Udemy Inc (UDMY) 2024 Q4 法說會逐字稿

Good day and welcome to Udemy's fourth quarter and full year 2024 conference call.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Dennis Walsh.

Please go ahead, sir.

Thank you, Chuck.

Joining me today are Udemy's Chief Executive Officer, Greg Brown; and Chief Financial Officer, Sarah Blanchard.

For this call, we will also be joined by Udemy's Founder and Chief Technology Officer, Eren Bali.

During the conference call, we will make forward-looking statements within the meaning of federal securities laws.

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

For a complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

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 conference call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with US 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 on the website.

With that, I'll now turn the call over to Greg.

Thank you, Dennis, and good afternoon to everyone on the call.

Udemy ended the year strong with results that beat expectations across all key metrics.

We delivered full year revenue growth of 8% year-over-year, which includes 2 points of headwind from FX, and adjusted EBITDA came in significantly above the high end of our guidance range.

This performance reflects the disciplined execution of our strategy and our relentless focus on operational efficiency.

As we close out 2024, I'm proud of the Udemy team for their invaluable contributions to the momentum we have built and the foundation we've laid for the future.

There is still work to be done.

And although 2025 will be a transition year, we're confident that we have a clear plan to capture the significant opportunity in front of us and reaccelerate our growth.

Looking back at 2024 reminds me of our partner, McLaren's incredible journey to winning Formula One's 2024 Constructors Championship.

Just as McLaren continuously adapted to challenges and introduced bold innovations, we too embrace change, refined our strategy, and are leaning in to accelerating product innovation.

In F1, success is all about agility and precision, whether it's making critical pitstop decisions or deploying game-changing technology.

Similarly, in our business, adapting to market dynamics and staying laser-focused on delivering value for our customers is crucial.

Both partners' journeys underscore the importance of resilience, innovation, and the willingness to adapt to change in order to cross the finish line as a leader.

Recognizing that it's how you execute and evolve that will ultimately define success, Udemy embarked on a strategic transition over the past few months to refocus our resources upmarket to better serve our large enterprise customers.

We firmly believe our approach to focus on these highest return opportunities is the right one and is the most impactful way to drive long-term growth and value creation.

This shift aligns with the evolving demands of the market, where large enterprises are prioritizing scalable, comprehensive solutions to meet their business needs.

Today, I'm pleased to share early signs of progress on the execution of our strategy.

ARR growth from large enterprise customers was 4 points higher than ARR growth from SMB customers, and we closed nearly 50 deals over $100,000 in ARR, the most for any quarter this year.

Further, large enterprise customers continue to show higher retention rates compared to SMB customers, while upsell and cross-sell opportunities within this cohort are yielding tangible results.

Analog Devices, Arm, Nasdaq, and Kellanova are just a few examples of large enterprises that we added as new customers or expanded relationships with during Q4.

These early results are promising.

We are deepening our penetration into this market segment where the unit economics are stronger and are solidifying Udemy's position as a leader in shaping the future of work around the world.

Large enterprises also understand the urgency of upskilling their teams to stay competitive, especially in the face of rapid technological advancements like generative AI.

Business leaders recognize that AI has the potential to rapidly reshape their companies, industries, and the future of work as a whole.

And now they are turning to Udemy to support their plans to develop and implement holistic AI and upskilling strategies.

According to the World Economic Forum's 2025 Future of Work Report, approximately 80% of companies plan to reskill and upskill their workforce over the next 5 years to take advantage of the power of AI.

Further, workers can expect that, on average, approximately 40% of their existing skillsets will be transformed or become outdated by 2030.

As organizations begin to scale their AI projects to optimize processes, enhance decision-making, and drive growth, workers will be required to quickly develop proficiency.

Udemy is uniquely positioned to help close the skills gap by empowering both enterprises and individual learners with tailored learning paths that align with AI's rapidly evolving role in the workplace.

Our recent data illustrates this point, showing a nearly 10x increase in generative AI course consumption on Udemy in 2024.

While AI capabilities unlock immense potential, it's soft skills like leadership, creativity, and communications that will determine whether individuals and organizations thrive.

To that end, Gartner reports that 85% of business leaders expect the need for soft skill development to increase significantly in 2025.

For enterprise leaders, the challenge will be equipping their teams with technical proficiency and fostering the soft skills needed to navigate complex AI-enabled environments.

