

Companies that aim to build a thriving organization that fully leverage the power of AI will need to enable seamless collaboration, only between agents and people, but between agents themselves. They will also need to learn how to manage and train agents, turn agents into cultural ambassador, and ensure agents uphold the company value. We are positioning Udemy at the forefront of the AI revolution, by becoming one of the first learning platform to integrate two groundbreaking AI protocols. Google's agent to agent protocol, and Anthropic model context protocol. The model context protocol transforms how learning leaders interact with our platform, allowing them to use natural language to design, deploy, and measure learning programs, ultimately reducing what used to take weeks to literally minutes.

Speaker 2

Meanwhile, the agent to agent protocol enables AI systems to collaborate seamlessly, creating powerful workflows where specialized AI assistants can work together to support both learners and administrators. By providing structured, role specific AI training for all employees, and embedding these protocols, we are creating significantly deeper integration with our customer strategic objective. This approach dramatically enhances our platform stickiness, and we become embedded in their AI transformation strategy. While Udemy has established a foundation in the AI powered workforce upskilling space, we have work to do in order to fully capture that opportunity. We need to significantly enhance how we market our platform and AI capabilities, clearly articulating our differentiated value proposition to both individuals and enterprise.

Speaker 2

I'm also driving a company wise mobilization around the subscription first priority, and we will transform our digital experience to better serve the distinct needs of our customers. We expect these initiatives will unlock growth in 'twenty six and beyond. This is why we are continuing to invest strategically in our platform, AI capabilities, and enterprise solutions. We are positioning Udemy to thrive in any environment, including the next wave of workplace transformation that will define organizational success for years to come. Bottom line, we have an opportunity to fundamentally reshape the rescaling industry in a way that no other player can match, and that is what has me so excited about being in this role.

Speaker 2

Thank you for the opportunity to earn your trust, to lead this company, and to achieve that goal. I look forward to getting to know you all, and appreciate you being with us on this exciting journey. With that, I'll now turn it to Sarah.

Speaker 3

Thank you, Hugo. I'll cover the key financial highlights and our outlook. Full financial tables are available on our Investor Relations website. As we move down the P and L, note that all financial metrics other than revenue are non GAAP unless stated otherwise. Before I dive into the results, I want to remind everyone that we are in a transition year.

Speaker 3

We completed a restructuring in the back half of twenty twenty four, pulling significant capacity out of our SMB team. While that creates pressure on the top line growth, we continue to deliver meaningful margin expansion. We had a strong Q1 and Q2 is also shaping up nicely.

Speaker 4

That being said, we do

Speaker 3

think it is prudent to be conservative in our outlook in the second half for the top line given the external uncertainty. We remain confident in our ability to execute against our key priorities through this transition, while continuing our track record of delivering year over year adjusted EBITDA expansion, which we've done successfully for the past ten quarters. Our focus on operational efficiency puts us in a position to raise our expectations for adjusted EBITDA for the year despite a more conservative top line. Starting with Q1, quarterly revenue surpassed $200,000,000 for the first time and adjusted EBITDA exceeded expectations. U2B Business annual recurring revenue or ARR was $519,000,000 up 8% from a year ago.

Speaker 3

ARR from large customers increased by 9%, and we closed over 40 new business deals during the quarter with north of $100,000 in ARR as we continue to focus upmarket. Udemy business revenue was $128,000,000 an increase of 9% year over year, including a one percentage point headwind from changes in FX rates. The year over year growth was primarily driven by the increase in enterprise customers. New logo acquisition and net dollar retention experienced some pressure this quarter, as expected, primarily due to our strategic go to market shift and reduction in sales capacity. We added approximately 120 net new Udemy business customers, increasing our global customer base by 7% year over year to more than 17,200, including 5,700 large customers, up 9%.

Speaker 3

Our consolidated net dollar retention at quarter end was 96%, while the rate was 100% for large customers. These metrics do not come close to reflecting the significant expansion opportunity that is embedded within our existing customer base. Udemy has penetrated less than 10% of available seats, giving us extraordinary headroom for growth with minimal incremental customer acquisition costs. We are doubling down on this opportunity, and earlier this week, we announced the appointment of our first ever Chief Customer Experience Officer, Niraja Tejakunabud. Niraja brings in unparalleled expertise from customer success leadership roles at Asana and fourteen years at Salesforce.

