COUR - NYSE

Ladies and gentlemen, thank you for standing by and welcome to Coursera's First Quarter 2023 Earnings Call. [Operator Instructions] I'd like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

Hi, everyone, and thank you for joining our Q1 earnings conference call. With me today is Jeff Maggioncalda, Coursera's Chief Executive Officer; and Ken Hahn, our Chief Financial Officer. Following their prepared remarks we will open the call for questions. Our press release including financial tables was issued after market close and is posted on our Investor Relations website located at investor.coursera.com where this call is being simultaneously webcast and where versions of our prepared remarks and supplemental slides are available. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures, which are the most directly comparable GAAP measure can be found in today's press release and supplemental presentation, which are distributed and available to the public through our Investor Relations website. Please note all growth percentages refer to year-over-year change unless otherwise specified. Additionally, all statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. These forward-looking statements include but are not limited to; statements regarding the potential impacts of trends affecting our industry and uncertainties in the current economic and educational environment. Our ecosystem, platform, content and partner relationships. Our anticipated plans and the anticipated benefits thereof, our strategy and priorities in our business model, mission, opportunities, outlook, and future intentions. Actual results and events could differ materially from projections due to a number of risks and uncertainties discussed in our press release, SEC filings and supplemental materials. These forward-looking statements are not guarantees of future performance or plans and investors should not place undue reliance on them. We assume no obligation to update our forward-looking statements. And with that, I'd like to turn it over to Jeff.