Udemy's platform addresses both needs, offering a holistic approach that combines technical and soft skills development.

We're incredibly well positioned to meet this moment, and we're starting from a position of strength.

Our unparalleled marketplace is a unique collection of the most relevant professional skill development content for the most in-demand topics.

Every day, learners from more than 17,000 businesses worldwide are actively engaging with our curated content, rating and reviewing it, sharing outcomes, and signaling demand for new skills as emerging technologies are introduced.

This creates a dynamic flywheel that empowers individuals and organizations to build skills at the pace of change.

Udemy's speed-to-market advantage to address skills needs is unmatched and will solidify our position as the go-to skills development destination for professionals and enterprises alike.

As a recent example, DeepSeek AI made a big splash last month.

The unprecedented rise of DeepSeek shows that innovation is not slowing down.

It's accelerating.

Just a few days after its models were released, Udemy had more than 10 DeepSeek courses across multiple languages, and we did not see any from our leading competitors.

Content is the foundation upon which Udemy was built.

We will combine this with the scale of our marketplace and AI-enabled learning experiences to lead the next generation of learning and skills development.

Soon, every learner, no matter where they are, will have access to the equivalent of an expert guiding them through their career and upskill journey.

Before I wrap up, I want to outline our strategic priorities for 2025.

First, we're allocating resources to our large enterprise customers where we see the greatest opportunity for growth and the highest returns on our investments.

By focusing our efforts on this cohort, we can leverage our platform to deliver strategic impact at scale.

As we said last quarter, we will continue to support our existing SMB customers, and we'll be more efficient in pursuing new SMB customers.

Second, with only about 10% penetration, we're prioritizing deeper engagement with our existing large enterprise customer base.

Many of these customers have only begun to scratch the surface of the value that Udemy can deliver, and our goal is to help them unlock the full potential of our platform.

This includes expanding adoption across departments, delivering AI-powered role-specific learning paths, and deepening relationships with decision-makers to drive higher renewal rates and upsell opportunities.

Third, we will continue to support growth through strategic partnerships.

Strengthening our global distribution capabilities, opening new routes to market, and offering additional ways to access the Udemy platform are all essential components of this strategy.

Fourth, we're revitalizing our consumer marketplace, which remains a critical part of Udemy's unique value proposition and fuels the growth of Udemy Business.

While this segment is facing headwinds, we're poised to be the go-to destination for career development.

We're taking decisive action to return this segment to growth in an efficient way.

The work we're doing to focus the learner experience on career development will be impactful across both consumer and Udemy Business segments.

Finally, we will continue to drive operational efficiency across all areas of the business to ensure we maintain our durable business model and the ability to respond to evolving market dynamics and invest in our future.

In 2024, we executed on a $50 million cost savings program, which is already driving increased profitability and giving us flexibility to make targeted investments in our product roadmap and will accelerate our growth.

These 5 priorities represent the pillars of our strategy for 2025.

We're as excited as ever about our future.

Udemy is well positioned to harness the power of AI throughout our platform, and we're confident that our efforts and product roadmap will enable us to capture the immense opportunity ahead.

We've taken some hard but important steps, and 2025 represents an important transition year that will enable our next chapter of success.

We're thrilled to have our founder, Eren Bali, back at Udemy in the role of Chief Technology Officer and on our call today.

His visionary approach and deep understanding of our platform make him the perfect leader to accelerate product innovation.

Eren created the foundation that makes Udemy so unique.

And now with the power of generative AI, he's poised to take the learning experience to an entirely new level.

And with that, I'll now turn the call over to Eren.

Thank you, Greg.

I'm really excited to be back at Udemy, and even more excited about where we are headed.

As you may know, I was on the Board of Udemy for the whole time.

So I want to give you some color on why I rejoined Udemy with an operating role.

Every decade or so, industries go through a fundamental transformation.

In early 2010, Udemy led one of these transformations alongside a few of our peers by simply making online courses widely accessible.

Even though on-demand courses aren't necessarily the most effective way to learn for everyone, they work because they were incredibly scalable and affordable.

The online education industry did know that the most effective way to learn is one-on-one personalized training.

It outperforms one-to-many training by two orders of magnitude, which is known as the Bloom's two sigma problem.

But technology wasn't there to make that available to everyone.

But things are changing.

We are about to enter a new era of learning, one defined by AI, personalization, and immersive experiences.