Speaker 3

She has a solid track record for building world class expansion and retention engines. This is a strategic move that underscores our commitment to capturing that opportunity and increasing customer penetration. Turning back to the results, gross margin for our Udemy business segment came in at 75% for the first quarter, up 300 basis points from the year prior. This improvement is primarily due to a reduction in content and customer success costs. For the Consumer segment, revenue was in line with our expectation at $73,000,000 or down 8% on a year over year basis, including a negative three percentage point impact from FX.

Speaker 3

Despite pressure, Personal Plan subscriptions continue to gain traction, and revenue from this offering has grown to approximately 13% of the segment's total revenue. Over the past few years, we've had a transformative shift in our revenue composition toward a more predictable subscription based model. Subscription revenue across both segments now accounts for 68 of our total, representing a 500 basis point expansion year over year. When I joined Udemy just four years ago, that mix was only 29%. This significant growth in subscription revenue increases visibility and contributes to gross margin expansion and improved unit economics.

Speaker 3

Q1 total company gross margin was 65%, a 300 basis point improvement from Q1 twenty twenty four. The improvement was driven by the change to content costs as well as the continued revenue mix shift to Udemy business, which accounted for approximately 64% of total revenue in the quarter, an increase of 400 basis points year over year. Total operating expense was $160,000,000 or 58% of revenue, 400 basis points lower than Q1 of last year, driven primarily by our cost savings initiatives. On the bottom line, we delivered net income of approximately 18,000,000 Adjusted EBITDA was approximately $21,000,000 or 11% of revenue, representing a nearly 800 basis point expansion year over year. The better than expected result was driven by our revenue outperformance and ongoing focus on operational efficiency.

Speaker 3

Now turning to our balance sheet and cash flow metrics. We ended the quarter with $358,000,000 in cash, cash equivalents, restricted cash and marketable securities, and free cash flow for the quarter was 7,000,000 Our free cash flow for the quarter was impacted by the timing of collections and payments associated with restructuring. We expect significantly higher free cash flow in the second quarter. Our solid balance sheet and cash flow allows us to maintain a long term perspective and to make disciplined investments in areas that will drive sustainable growth and value for all stakeholders. Now for our outlook.

Speaker 3

Since the start of Q2, we have seen an increased level of uncertainty, particularly related to recent geopolitical developments. While we have not yet seen a material impact to pipeline build or conversions, it is prudent to expect that these dynamics may contribute to a more cautious spending environment and decrease consumer confidence. Therefore, our outlook bakes in a healthy degree of conservatism on the top line while raising our outlook on the bottom line. The primary factor contributing to our more conservative top line guidance for the year is softer than expected performance in our Consumer segment. We have already begun taking action to address Consumer segment performance while simultaneously accelerating go to market initiatives.

Speaker 3

Within our Udemy business segment, we are maintaining a cautious stance given the broader macroeconomic indicators. We are closely monitoring certain focus verticals that may experience greater spending caution, particularly IT consulting firms with exposure to federal government contracts and manufacturing organizations impacted by tariff related uncertainties. We will strategically focus resources toward verticals showing the strongest demand signals, ensuring we optimize our growth potential. From a regional perspective, we are expecting potential headwinds in North America and EMEA, where economic signals are mixed, while maintaining a more optimistic outlook for APAC and Latin American markets, where we continue to see healthy growth opportunities. From an operational standpoint, we remain focused on what we can control, particularly our cost structure and capital allocation discipline.

Speaker 3

The $50,000,000 in annualized cost savings we implemented over the past few quarters provides us with additional resilience to navigate any potential headwinds, while continuing to make investments that advance our strategic priorities. With all of that in mind, we expect second quarter revenue to be between $195,000,000 and 199,000,000 representing a 1% year over year increase at the midpoint. Assuming exchange rates remain constant, FX is expected to negatively impact Q2 revenue growth by 150 basis points. The midpoint of the guidance implies U2E business revenue increases approximately six percent year over year, including a negative impact of 50 basis points from FX, while consumer revenue would be down 7%, including a negative 300 basis point impact from FX. On the bottom line, we expect to deliver adjusted EBITDA of 22,000,000 to 24,000,000 or approximately 12% of revenue.