Thanks, Cam, and good afternoon everyone. It's great to be with you all. Last month we had the opportunity to see and speak with many of you at our first Investor Day. It provided an excellent opportunity to reflect on the amount of progress that we've made executing on our vision, expanding our ecosystem, and deepening our platform's advantages and it reinforced my confidence in our strategy, including our vision for the future of higher education. This vision includes a globally connected ecosystem of learners, educators and institutions that is redefining the future of learning and work and two weeks ago, I had the privilege of bringing together thousands in the Coursera community at our Annual Conference to discuss what we believe the future will look like. A highly personalized and more engaging learning experience with technologies like generative AI and virtual reality, a stronger link between college degrees and industry micro-credentials and a globalization of the world's workforce that allows employers to expand and diversify access to skilled talent around the world. As we make progress on our long-term opportunities we are also delivering on our near-term results. In Q1 we grew revenues 23% over the prior year to $148 million which was driven by our Consumer, Enterprise, and Degrees segments. Ken will cover each in more detail during the discussion of our financial results, so I'd like to spend my time today briefly discussing the structural trends driving our business along with the slate of announcements we recently made to better serve the changing needs of individuals, institutions, and our educator partners. Let's start with our first major trend, which is digital transformation. The forces of technology and globalization have been accelerating the transformation of every institution in our society. In recent decades, the microprocessor, the internet, cloud computing, mobile computing, and social media have profoundly reshaped businesses and society. We believe that AI represents the next major technological disruption that will dramatically change how we work and how we live. And this impact will go far beyond the traditional boundaries of automation. Coursera's founder Andrew Ng has said AI is the new electricity. Just as electricity was quickly and widely integrated into homes and factories, we believe that generative AI will be integrated into applications, software, and platforms that employees are already familiar with. This integration is happening quickly and we believe it will increase the importance of digital transformation and talent reskilling and businesses. And this brings us to our second trend which is skills development. For years, employers have been rapidly digitizing work processes and jobs that are repeatable and predictable. And generative AI has the potential to impact an entirely new class of knowledge workers unleashing a new wave of reskilling and upskilling imperatives. AI will amplify and accelerate the change already facing universities pushing them to enhance curriculum and the learning experience to make trusted education more accessible, personalized and relevant. AI will amplify and accelerate the change already facing governments driving them to deliver job training programs at the speed and scale needed to keep pace with job dislocation and unemployment challenges. And AI will amplify and accelerate the change being felt by individuals, pushing every one of us in every job to keep learning in order to stay relevant and this leads me to the third trend driving our business the transformation of higher education. The traditional higher education system has not kept pace with the changing skill requirements driven by technology and automation. Academic institutions must evolve more quickly to better serve the needs of students, governments, and businesses in an increasingly digital and distributed labor market. Let's discuss a recent example. The Republic of Kazakhstan is facing a skills gap crisis and rapid population growth and we are expanding our partnership with a new nationwide scope that encompasses both Coursera for government and Coursera for campus. Our partnership began with the success of our workforce recovery program back in 2020. Now, the Ministry of Higher Education and Science is using Coursera to up-level its public higher education system to empower students and faculty nationwide, with the skills and credentials needed to thrive in the digital economy. The MOE is integrating over 650 courses on Coursera into 25 public universities for credit in their degree programs. We are able to pursue partnerships like these largely because of the world-class brands of our educators and the breadth of our content, especially the job-relevant professional certificates that prepare learners for digital careers. Collaboration between government and universities enable implementation across entire education systems at unprecedented speed and scale. This is the kind of forward-thinking approach required to ensure that higher education is more accessible possible to over a billion young adults between the ages of 15 and 24 who need to be skilled for this new era. So those are some of the key tailwinds that are driving the opportunity we see in front of us. Now let's talk about three key advantages that allow us to compete differently to seize this opportunity. First, our leading educator partners who created a broad catalog of trusted and branded content and credentials. Second, our global reach to individuals and institutions and third is the data technology and innovation that we leverage across our platform. Let's cover each of these categories and the recent progress that we've had in each of them. First, our educator partners. Coursera's catalog of content and credentials is created by more than 300 of the world's trusted universities and industry leaders and we're proud to have welcomed 15 new partners. These include universities located in the U.S. and around the globe, such as Anahuac University in Mexico, London Business School and SP Jain Institute of Management and Research in India. We're also broadening our set of industry partners in fields like healthcare, consumer goods and real estate with new partners like Epic Games, Keller Williams, Moderna, Novartis, Unilever and more. These university and industry partners continue to rapidly expand Coursera's catalog of branded credentials that are sought by learners looking to unlock career opportunities and I want to provide updates on two categories that create value for learners. Entry-level professional certificates in college degrees. The entry-level professional certificates on Coursera create new pathways to secure well-paying digital jobs and also earn credit towards a college degree. We believe that industry micro-credentials will play an increasingly prominent role in the transformation of higher education which is why we continue to pursue rapid expansion of this catalog with new partners, new job roles, additional languages, and credit recommendations. At our recent Investor Day, I shared that we expect 50 certificates on the platform by the end of the year. To date, we've announced more than 40 including six new certificates unveiled at our Coursera conference two weeks ago. Including Solution Architect from Akamai, Data Science Specialist from Fractal Analytics, Real Estate Agent from Keller Williams, and three additional certificates from IBM in IT project management, mobile app developer and front-end development. And we are excited about our pipeline of partners and job roles that we will continue to announce as the year continues. Now let's take a look at the most valuable and recognized credentials in the world, the college degree. We believe that higher education and in particular the college degree needs to be more accessible, affordable and relevant to students and employers alike and innovative universities are adopting the best capabilities of Coursera to provide degrees that are designed especially to meet the needs of working adults. At our Investor Day, we demonstrated our early success with the University of Colorado Boulder's Masters in Data Science and outlined the attributes of this degree program that are resonating with learners. Including first the ability to start the degree at any time by taking open courses for $49 a month. Second, affordable pricing with tuition at $15,750 for the full master's degree. Third, no application during admission, students admissions based on their performance in the open courses. And fourth, integrated industry content that counts as credit towards the degree. We spent much of the last year, better understanding what our learners want from an online degree and the types of transformational partners who are willing to help us unlock this opportunity. I'm excited to share that we added 10 degree programs in Q1, which is twice the number that we announced