Soon, every learner, no matter where they are, will have access to the equivalent of a top expert in the world sitting next to them and guiding them through their learning journey.

I came back to Udemy to make sure we lead this transformation, just as we did the last one.

It's been 4 months since I rejoined Udemy.

And since then, we have streamlined all product development, design, and content teams under me to accelerate execution.

We have an ambitious product roadmap for 2025, probably the most ambitious in our history.

Today, I want to highlight 3 key themes: leveraging the power of our marketplace model to scale assessments and hands-on learning; becoming the go-to destination for career advancement and investing in interactive learning for soft skills.

I want to start with our marketplace model, which is what makes Udemy unique in the online education space and something no other competitor has been able to replicate so far.

While most companies in our space operate as content publishers, we have built an instructor-driven marketplace with more than 80,000 subject matter experts.

They are continuously creating and updating content, which gives us a major advantage in both breadth and freshness.

But modern learning experiences require more than just content.

It is equally important to incorporate assessments and hands-on practice to reinforce learning.

Developing hands-on learning environments and skill validation assessments is a little bit more complicated.

So historically, we followed the publisher-style approach to building them.

However, we have seen firsthand that when we provide instructors with the right tools and the right data, they can produce at a scale and quality that we cannot match.

In the same amount of time it took for us to build 20,000 questions for in-house produced assessments, our instructors created 8 million questions.

Similarly, instructors built 15,000 coding exercises in the same time it took us to develop a few hundred development labs.

This year, we are doubling down on the marketplace-first approach by enabling our instructors to create hands-on learning labs and assessments into their courses.

This will dramatically scale assessment and practice coverage for Udemy in a way no competitor can match.

And we will leverage AI to make this even more frictionless.

The second thing I want to talk about is career-oriented learnings.

Right now, Udemy is the go-to destination for professionals who know exactly what they need to learn.

If you want to learn Kubernetes, Figma or financial modeling, you can find the course that fits you, and you are good to go.

But if you want to become a game developer, a financial analyst, or a cloud architect, it's not obvious where you will start.

Our vision is to make Udemy the most intuitive and the least intimidating place to begin a new career journey or switch roles at the company.

And we aren't just talking about a few in-demand tech jobs like machine learning and data science.

Our goal is to expand this to every career path you can imagine by leveraging our massive marketplace scale.

Switching careers has to become a lot less stressful in the future because it will happen at a higher frequency as AI continues to change workplace expectations.

We will be launching the initial virtual career academies in Q2 of this year.

These academies will give learners a structured pathway and a community to advance careers.

This is a massive opportunity to expand our reach and increase learner engagement.

The last area I want to discuss is interactive hands-on learning, especially in soft skills training.

We all know that AI is rapidly reshaping every industry, function, and role.

To excel in an AI-driven workplace, professionals need more than technical expertise.

They will also need soft skills like leadership, negotiation, and communications.

In the coming months, we are launching AI-assisted role-playing simulations that create interactive learning experiences, especially focused on developing these type of skills.

What is different about our approach is we are building a platform that enables our instructors to easily create real-world roleplay scenarios for every subject they are teaching.

Given the scale of our instructor network, we expect to have thousands of roleplays available by the end of this year.

And this is just the beginning.

We are also developing serious gaming experiences to help learners apply business concepts in real-world interactive simulations.

Just to be clear, these won't be basic gamification features.

We are developing fully immersive AI-powered game-like experiences, which has been a decade-long passion for me.

With AI, we will be able to build things that were hard to imagine before.

Considering all of that, I couldn't be more excited to be back at Udemy to lead the next phase of industry's transformation.

By combining the power of marketplace with AI innovation, we are building learning experiences that are more interactive, engaging, and scalable to meet the growing needs of our customers.

I started this company 15 years ago to give everyone in the world access to learning that could change their lives.

We, by and large, achieved that.

Now we are setting a new goal, giving everyone in the world access to a learning experience that is as effective as one-on-one training.

The 2 sigma problem is about to be a thing of the past.

With that, I will turn the call over to Sarah.

Thank you, Eren.

I'll cover the key financial highlights and our outlook.

You can find the complete set of financial tables in our news release on our Investor Relations website.

We are pleased to end the year with strong financial results.

For the full year, we outperformed our guidance for both revenue and adjusted EBITDA margin.