Speaker 3

For full year 2025 revenue, we now expect to be in the range of $772,000,000 to $794,000,000 representing a slight 50 basis point year over year decline at the midpoint, including a 100 basis point headwind from FX. The midpoint of the guidance implies due to business revenue increases approximately 5% year over year, including approximately 50 basis points of headwind from FX. For Consumer, the midpoint of guidance implies revenue for the year to be down approximately 9% year over year, including a negative two fifty basis point impact from FX. On the bottom line, we increased our full year adjusted EBITDA range, as we now expect to deliver $77,000,000 to $87,000,000 or approximately 10% of revenue at the midpoint. This guidance reflects our unwavering commitment to operational discipline.

Speaker 3

We have built multiple levers into our operating model that allow us to adjust as needed while protecting our investments in key growth initiatives. This balanced approach to financial management has consistently enabled us to meet or exceed our profitability targets, and we remain confident in our ability to continue delivering meaningful margin expansion. To summarize, we had a great start to 2025. Although we are being prudent about our outlook for the year, we remain as excited as ever about the long term opportunity. Throughout 2025, we will focus on executing the strategic initiatives that will position Udemy to reaccelerate growth and drive further margin expansion.

Speaker 3

We look forward to keeping you updated on our progress. So with that, we'll open up the call for your questions. Moderator?

Operator

Ladies and gentlemen, at this time we will begin the question and answer before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you may press star and two. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Ryan MacDonald from Needham and Company. Please go ahead with your question.

Speaker 5

Hi, thanks for taking my questions. And Hugo, welcome. Maybe to start with can you just maybe dig a little deeper into sort of maybe some of the key observations you've had over the first sort of your first forty five days of tenure here? And then obviously we're still sort of putting together the long term vision, but talked about some priorities. But maybe just in the near term, over the next ninety days in the quarter here, what are your main priorities?

Speaker 5

Thanks.

Speaker 2

Thank you. Thank you, Ryan. As I've said, I could not be more excited. I was excited before joining. I'm excited now that I've spent time with our customers, our instructor, our partners, and our employees.

Speaker 2

And I'll give you a couple of, for example, I ended up spending three days in The UK at a PowerUp event. We had 100 customers, and I was just struck first by how much these customers and prospects are really keen on our success, are really deep in the understanding of what we can do, but also seeking our help. And in particular, one thing that has become very apparent, and was not apparent six months ago or a year ago, is yes, AI has been around for a while, but now every L and D leader, every chief people officer, every CHRO is being tapped on the shoulder by other members of the C suite, their CEO to say like, we need an AI transformation. We need to be AI first. You know, design a program to get us there.

Speaker 2

And it's not easy. It's not just turning ChatGPT on and then hoping for the best. You need to kind of design the program. And I think here we're really well positioned. We've got like a lot of content.

Speaker 2

What we haven't done, and this talks a bit to the opportunity, is we haven't merchandised package and told the story effectively. So that's a near term opportunity we have. We have more content, more experience, more proof point of value delivery. We just need to kind of package it better. And we're pushing really, really hard to do that in earnest, even as we speak right now, there's a full blown initiative to try to do that better to seize the opportunity.

Speaker 2

So that's one example. The second one is the consumer learner is taking over a lot more ownership of their career. They see the uncertainty in the market, they see the impact of AI, and they want to be in charge. And it has nothing to do with anything I've done, but coincidentally, we have these career accelerators that are showing up right at the right moment. So I'm very excited to see the impact that's going to have on our business moving forward.

Speaker 2

And it gives us an opportunity to lean in more. This is a change. We're Our business on the consumer side has been very, very anchored on transaction. And I think we now have an opportunity to be the companion, the coach, the tutor of our consumer and help them through these career transitions or these career growth. So a really nice opportunity.

Speaker 2

A third one is we have distribution. We serve 17,000 enterprise, almost 6,000 large enterprise. And we have intimate relationship with many of them. We're helping them through their reskilling journey. We're providing them useful outcomes.

Speaker 2

But we haven't leveraged that to partner with others. So I think a big opportunity is third party and then bringing them along. That's going to take a bit longer to realize. This is not an easy lever to pull, but I'm excited by the power that this can bring to our platform and then to our customer relationship, creating more stickiness. The fourth one, and sorry for the long answer, it's such an important thing.

Speaker 2

I mean, our roadmap, when I was considering joining Udemy, I spent a lot of time trying to understand what we were doing. I looked under the hood. I was very impressed. We were already doing some really important pivot to bring a lot more AI and refresh our two sided marketplace. And now that I'm here, I'm seeing it more closely.