in any prior quarter. And many of these programs expect to take full advantage of the capabilities that Coursera offers to make these degrees particularly well-suited for working adults. The newly announced degree programs include a Masters of Computer Science from the University of Colorado Boulder, four degrees from the Illinois Institute of Technology, including three Masters and one Bachelors program, two degrees from Ball State University and three international programs from universities in the UK, India and Peru. To date, we have announced more than 50 degree programs on Coursera and we look forward to building on our early momentum as the year continues. So that's a bit of an update on our educator partners Now let's shift to our second major advantage, which is the global reach of our platform. We have a large growing learner base that attracts educators looking to teach individuals and institutions around the world. In Q1 we added 5.5 million new registered learners, growing our global learner base to 124 million by the end of March. Learner growth continues to be broad-based with double-digit percentage increases across the majority of our largest countries like the U.S., India, the UK and others. We also grew the number of Paid Enterprise Customers to more than 1,250 with the additions across all of our enterprise verticals, including new business campus and government customers. This brings me to our third advantage that I'd like to talk about which is the ongoing product innovation that we leverage across our platform. And I'd like to start with our efforts in generative AI. At Coursera Conference when unveiled two new AI-powered innovations, including one for learners and one for educators. First is Coursera Coach for learners. Coach is a virtual learning partner powered by generative AI that allows learners to ask questions and receive personalized explanations and answers, get personalized evaluations and feedback on their submissions. Receive context-relevant examples and practice questions. Discover quick video summaries and resources, such as recommended clips to better understand the specific concept. And finally get career counseling support and interview prep to land the right job for them. Critically Coursera Coach leverages the trusted authoritative content and instruction from our world-class universities and industry experts, providing learners with confidence that the time and money that they're investing in learning is going to be worth it. Next, in a world where machines are increasingly capable of producing content at scale, we believe that trusted institutions will play an increasingly valuable role in education as learners look for quality. And to support our educator partners we are piloting AI assistant course building. This new set of AI-powered features can auto-generate course content including an overall course structure, readings assignments and glossaries based on a few simple inputs from an author. It can also recommend relevant video and modules from the broader Coursera catalog to consider including in the course. And it will enable enterprise customers to upload internal videos that can be automatically transformed into smaller clips and integrated into well-structured private courses. Our goal is to use technology to dramatically reduce the time and cost of producing high-quality trusted content at scale. This strategy also underpins our approach to localization, which we discussed at our Investor Day last month. Historically, one of the challenges with producing content at scale was languages dependencies. Educators tend to produce in their local language while learners come from all around the world speaking many languages. We believe that high-quality education from the world's leading experts should be accessible to learners anywhere in the world, no matter what language they speak. And recent advancements in the quality of machine learning translations can now translate courses at a fraction of the cost of using conventional human translation. Our team has been focused on building a scalable translation framework for the Coursera catalog. In the coming months, we intend to translate more than 2,004 courses into seven key languages benefiting more than 35 million registered learners who speak Spanish, Arabic, Portuguese, French, German, Indonesian and Thai. Next, we continue to expand our efforts in immersive learning with new virtual reality-enabled course experiences. In collaboration with Duke University, Peking University, University of Washington, and University of Michigan, we recently launched courses that allow for a deeper level of engagement. For example, the public speaking course from the University of Washington allows learners to immerse themselves in a simulated auditorium or conference room to practice their presentation and delivery skills in a realistic setting. We also announced two new credentials from Meta including a professional certificate and specialization in augmented reality for learners considering careers focused on these exciting new technologies. Finally, we launched in Q1, a product that we've been working on for quite some time, Coursera hiring solutions to connect learners to jobs. Rapid technological shifts have created a shortage of qualified talent causing employers to look beyond traditional talent pools to fulfill open roles. In a recent Coursera survey of more than 1,500 employers across 11 countries, more than 97% said that they are using or considering adopting skills-based hiring approaches to expand their talent pools. This includes eliminating the college degree requirement for many positions in order to attract candidates from wider more global pools of emerging talent. And while more employers are considering skills-based hiring to address talent shortages, verifying a candidate's skills is difficult, especially for entry-level roles where a career starter or switcher may lack a college degree or relevant prior work experience. This challenge has coincided with growth in online learning, which in combination with remote work, digital jobs, and broadband connectivity has led to a globalization of talent that is reshaping the supply and demand for jobs no longer confined to a specific city, state or country. Coursera hiring solutions is how we plan to use our three sided platform to bridge learning opportunity and economic opportunity by connecting learners to employers, even if they lack a college degree or relevant prior work experience. Job seekers coming to Coursera can develop in-demand skills and earn branded credentials that they need to be considered for entry-level digital jobs. They can also build hands-on projects with the digital tools used by professionals in the field. These projects not only develop skills, but also lead to a portfolio that demonstrates these skills to an employer. And learners can showcase their job readiness with the skills profile that includes credentials, assessments, and their project portfolio. From the employer's perspective, they can expand and diversify their candidate pool by gaining access to industry trained job relevant talent. Recruiters can use a talent dashboard from Coursera to identify pre-qualified talent and filter candidates that meet their unique sourcing requirements, including skill proficiency levels based on Coursera's assessments. Hiring Solutions is currently in beta with thousands of learners and a select number of employers in India and we are excited to start testing with U.S. customers in the coming months. Before I turn the call to Ken for a closer look at our financial performance and outlook let me remind you of several key priorities that we're focusing on in the years ahead. First, we are broadening our catalog of entry-level professional certificates with world-class industry brands, expanding with new roles, new partners, new languages, and credit recommendations. And we are working with accrediting bodies around the world so that learners can receive academic credit for college degrees for the learning that they complete in these professional certificates on Coursera. Second, we're expanding our portfolio of degree programs, especially those tailored to meet the unique needs of working adults including flexibility, affordability, and stronger pathways, from our open content and industry micro-credentials into college degrees. Third, we're focused on growing our Enterprise segment across business, government and campus customers seeking to address their needs in this fast-changing environment. And we are focused on deepening our advantages, while driving more scale and leverage over time. We are especially excited by the opportunity to use generative AI to make learning more personalized and interactive for learners and to make content production faster and cheaper for our educator partners. And now I'd like to turn it over to Ken. Ken, please go ahead.