Revenue of $787 million increased 8% year-over-year, including a negative impact from FX of 2 percentage-points.

Within that, Udemy Business revenue increased 18% for the year, while consumer revenue was down 5%, including a negative impact from FX of 2 percentage-points on both segments' growth rate.

On the bottom line, we delivered $43 million in adjusted EBITDA, or 5% margin.

What's particularly exciting is how far we've come in just 2 years, having delivered an adjusted EBITDA loss of nearly $50 million in 2022, a testament to the disciplined execution of our strategy and the resilience of our business model even amid a dynamic macroeconomic environment.

That said, 2025 will be a transition year for us as we execute on our strategic priorities Greg laid out, so we remain measured in our outlook, which I'll get to in a moment.

Now I'll review the highlights, focusing on the fourth quarter results.

Fourth quarter revenue increased 5% year-over-year to nearly $200 million.

With more than 60% of our total revenue coming from outside of the U.S., we had a negative impact from FX to our year-over-year growth rate of 2 percentage points.

We ended the year with Udemy Business annual recurring revenue, or ARR, of $517 million, up 11% from a year ago, while ARR from large enterprises was up 12%.

Udemy Business revenue for the quarter was $130 million, an increase of 13% year-over-year, including a 2 percentage-point headwind from changes in FX rates.

For Q4, we added approximately 250 net new Udemy Business customers, increasing our global customer base by 9% year-over-year to more than 17,000.

Within that total, more than 5,600 are large enterprises, an 11% increase year-over-year.

We were also encouraged that we only experienced a single point decline for both total and large enterprise net dollar retention rate this quarter.

Our consolidated NDRR at quarter end was 98%, while the rate was 103% for large customers.

The rate of decline has slowed compared to prior periods, signaling that our retention dynamics are stabilizing.

This is important as it reflects the strength of our customer relationships and the effectiveness of our efforts to drive deeper engagement even in a budget-constrained environment.

Gross margin for our Udemy Business segment came in at 75% for the fourth quarter, up 600 basis points from the prior year, primarily due to the instructor revenue share change that went into effect on January 1, 2024.

We lowered the instructor take rate again on January 1 to 17.5%, which we expect will contribute another 200 basis points of gross margin expansion for the full year.

As a reminder, the take rate will move down to 15% next year, which will provide an additional tailwind to our margins in 2026.

Turning to the Consumer segment.

As expected, fourth quarter consumer revenue of $70 million was down 7% on a year-over-year basis, including a negative 2 percentage-point impact from FX.

The year-over-year decline was primarily driven by lower individual course purchases and was somewhat offset by growth from our personal plan subscriptions.

Despite revenue headwinds, Udemy's marketplace remains vibrant, as instructors added well over 5,000 courses each month during the fourth quarter.

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

Q4 total company gross margin was 64%, a 500 basis point improvement from Q4 of 2023.

The improvement was driven by the instructor revenue share change as well as the continued revenue mix shift to Udemy Business, which accounted for approximately 65% of total revenue in the quarter, an increase of 400 basis points year over year.

Total operating expense was $115 million, or 58% of revenue, 200 basis points lower than Q4 of last year, primarily driven by our cost savings initiatives.

On the bottom line, we delivered net income of approximately $60 million, or 8% of revenue.

Adjusted EBITDA was approximately $19 million, or 10% of revenue, representing a nearly 800 basis point expansion year-over-year.

The better-than-expected adjusted EBITDA result was driven by our revenue outperformance, ongoing focus on operational efficiencies, and cost savings initiatives.

We recognized $5 million in nonrecurring restructuring charges in the quarter.

Which brings us to our key cash flow and balance sheet items.

We ended 2024 with $356 million of cash, cash equivalents, restricted cash, and marketable securities, while free cash flow for the year was positive $38 million.

We also used $150 million in cash to buy back 60 million shares through our repurchase program during the year.

In line with our strategic priority to drive operational efficiencies, we are committed to disciplined expense management.

Over the past few months, we have taken deliberate steps to ensure that our business model is resilient and consistently generates cash flow.

By focusing on initiatives that deliver high returns and support scalable revenue, Udemy is well positioned to generate cash flow even in periods of macroeconomic uncertainty.

Our efforts have allowed us to deliver meaningful margin expansion while also converting a greater percentage of revenue into cash flow.