Speaker 2

I'm even more excited. And then we've made some very, very strategic bets. One of them, the role play, and the way we're doing the role play is going to be very revolutionary, very different than what others are doing. We're giving our instructor AI tools to create role play. And because we have this ecosystem of instructor, we can scale this fast.

Speaker 2

And I just want to give you an example that is an incredibly exciting one. We've made this available yesterday, we've pre populated the role play with 32. 20 four hours later, we got 200. That's the power of the ecosystem. That's the power of the instructor network at play who are seeing this as an opportunity for them to enhance the value that they deliver to make their program, their classes, their reskilling journey more meaningful.

Speaker 2

And I'm really excited to see what we're going to be able to do. And we've got more of those along the way. So a long way of saying, I'm really, really excited about the opportunity. We do have things that we need to change in the near term. I've mentioned the merchandising and the packaging of our AI, our existing AI.

Speaker 2

I've mentioned subscription, putting more emphasis on that. And I want to come back to something Sarah said, we have not fully captured the opportunity with our existing customer in terms of expansion. And I'm so excited. I've worked with Niracha in the past. She is incredibly strategic.

Speaker 2

She brings in wealth of experience. She's seen the movie at a different scale. And I thought it was really important to make that happen immediately or as quickly as possible. So I'm excited to see what we're going to end up doing throughout the rest of the year with her leadership.

Speaker 5

Excellent. Excited to see how that all develops, I appreciate all the color there. Sarah, maybe just one for you following up on the updated guidance. Certainly makes plenty of sense being prudent in the given the market uncertainty right now. But as we look across the two segments consumer and UB, on the consumer side, are you building in any assumptions for contribution from the new career accelerators?

Speaker 5

And then on UB, it seems that UMB obviously does very well in these content consolidation situations. Are you seeing any signs of sort of a pickup in RFP activity looking for more consolidations? What do win rates typically look like in those scenarios? Thanks.

Speaker 3

Yeah, thanks for the question, Ryan. So a few things. On the consumer side, we do expect the career accelerators to be very exciting for the learners out there, but we wanna be prudent. The majority, as you know, of our consumer revenue today does come from the transaction side of things. We're making meaningful progress in subscription and Hugo has kind of reshifted our emphasis to subscription first, So that's really exciting, but the majority is still transactional.

Speaker 3

And so just when we're thinking about the rest of the year, there is some macro uncertainty, consumer sentiment is weaker than it's been in a while. And so there could be some spending impact that could offset what could come from those career accelerators. And we're just getting started on those. We are gonna be releasing career accelerators throughout the year. So, just being balanced with the pros and the cons of those two sides of the coin.

Speaker 3

On the UB side of things, we certainly are hearing and continue to hear, would say this is not necessarily new right now, but we have been hearing about consolidation. We have been seeing the RFP volume looking for one consolidated reskilling platform and we know that that is good for Udemy because of our breadth, because of our depth, because of what we can deliver. And at the same time you heard Hugo talking about, it's the consolidation and now what we're hearing more and more is this strong need for AI skills, so that companies can AI enable their workforce and take advantage of what AI can do for them. So, very excited about what that means for us. And I think just being very balanced in how we view what some multiple scenarios that could play out in the back half of the year.

Speaker 2

Let me just add one thing, and again, it comes from the customer conversation. The uncertainty in the context right now certainly is leading to more questions, some pressure, And I think in many cases, good question around why do you have so many providers that have overlapping skills, Mr. Or Mrs. L and D leader? And I love that.

Speaker 2

I want that to happen more often because I love our chances. We really have the better model. We have more breadth. We have freshness. And we're gonna be seizing those opportunity to facilitate this consolidation and be a partner.

Speaker 2

We have better demonstratable ROI. So I think that's a trend that, you know, I don't like the fact that the decision making is maybe stalled, elongated, but I like the fact that they're considering consolidation because when that happens, it plays to our strengths.

Speaker 5

Awesome. Appreciate all the color there.

Operator

Our next question comes from Jason Tuchin from Canaccord Genuity. Please go ahead with your question.