Thanks, Jeff, and good afternoon everyone. I'm pleased to report on our solid first quarter. In Q1, we generated total revenue of $147.6 million, which was up 23% from a year ago, driven by strong growth in our Consumer and Enterprise segments. Additionally, our Degrees segment returned to growth demonstrating nice progress to start this new year. It was a modest increase at 1% but critical for a growth company most importantly in a market as large as degrees. As we discussed at our Investor Day last month, we believe we are resuming progress on our strategy to fundamentally transform access to degrees. Please note that for the remainder of the call, as I review our business performance and outlook, I will discuss our non-GAAP financial measures unless otherwise noted. Additionally, as a reminder of our prior communication on last quarter's call, the changes associated with a multi-year contract extension with our largest industry partner were in line with our expectations. Specifically, this shifted expense from operating expense to cost of revenue as this partner chose to receive a more standard revenue share going forward which we remain excited about given more closely aligned incentives around growth, reach and opportunity for learners around the globe. Gross profit was $79.6 million, slightly up on a dollar basis from a year ago, and the 54% gross margin, which was down 12 points from the prior year period. Total operating expense was $91.4 million or 62% of revenue, down 15 points from 77% in the prior year period. Sales and marketing expense represented 30% of total revenue, down 8 points from 38%. Research and development expense was 20% of revenue, down 3 points from 23%. And general and administrative expense was 12% of revenue, down 4 points from 16%. Net loss was $5.2 million or 3.5% of revenue. And adjusted EBITDA was a loss of $7.5 million or 5.1% of revenue. Now turning to cash performance and the balance sheet. Free cash flow was $1.5 million during the quarter compared to a use of $42.2 million a year ago. This included the remaining cash payments of $4.8 million related to the restructuring charges we incurred in late 2022. And we ended the quarter with approximately $780 million of unrestricted cash, equivalents, and marketable securities with no debt. We believe the strength of our balance sheet is a considerable asset that provides us the stability, and strategic optionality to execute on our long-term vision. As we outlined at our Investor Day, our approach to capital allocation is primarily emphasized investments in our organic growth opportunities. We believe that the education technology industry is changing rapidly and having the flexibility to pursue additions to our platform will provide opportunities to accelerate our leadership position and enhance our business model advantages. Our strong views on that have not changed. But given the size of our balance sheet and the modest cash requirements for operating needs, we are pleased to announce our Board has authorized a share repurchase program of up to $95 million. Our program is a direct reflection of our confidence in the business as well as the value we place on shareholder equity. The authorization amount is specifically designed to offset dilution above benchmark gross dilution rate of companies in their first year through an IPO, based on market analysis performed by an independent third-party advisor. Our higher dilution in 2022, our first year after going public was associated with one-time equity employee grants made to attract, motivate, and retain key talent while providing long-term incentives aligned with shareholder value creation in future years. And we thought it important that investors understand that we consider 2022 an anomaly and we are confident we can pursue a repurchase program at this level, while continuing to prioritize cash for strategic opportunities that increase the likelihood of us leading our large early in dynamic markets. Next, let's discuss each of our segments in more detail. Consumer revenue was $82 million, up 20% from the prior year on strong performance in our entry-level professional certificates. We believe our strategic focus on job-relevant credentials created by world-class brands is resonating with learners around the world looking to start or switch careers. Segment gross profit was $44.6 million or 54% of consumer revenue compared to 71% a year ago. As discussed last quarter, the impacts of the contract extension with our largest industry partner were expected to be most pronounced in our Consumer segment margin, with a higher cost of revenue meaning lower segment margin offset by lower operating expense. Finally, top-of-funnel activity remains strong with another 5.5 million new registered learners coming to Coursera. Enterprise revenue was $52.2 million, up 34% from a year ago on growth in all three of our segment verticals. Segment gross profit was $35 million or 67% of Enterprise revenue compared to 72% a year ago. The total number of Paid Enterprise Customers increased to 1,253, up 37% from a year ago. And our Net Retention Rate for Paid Enterprise Customers was 104%. Consistent with our outlook at the start of the year, we are seeing business customers exercise caution in their spending priorities amidst increased macroeconomic uncertainty. And finally our Degrees segment. Degrees revenue was $13.4 million, up 1% from a year ago, and increased student enrollments and scaling of new program launches. The total number of degree students grew 10% from a year ago to 18,095. As a reminder, there is no content cost attributable to the Degrees segment. So Degrees segment, gross margin was 100% of revenue. We are encouraged by our early progress in Degrees including our ability to accelerate growth as the year proceeds well as our recent sourcing successes highlighted by the 10 new programs Jeff mentioned earlier. By sourcing the types of high-value programs that resonate with our learners with partners that leverage our platform's unique assets and scale we are able to compete uniquely and execute on our long-term vision a more accessible, affordable, and relevant model for higher education that transforms one of the world's largest industries. Now onto our financial outlook. For Q2, we're expecting revenue to be in the range of $143 million to $147 million. Adjusted EBITDA we're expecting a loss in the range of $13 million to $16 million. For full-year 2023, we now anticipate revenue to be in the range of $600 million to $610 million, representing approximately 16% growth at the midpoint of the range. Adjusted EBITDA we're expecting a loss of $26 million to $34 million or -5% adjusted EBITDA margin at the midpoint of the revenue and EBITDA guidance ranges. As a reminder of our operating framework, we set an annual EBITDA margin target at the beginning of the year and worked within that plan based on the trajectory of our business to maximize our growth opportunities. We do not optimize the business for any single quarter and we'll strategically invest to position Coursera for the long term while demonstrating scale and leverage over time including our outlook to be adjusted EBITDA positive in 2024. I'll now turn the call back to Jeff for closing comments.