With more than 65% of our revenue and growing now coming from subscription-based offerings, including Udemy Business and personal plan subscriptions, we have a high degree of revenue visibility and predictability.

Looking ahead, we remain disciplined in how we deploy capital.

Our priorities remain: first, reinvest in the business to fuel sustainable growth; second, explore opportunistic M&A that aligns with our strategic objectives; and third, return excess cash to shareholders when appropriate.

Now to turn to our guidance and introduce our outlook for 2025.

We are cautiously optimistic about the year ahead and our ability to remain agile in navigating evolving market conditions.

As you can see from our strategic priorities, our focus is on building our foundation to drive long-term sustainable, profitable growth while managing costs prudently, accelerating innovation, and delivering value for our stakeholders.

For full year 2025 revenue, we expect to be in the range of $787 million to $803 million, representing flat to up 2% year-over-year growth, including a 2 percentage-point headwind from FX, assuming exchange rates remain constant.

For modeling purposes, the midpoint of the guidance implies Udemy Business revenue increases approximately 5% year-over-year, including approximately 1 point of headwind from FX.

As we noted on our Q3 call, 2025 Udemy Business revenue growth is expected to be impacted by the $20 million reduction in SMB sales capacity.

We continue to expect revenue from large enterprises to grow faster than that from SMBs.

For Consumer, the midpoint of guidance implies revenue for the year to be down approximately 6% year-over-year, including a negative 3 percentage-point impact from FX.

As you heard from Greg and Eren, revitalizing the marketplace and returning to segment growth is a priority for us.

On the bottom line, we expect to deliver full year adjusted EBITDA of $75 million to $85 million, or approximately 10% of revenue at the midpoint.

We are raising our expectations for full year adjusted EBITDA by approximately $10 million, given greater visibility into 2025.

With respect to the first quarter, we expect revenue to be between $195 million and $199 million, representing roughly flat growth year-over-year at the midpoint.

Assuming exchange rates remain constant, FX is expected to negatively impact Q1 revenue growth by 2 percentage points.

For modeling purposes, the midpoint of the guidance implies Udemy Business revenue increases approximately 7% year-over-year, including a negative 1 percentage-point impact from FX, while consumer revenue would be down 10% year-over-year, including a 3 percentage-point negative impact from FX.

On the bottom line, we expect to deliver adjusted EBITDA of $17 million to $19 million, or approximately 9% of revenue.

As a reminder, Q1 includes some redundant OpEx expenses tied to our $50 million cost savings initiatives.

Looking ahead, while 2025 is a transition year, we expect the work we have completed to restructure the organization sets us up to improve our growth in 2026 and beyond.

Given the efficiency actions, we have increased confidence in delivering on our target of $130 million to $150 million in adjusted EBITDA in 2026 and continue expanding towards our target of 20% adjusted EBITDA margin in 2027.

In closing, as we navigate an environment where change is accelerating at an unprecedented pace, creating a greater need for workforce upskilling and a significant opportunity for Udemy, we remain committed to a balanced approach between growth and profitability.

By doubling down on our scalable marketplace model and accelerating product innovation, we are well positioned to take advantage of the massive opportunity ahead.

We look forward to keeping you updated on our progress.

So with that, we'll open the call for your questions.

Moderator?

(Operator Instructions)

Jason Tilchen, Canocorre Genuity.

Yeah, good afternoon.

Thanks for taking my question.

I guess the first thing I'm curious on is how conversations with existing customers have sort of evolved over the past few months, and if you could share a little bit more about their sort of interest and uptake and and some of the soft skills, capabilities that you've been adding over the past year or so, and sort of a follow up to that is if you could talk a little bit about the investment that's needed to introduce some of these role play simulations that you talked about comparative marks.

Thanks.

Yeah, thanks, Jason for the question.

Look, it's indicative of our performance in Q4 over the last few months, we've seen, positive signals from, our large enterprise customers around the world.

We had a strong quarter in Neymar in Latin America.

We had, more large deals over 100k in Q4 than we've seen in a year, and when rates are improving as well.

So all positive signs right now with respect to the environment we're operating in and that our strategy and The programmatic approach that ROB, our CRO has laid out in terms of how we're we're going after these TOP5 verticals and structuring ourselves to win disproportionately, it's having a desired effect.

So really pleased with what we're seeing right now in terms of our execution and the environment we're operating in.

I'm going to let Eren Bali answer the question with respect to role play.