Speaker 6

Yes. Good afternoon. Thanks for taking the question. Just a bit of a follow-up there. I'm wondering if you could share a little bit more about some of the conversations you've had with enterprise customers that are sort of in the pipeline already or customers that you're looking to sort of expand, seats and licenses at, how those have evolved over the past few months and how those conversations have changed, that would be really helpful.

Speaker 6

Thanks.

Speaker 2

Yeah, thanks Jason. You know, I have forty five days of history here. Obviously prior to being here, I was still talking to roughly the same people, so I've got multiple years of experience with the space. A few things I'd call out. The first one I've already mentioned, there is a bit of uncertainty.

Speaker 2

It does lead to more question, elongated RFPs, and that's not surprising that will happen in all categories. The second is, there's a lot more question on consolidation, and I love that. I love that. Please keep asking those questions. The third one is I'm also observing that the question of ROI, you know, what's the value we're getting from all this spend is coming more and more often.

Speaker 2

And it's forcing L and D leaders, CPO and CHRO, to engage with the business around business outcomes. And I think that plays really well to, again, the platform, the type of classes and types of reskilling that we're delivering. I'll give you one example of an incredibly large financial institution. We just closed an expanded deal. We triple the size of the account.

Speaker 2

We cover 70% of the employees and we were able to demonstrate that employees who follow certain learning path, reskilling path, had a 12 increase in retention. Imagine the value that you can articulate if you're an L and D leader or a CPO to the business and say, hey, the fact that I'm spending this money on Udemy is leading to better retention, We don't lose the expertise. We don't need to go spend money on hiring. We don't need to retrain them, yada yada yada. So what this environment gives us is an opportunity to team up with our customers and connect the dots more clearly between attrition or onboarding or promotion rates or specific business outcome and the work that they do on our platform.

Speaker 2

So I think at a macro level, those are the sub three, and then I'll wrap up with the one I've touched on at the beginning, is there is right now a real set of questions around help me with AI fluency. It's not just the dev and the IT department, it's the whole organization. And I need the frontline workers in a retail environment, I need the call center agents in a financial institution, I need the legal department, And that creates real opportunity because historically, Udemy was very strong in certain areas. Now we can go and surface the whole organization. And to do that effectively, it's not a question of content, it's a question of packaging and going to market in the right way.

Speaker 2

So I'm very excited about that opportunity as well. It will take a bit of time as we kind of retool some of our motion, retool some of our marketing, retool some of our packages. But that kind of means going back to our existing customers that we already serve very well in certain areas and say, you know, we haven't offered anything around AI fluency to the frontline workers, to the back office worker, to XYZ. And we now will have a much tighter story and a set of packages that meet those specific needs.

Operator

Our next question comes from Terry Tillman from Truist Securities. Please go ahead with your question.

Speaker 6

Yes. Thanks, Hugo, Sarah. Well, first of all, welcome, Hugo. And hi, Sarah and Dennis. It's interesting in terms of talking about the shift of the focus to consumer subscriptions.

Speaker 6

You haven't been doing so bad without maybe not as much focus as you could have. I think it was up 40% year over year and it's now 13% of that revenue segment. What I'm curious about is, Sarah, you talked about like in the second half being prudent in terms of conservatism. But if you all do kind of shift the focus and focus more on consumer subscriptions, couldn't that have kind of a more immediate payback versus shifting focuses on the enterprise side? I assume that's a quicker time to return on investment.

Speaker 6

I'm just kind of curious how you think about the second half on the consumer subscription side considering you're leaning in. Thank you.

Speaker 3

Yeah, it's a great question. Listen, it could. It could also have a little bit of an impact on GMV when you think about a lot of the learners who come on and they purchase a few courses initially as part of the transactional model. And so some of that GMV and some of that revenue could actually be delayed a little bit. So listen, we're hopeful, we're excited, there's a ton of opportunity, especially coupled with the career accelerators and the timing in which we're making this shift in focus to career.

Speaker 3

The push for subscription, it is the right time. I would add to that the capabilities and what we can deliver from a personalized learning experience, you can't really do that on the transactional side in the way we can on the subscription. So we have a lot of optimism and at the same time, there is some uncertainty. We cannot control that external environment. Our heads are down.

Speaker 3

We're going to continue running hard. We're excited with the 40% subscription growth, but we want to keep driving that.

Operator

Our next question comes from Josh Fair from Morgan Stanley. Please go ahead with your question.