Thanks, Ken. Our mission is deeply rooted in our business. It is what inspires our team members, attracts our partners and enables our customers to make access to high-quality education a growing reality for millions of learners around the world. To that end, I was excited to introduce our first Environmental Social and Governance Report last month. It showcases our progress on several key initiatives like talent development, workforce representation and data privacy as well as our learning platform's role in promoting literacy in the ESG topics including more than 200 courses in sustainability and over 100 addressing social justice. Additionally, we expect to publish our 2023 learner outcome report in the coming weeks, which was conducted in partnership with a respected third-party firm. Learning for knowledge's sake is valuable but learning that unlocks opportunity can be transformative, that's why we were excited to hear from more than 55,000 learners in more than 190 countries about how their online learning experiences on Coursera are driving impactful career and personal benefits. This is what they told us. 77% of learners career advancements say learning on Coursera benefited their career. 28% of approximately 4,000 entry-level professional certificate learners got a new job. And 30% of a smaller subset of unemployed learners were employed after learning. It is an inspiring validation of our platform and communities ability to change lives, as Coursera increasingly becomes a global destination for learners seeking job-relevant skills and recognized credentials that can unlock the next phase in their education or career. In collaboration with the Coursera community, we are focused on fulfilling our mission so that talent and opportunity can rise from anywhere in the world. Now, let's open up the call for questions. Thank you.