Yes, so in terms of the size, we, I'm very confident with the current size of the R&D team.

So we do not need any new resources, but we mostly reoriented our priorities to make the role play as a priority, and I think they be, they've been moving very fast into developing those.

Thank you very much.

Ryan MacDonald, Needham.

Hi, thanks for taking my questions and congrats on a nice quarter.

Maybe digging in a bit deeper to the consumer marketplace revitalization, it's it's great to see some of the incremental feature and functionality investments here.

Do you expect as they roll out that these are sort of incrementally monetizable sort of updates or enhancements to the marketplace, or do you find this as a way to sort of maybe.

Better incentivize either it's con conversion to the consumer subscription or just more sort of elongated active engagement within within the learner population thanks.

Hi Ryan, thanks for the question.

So a little bit of both.

So, the monetization, much of it will be better engagement and retention and certainly moving to our higher LTB subscription, but also there will be some additional monetization around things like our career academies.

So it is a mix of both, and we're really excited to bring some of these capabilities on the platform.

Josh Beer, Morgan Stanley.

Great, thanks for the question.

I was hoping you could come in a little bit on how the interest in non-AI versus AI courses differ both from the instructor kind of marketplace perspective, creating new courses and also from the learner perspective.

Yeah, thanks for the question, Josh.

In terms of, we touched on this a little bit, but in terms of interest and non-AI related courses, really has been on soft skills and you know those areas we call that, communication, leadership, change management, and all the skills that are necessary for organizations.

To manage through a very dynamic environment and leadership is in there as well.

We're seeing a significant uptick in interest, around leadership development.

So, that bodes very well for us.

We've got the broadest platform in the category to be able to, address an organization's technical, AI related, and development-related skills development needs, as well as, the areas I just mentioned and more with respect to soft skills.

So, and that's, I'll just give a quick anecdote.

I like to layer these stories and as you guys know, we saw a number of consolidations, one of which was wall to wall, 130,000 employees, large multinational healthcare company, and it was exactly that.

They came to us because they felt like we could serve their needs both on the technical.

As well as soft skills, areas that are necessary for them to support learning across the organization and across the globe, very multinational in nature in terms of the customer and that's pretty indicative of the types of trends we're seeing.

So, really, happy to see that type of momentum and it really does play our favor.

Thanks Greg. 11 for Sarah, the, PR talks about the, completion of the $150 million buyback, and I know you listed return capital to shareholders 3 on the list.

Just wondering what happens next from a buyback share repurchase perspective.

Bye.

Yeah, thanks for the question.

We're going to continue to be really disciplined about capital allocation.

We talk about this every quarter, and really balancing, fueling that sustainable growth with making sure we have the dry powder for M&A to be opportunistic there, and then also being opportunistic and when it's the right time returning capital shareholders you saw us complete that $150 million dollar buyback.

We were, pleased to do that last year, so yeah we're just going to continue to be disciplined and make the right calls at the right time.

Steven Sheldon, William Blair.

Hey, thanks, just want to start, I guess on the UB guidance.

I think if we, if I heard you correctly, Sarah, I think if we assume a 7% year over year revenue growth in UB, for the first quarter, I think it would imply that, the revenue is down sequentially.

I think that that would be the first time that's happened and at least the metrics that I've seen.

So yeah, how much of that if it's going to be down sequentially, how much of that would be due to FX, how much of that would be due to.

From the cost cuts that you're making in the SMB side and then yeah I guess would you expect sequential growth then in revenue for you as we progress through the rest of the year?

Yeah, great question.

Thanks.

There's 3 factors.

You name two of them the impact of the FX headwinds that we have and the pullback in $20 million of S&B capacity, which really hit our revenue for the first time in the first quarter as we pulled that capacity back in the fourth quarter.

The third factor is the quarter is the shortest period from a number of days in that quarter compared to other quarters, and so we're able to record less revenue associated, in that quarter, but we did, we would not expect that, small decline sequentially to continue going forward.

Got it.

Okay, that's helpful.

And then on some of the kind of the key initiatives, the career oriented learning, I think that sounds really interesting, I think you kind of talked about maybe having career academies launched into just any more detail on kind of where you might be starting what those career pathways could look like, just more detail on how you're thinking about going after the career opportunity.

Yeah, we are excited about it.

I'll let Eren Bali comment on that.