Speaker 7

Great. Thanks for the question. Welcome and congrats Hugo. I wanted to stick to consumer. I'm just wondering if you could expand a little bit on this push around consumer subscription.

Speaker 7

What changes should we expect to see? Is there changes in pricing, packaging or marketing efforts? How do you go about the focus there?

Speaker 2

Yeah, Jeff, thank you. Great question. It's yes on all of the above. I think that's kind of the main point. We're, you know, they ask, and this is already stuff that's in motion, is let's reimagine the business if this was the thing that we had.

Speaker 2

It doesn't mean that we don't do transactions, we don't do what we've historically done. I just want the organization to rethink and reimagine a world where this is the product. And there's lots of things we can do. A, it's like the positioning on our website. It is the merchandising on our website.

Speaker 2

It is creating different subscription models, not just the one that we currently have. It is doing different marketing and different value proposition positioning. I think we've got a great story vis a vis some of others who do subscription. Our base subscription has three times more classes. That's really advantageous, and it's very exciting.

Speaker 2

And we think we have a lot to offer. So the answer is a lot of merchandising, blocking and tackling. There's going to be pricing, things that we're going to end up doing also. All of that onto the come, because we're like in the middle of that, but we're pretty excited. As Sarah has mentioned though, we're trying to be cautious because we do have right now a customer base that comes expecting transaction.

Speaker 2

They've been conditioned in a certain set of behavior. So we need to kind of be very thoughtful how we migrate, and make sure that we don't affect the top line too much. So I think we know there's going to be puts and takes. We're going to do a lot of AB testing, a lot of experimentation. But we're going to push on that and see how far we can go.

Operator

Our next question comes from Yi Sun Li from Cantor Fitzgerald. Please go ahead with your question.

Speaker 8

Thank you for taking my question. Welcome, Hebo. And hi, Sarah. So my question is revolving around AI. It sounds like Udemy is going full force with the AI opportunity.

Speaker 8

You guys know you guys have the content. I was wondering, like Hugo and Sarah, like, how much of an upsell cross sell is the AI opportunity? Meaning, like, when you go to a deal, how much contribution is from the AI? And how would you package that with the new Chief Customer Experience Officer now in place?

Speaker 2

Yeah, great question. Listen, there's everybody, not just in this industry, across industry, we're all learning our way through this AI. You've seen other players come with big price, change the price. I'm not going to claim that we've figured it out, but to answer more directly your question, we have with our existing motion, with our existing customer, which is often targeted at certain types of persona, we have AI often at the center of the conversation, and it's included in UB Enterprise. You know, just kind of like to be very direct, that's kind of an existing motion.

Speaker 2

What we're going to end up now doing is packaging more targeted versions of this that doesn't have all the other stuff around certification and business leadership otherwise, and say, hey, here's a package that is AI specific that you can offer to other persona in the organization at a different price. So what we're now doing is we're like targeting different parts of the organization with very, very targeted package of AI capabilities. So that's kind of one dimension of the play. The second is we're going to explore what we can and should do to enhance Pro, which is a different cue, and give certain types of AI content in one versus the other. And then we may have an AI premium version of the UB Enterprise.

Speaker 2

I mean, again, no decision is being made, it is, I'm giving you a sense of like, are lots of different ways we can decide to monetize what we're doing. And then I'll finish with the role play. We think it's pretty exciting. Right now, we're embedding it in UB Enterprise. There's no reason why in the future, some of the role play may deliver sufficient value that on a standalone, it is sufficient.

Speaker 2

And we're going to keep our eyes open for monetization opportunities like this one. Thank you.

Operator

Our next question comes from Nafisa Gupta from Bank of America. Please go ahead with your question.

Speaker 4

Thank you. So first on the consumer softness that you mentioned, is this more geography specific that is more in North America, US, or do you see that across? And and this pertains to, like, revenue per your MAU going down versus your MAU going up. Will we continue to see that?

Speaker 3

Yeah. Great question. So there's there's two aspects. One is we did see some price sensitivity in North America and in EMEA, and that contributes to the ASPs for those learners. Also, continued mix shift toward lower ASP regions within the consumer base is also contributing to that.

Speaker 3

So there's a geographical mix and then there is also some price sensitivity. And we think just looking at the back half, that could continue particularly in North America.

Operator

Our next question comes from Noah Herman from JPMorgan. Please go ahead with your question.