[Operator Instructions] Your first question comes from the line of Rishi Jaluria with RBC. Your line is now open.

Wonderful. Guys, thanks so much for taking my questions. Nice to see continued strength in the business in degrees to invest in growth. I've got one question on generative AI and then a quick follow-up on degrees. Starting with generative AI, definitely, I think it's pretty clear to all of us generative AI can be a huge tailwind for your business given the societal implications and you've laid out a roadmap for productizing it. I wanted to understand from your own perspective, how do you think U.S. Coursera can internally use generative AI to drive greater efficiency or iterate on products the functionality better anything like that, that would be really helpful. And I've got a quick follow-up.

Yes, Rishi. That's great. So we've kind of gone crazy on this these days and I think that the impact on the business will be not unique just to Coursera the way we run the business. I think there's a few things. Most of the productivity that we expect to get at Coursera, this is separate from helping learners get more value and helping our educator partners get more value. But in terms of the Company a lot of our costs are headcount and a lot of headcount costs are in R&D and what I'm hearing from our engineers is that the productivity improvements that you can get as a software coder, especially at more entry-level software coding jobs is considerable. So I think software coding productivity is going to go way up. All the marketers who are doing language -- most of our performance consumer marketing teams have been using earlier versions not ChatGPT but like GPT3 is I think when it started picking up steam. They've been using this to help write articles, write marketing messages, write emails, et cetera. Their productivity and quality has gone up quite a bit. So engineering, marketing on the design side and product side I've seen designers -- we do this you don't know this, but like every couple of weeks we do these show and tell which is like let's show everyone in the Company how you're using generative AI to change the way you do your job. We had a designer put together a learner journey vision, it was like a 15-minute video with video, script, audio, screenshot et cetera. And he did this -- he time bound it so it was only -- he did it the whole thing in eight hours. He said he did in eight hours what would have taken about a week for him to do and involved a lot more people. So I think on the design and creative side, the marketing side, the software program side, it's going to be huge. And then for all the other positions in the Company like anybody who uses a software tool, whether that's Salesforce or whether Google Docs or any tool all these tools are not getting electrified with AI. They're just becoming more productive. I'm pretty sure -- by the way, not to mention services which can provide there was just an article from MIT suggesting that services productivity really goes up dramatically when you started using generative AI. So I think it's going to be across the board. Certain positions more than others, but I would not be surprised that most CEOs are rethinking probably not work structure but certainly productivity expectations for how the company runs and what can be done by talented people in the company.

I want to follow up. That's a very thorough answer. Thank you so much. I have got a follow-up just on the Degrees segment. So at the Analyst Day, you talked about 25% growth next year and that was assuming no new degrees. You since then announced 10 new degrees and I know there's a ramp-up time and all that, but was that all contemplated in that or how should we be thinking about how the new degrees announced impacts that outlook for next year? Thank you.

I don't know that we can tease them apart exactly. Obviously, although these degree programs are multi-year and you can kind of see the revenue coming in with a bit of lead time I don't think we've really parsed out exactly how much of that growth will come from existing courses versus new, I wouldn't write a whole lot into the combination of those two points. The 25% and then these 10. Ken, would you see anything different on that?

No, I'd say exactly what you said. I guess it was softer guide. The newer, you referred to Rishi the newer programs contribute very little. We didn't factor in nothing, but it's not a huge driver. It takes a good year to start to see any real input from the new degree. So if we over-perform on that over the next couple, it will have very little impact. It's more about -

Your next question comes from the line of Stephen Sheldon with William Blair. Your line is now open.

Hi, thanks for taking my questions. First one here on the revenue guidance you just grew 23% year-over-year in the first quarter, the midpoint of guidance is 16% growth in 2Q and I think the full-year guide would then imply closer to 12% growth at the midpoint in the second half of the year. So is that conservatism or are there some factors that could be potentially driving a slowdown in the second half relative to the first half? Because from what we can see it seems like trends in the business remain pretty strong at this point overall.

Hi, Stephen. This is Ken. I degree that the trends are looking pretty good. It's not conservative you keep saying it's conservative as part of our view, but to be fair, it's early in the year and we want to be careful in an uncertain macro environment is maybe what you're hearing a little bit of caution there, but the business is performing. I would not look at it as any lack of confidence in the business, whatsoever.