So we will be launching 6 of them early in the first half of the year, and then there's 7 coming.

I just really nailed the format.

They are choosing a diverse set of carriers to start this, so we're not going to be exclusively tech jobs or they are really various different subjects we're covering with it.

We're trying to really, with the first batch, trying to understand the learner's engagement with more longitudinal learning with a community model.

But once the model works well, then we'll be scaling a lot faster in the future years.

I'll just add to that one of the things we're really excited about is the shift to a career focus is really great career academies and the consumer, how that's going to affect the consumers and our consumer learners, but also really impactful on the Udemy business side as you think about employees as learners and them really looking to Upskill within their role, make sure they have the skills that they need, move to another role, and from a UB organization perspective, having those paths and those kind of full career academies available, yeah, it's going to be a game changer.

Got it, so there could be opportunities there both with individual consumers as well as potentially selling that more at the enterprise level.

That's right.

That's.

Exact exactly.

And we are, by the way, I would just say almost every single thing we are doing this year is dual.

It has both consumer and enterprise use cases like, I think one of the things I change it is almost everything that has appealed to both sides is we are launching it in both platforms simtaneously.

Got it good to hear.

All right, thank you.

Curtis Nagle, Bank of America.

Great, thanks so much for taking that question.

Maybe, first one for you, Sarah, so 100, no sorry, 10 million more of the beta, for this year.

So that's good to see, for 26, you had previously given out targets, I think 130 to 150.

Should we flow through that, incremental, 1, 10 million next year.

That's a great question.

I know our target is still 130 to 150 for 2026.

And just to share a little bit about the path from the, 75 to 85 this year, how we get there next year, we will be making those improvements in the gross margin side that's going to come from the continued revenue mix shift to new business and the revenue share.

Changes that we've already announced will also have the full year impact of the cost savings initiatives which we are, have made great progress on those and we're almost at the tail end of, any actions associated with that.

We'll finish that up this quarter and then, the better unit economics that are upmarket in the large enterprise and so, we have a great path here going forward and you can expect that 130 to 150.

In 2026 on the EPA side.

Okay great then maybe let's see one other one just in terms of what gives confidence that we should expect to see a consumer, accelerate through the year in terms of revenue.

I I'll start let jump in, but the product innovation that we're bringing to market this year, we're going to do more this year than any year in the company's history, and it's, you heard us talk about career academies.

There's a lot more we're going to be bringing online in rapid succession.

That's going to have a dual impact as Eren Bali and Sarah just alluded to that, we may launch, most of it's going to be simultaneous launch, in some cases we will go first in the consumer side like Eren Bali Metson just to work the kinks out and then we'll roll everything out across the entire platform to all learners and both sides of the house.

And as that momentum starts to build.

We have a lot of confidence and the impact it's going to have both on the consumer and UB side.

So, we'll be able to obviously share more as we progress throughout the year in terms of, quantifiably exactly what that impact looks like, but there's a lot of optimism optimism in the house right now.

So, I know you want to add.

Yeah.

I would just add, we have to shift to the career focus that's really important.

There are additional changes that we're making to the marketplace to increase engagement and retention.

And so, we're just going to continue to really leverage our dynamic flywheel and collect feedback from our learners and make sure that the products that we're putting out there are hitting the mark and then we'll put the gas on them.

Okay, thanks very much.

Thanks for the question.

Terry Tillman, Trust.

Great, this is Connor Bass on for Terry.

Appreciate you taking my question.

I just wanted to follow up around the commentary on when rates and consolidation, any changes that you've seen in competitive landscape that you would call out and, maybe just what are you seeing in terms of competitive deal cycles.

Yeah, thanks for the question.

No material changes in the competitive landscape.

Our win rates are up.

We talked about that and really from our standpoint, it really is a direct reflection of execution against our strategy, and a more focused strategy in those key verticals we've called that in the enterprise, enabling our sales organization to be more effective at selling through our existing customer base as well as to new companies and those verticals.

And so, we're we're optimistic about the impact we saw in Q4 and we do expect those leading indicators to continue to show positive signs as we trend throughout the year.

Thank you.

Yi Fu Lee, Cantor Fitzgerald.

Thank you for taking my question.

I guess, maybe start with Greg or Sarah.

I have a more macro high-level question.

I was wondering if you could give us a sense of like the observations you're seeing in corporate spending now that the new administration is in for about 60.