Speaker 5

Hey, thanks so much for taking the questions and congrats to Piyusho in the new role. Obviously, Udemy has put in motion a lot of change on the sales side. Could you maybe talk about what portion of the changes that are already rolled out in the last couple of quarters are kind of starting to take hold now? And which specific areas do you think you might need incremental changes near term? Thank you.

Speaker 2

Thank you, Noah. At the macro level, I just want to reiterate that we're going to continue with the strategy as is, because it is a good strategy. It is a strategy, if I had joined six months earlier, I would have recommended. And I'm very, very excited by our focus on the large enterprise, our focus on the five verticals, our focus on value selling, our focus on the land and expand set of motion. I think that's all good.

Speaker 2

And a lot of it takes time, right? When we move to the large enterprise segment, selling cycles are longer. We also needed to change a lot of some of the players that were not necessarily equipped to operate as a large enterprise AE or account team. So we've done all of that, and we're seeing some early benefits. There's some things we can point to, like some of the productivity measures, and we are pretty excited by that.

Speaker 2

But again, this is going to play out through the year, and I thought the team was appropriately conservative in setting up that part of the business. I think where the difference can be done in the near, near, near term, and those are the tweaks. It's like it's the same frame. The way we execute, there's even more opportunity. And I've touched on a few of them.

Speaker 2

One is the packaging, the pricing, the merchandising. I think there's some real opportunities there that are very good. The second one is bringing Niracha and helping us again on the expansion motion and then helping us, there's a lot of nuance there that we haven't gotten to yet. And I think, I just wanted to pull that forward. You know, like we don't need to wait for an eighteen month transformation.

Speaker 2

I want to make it happen sooner. And she's seen the movie. She's got a wealth of experience, and we're going try to put in place some of these capabilities immediately so that we can reap the benefit sooner.

Operator

Our next question comes from Jeff Meuler from Baird. Please go ahead with your question.

Speaker 6

Yeah, thank you. On the partner talk and asking given the background, how are you thinking about, I guess, HCM SaaS partner opportunities? Or is there another, I guess, broad category of partner opportunity that you think the company is historically under exploited? Thank you.

Speaker 2

Great question. Thank you. The answer is a very expansive definition of partners, which includes HCM, but includes others. I'm more used to a lot more of a rich ecosystem of partners that are supporting selling motions, that are making delivering the value with our customers even more rich, that creates better stickiness. So we need to kind of go through all the usual suspects of partners with whom we can sell through, sell with, and ways to create better together value proposition.

Speaker 2

There's ISVs, all of the above. I think this is an untapped not untapped is unfair. We have some of it already, But I think we have so much more we can do that I'm excited to start the journey. We're going to I'm not promising that this is a near term impact, but it takes real time to put this in place, put this in place in the right way. But I'm really excited by what this can deliver in 2026.

Operator

And our next question comes from Devin Au from KeyBanc Capital Markets. Please go ahead with your question.

Speaker 9

Hi. Yes, just one quick clarification question. I wanted to ask about net dollar retention with the newbie. I think, Sarah, you mentioned SMB has kind of dragged the overall NRR downticking quarter over quarter. But if I'm looking at the large customer net dollar retention, I think that might have downtick a little bit more so than the overall average.

Speaker 9

So, just kind of curious if you can share more color on what's driving that? Have you seen increased churn, greater down sell pressure, or is just expansion activity continue to be subdued in that category? Thanks.

Speaker 3

Yeah, thanks for the question. So, there's two parts of it. One is we did see a one point drop in gross dollar retention that we were not expecting. The other side of it is on the upsell. The sell is impacted by those changes to the sales organization that we spoke about and then ramping those reps up as we move them around and or brought new folks in.

Speaker 3

And so both of those are contributing to it. We're super excited to have Naracha, who is on board. She's in the office this week. Because we have such a massive opportunity within our 17,000 customers being less than 10% penetrated. And so having here to help us unlock that coupled with what we're doing around the AI, merchandising and pricing and packaging, lots of opportunity in the net dollar retention side.

Operator

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to Mr. Sarazin for any closing remarks.

Speaker 2

Well, first of all, thank you for joining today. Excited to be on the journey with you. We look forward to connecting again for our Q2 call in August.

Operator

And ladies and gentlemen, the conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

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Earnings Conference Call
Udemy Q1 2025
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