Days and any commentary on, not trying to bring politics into this, but like, if the Department of Education is will be eliminated, would this be a tailwind or any commentary for business like you?

And then I have a follow up with with.

That's a good question.

I'll start, sorry, you can feel free to add, this early on, we're not seeing any material impact with respect to buying processes, respected to the new administration coming online.

Look, it remains to be seen in terms of, the cuts and the modifications and adjustments the administration is going to be making throughout the year and what that impact could look like.

What I will say is, we have heard this new administration talk about the focus on skills and how important it is for skills development to be happening, in companies large and small throughout the country.

And that's, and that's what we do, right?

And that's, I mean, quite frankly, that's what we're built for, to help organizations and learners develop the skills necessary to achieve the outcomes they're looking to achieve.

And, we're very focused on our strategy and executing as effectively as we can and we're very confident we'll be successful, regardless of what changes the administration decides to make.

Got it.

And like, any like commentaries on in terms of like the budgets, like it's not the LD budgets for like enterprises, any commentaries you see on on the ground, you have that?

I would say no material changes, although we are starting to see, it's too early to call, but we did have a successful Q4 and, we're our ears to the ground in terms of making sure that we're understanding.

Any dynamics that are changing within the buying processes, with our existing customers and net new customers.

Invariably some of that success in Q4, and leading into now, Q1, could point to Let's just say budget's starting to open up a little bit as a result of the new administration coming online and some anticipation of what the economic environment's going to look like, but it's too early to call.

I need, we're going to need another quarter or two to be definitive on that.

Okay.

Got it.

Thanks, sir.

That's extremely help.

Yeah, sorry.

(Operator Instructions)

Can I just add one more for, Eren Bali?

In terms of the product roma I think you mentioned, using leveraging Gen AI to help instructor with assessments.

Was wondering like, what's the timeline for this R&D process, what do you hear from the early, like, I guess, like, the early modeling work you have on this, the new product side.

Thank you for the question.

So.

Yeah, we are using actually, almost as soon as I joined, I made a big change in our assessment approach and especially how we use AI because my goal is to have very broad assessment coverage about virtually every subject we are teaching.

And what we are doing is actually pretty cool.

What we look at the content on Udemy and understand it creates a very granular skill tree for every subject, and we are using AI to suggest questions in certain scenarios.

Without looking at those questions and reviewing them and finalizing them in other cases, we actually push those questions to our consumer marketplace and have real consumers answer those questions, and we are algorithmically evaluating which questions are higher quality or low quality and eliminating the ones which don't pass our bars and keep the ones that that's hit.

And this process is all live, by the way, so this is not a future thing, we are already doing this.

We are just, slowly ramping up into more subjects.

Yeah, tech is pretty much there.

We'll take a year to kind of go from topic to topic, just to give you some scale, comparison, last year we launched 25, topic assessments, covered.

First half of this year we'll probably triple that, and then second half, even even higher than that and by 2026 we'll have we assume the system is going to be fully stable and quality assured, and you'll get really just expanded across every subject.

But it is the core platform is already running live this sort of subjects that just slowly rolling down.

Got it.

Thank you very much.

You can.

(Operator Instructions)

Devin Au, Key Bank Capital Markets.

Great.

Thank you.

Thanks for taking my question.

Just one, but maybe for Sarah.

I was hoping if you could maybe share some color on ARR growth and enterprise, kind of expectation of that in 25, how we should think about how net new will trend sequentially from 24 and throughout 25, just given, that metric is kind of a leading indicator for revenue in that line.

Do you expect ARR to maybe recover sooner, in the back half versus revenue, any color you can add would be appreciated.

Yeah, that's a great question, and that is what we expect because ARR is a leading indicator.

So we'll be working through from a net new ARR perspective, we'll be working through that, smaller SMB capacity and the ramping of all the teams where we've shifted territories at the beginning of the year.

So the net new ARR will be a little bit more muted in the first half, ramping up in the back half and then the or the revenue will follow.

Great.

Thank you so much.

Thanks for the question.

This concludes our question-and-answer session.

I would like to turn the conference back over to management for any closing remarks.

Please go ahead.

Yeah, I would just like to thank you all for joining the call today, and we look forward to connecting again in May for our Q1 update.

Have a great afternoon.

The conference is now concluded.

Thank you for attending today's presentation.

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