Got it. Makes sense. And then just as a follow-up on Coursera Hiring Solutions. It seems like a really interesting opportunity given your position with employers, Universities, but there's also some established competition there. It's early and in beta but how do you think about potentially differentiating your capabilities versus competitive solutions? And also what could the monetization structure look like at a high level?

Yes. Stephen, this is Jeff. Great question. I'd say, mostly we are trying to create learner value. So the biggest thing that we're trying to do is give learners a way to keep track of and to showcase what they're achieving on Coursera so that they can show that with a private personal URL that they can share it with any employer or friends or whoever they want actually. So I'd say the first piece of it you could think of as this learner skill profile that is just learner value. When it will allow employers to sign them and allow them to connect we do think it will be quite a number of years before a network really grows on both sides of the talent supply and the talent demand. But to your question around the competitive space, it's pretty competitive out there for sure. We are not actually monetizing, we're not planning in any monetization at this stage of the game. Certainly not '23 I doubt that there'll be anything in our '24 models either. It's just not what we're focused on right now because it's going to be a longer-term play. And it also gets to how we want to really differentiate this. We talk a lot of that emerging talent and this could certainly be young people who had just graduated from college from all around the world. I spent lot of time in the Middle East, and Latin America, Southeast Asia, Europe, et cetera. With remote work and digital jobs the inability for employers to really go global with the kind of talent out there, and I've seen firsthand when I visit campuses, whether that's in Bogota or in Riyadh. I talk to students and they were really smart students all over the world who are utilizing online learning and will be great employees at companies anywhere in the world. And so what we're really going to be focused on is how do you help someone who doesn't have a long job experience history, say on LinkedIn. And sometimes don't even have a college degree. They're switching from a career in one field that maybe doesn't pay as well or is going to get automated and trying to switch careers. If you don't have a good degree, you don't have a LinkedIn profile how does an employer know what you're really capable of? And so we are really trying to help those career switchers and career starters in emerging talent pools not only develop talent but showcase their talent and connect to employment. That'll be kind of the niche, if you will, that we go after. But like there is like a billion people between 14 and 25 years old, so that's going to be a pretty big miss. But getting started in a new career, is what we're going to focus on.

Your next question comes from the line of Taylor McGinnis with UBS. Your line is now open.

Hi, thanks so much for taking my questions. Maybe a follow-up to the question on the full-year guide. So now on the back of the 1Q performance when we look at the full-year guide I guess how should we think about the growth assumptions baked in for each segment? So for instance, you can see the enterprise and NRR weakening, which I would imagine would have an impact going forward. But at the same time, you have to assume a significant destocking in consumer in order to get to that full-year guidance. So are there certain areas that you're being more prudent than others and maybe you could just elaborate on that and how that might compare to what you're seeing in 2Q so far?

Hi Taylor. This is Ken. So your numbers are correct, of course, as you look at it. Again, as we discussed in response to Stephen we're early in the year, so starting to increase the overall target is something -- given the uncertain macro, you're correct, of course, as you look at NRR. And the implication there we only provide by segment guidance at the beginning of the year to help people shape their models to be perfectly blunt about it, we don't like providing input or guidance on each of them because people end up missing in individual segments and us and then it creates problems. Whereas, we're really looking at the overall mix of the business, especially given the way the business model works, the different verticals help each other so we haven't given any update on the bisegment.

Got it. And then maybe just to ask that I guess in a different way. Just looking at the 1Q performance I guess it was outsized relative to what we've seen in some of the past quarter. So was there any one of the segments, outside of the Degrees like rebound that you would point to that may be outperformed your expectations or influenced how you guys think about the rest of the year?

As we said in the prepared remarks, we've been very happy with the consumer, but we think perhaps seeing a little bit of counter-cyclicality there. It's just been a very strong performance over there for some time and the consumer business tends to be particularly durable I think during some tough economic times. So again -

I would add that Taylor, a lot of what we're seeing growth in it doesn't quite show up exactly the same in every segment but these industry micro credentials it seems like a lot of people want to these professional certificates and part of it is the content and the skills you can learn. But I think increasingly as people think about like how do I get a job, having a credential from a trusted institution that says this person knows these things to do this job, I think is a pretty attractive asset that we have on platform and you saw from the script like what we're really trying to do is not only have that portfolio professional certificates which we call Career Academy but to create pathways from that. Get the ACE accreditation, which now is 14 of those professional certificates have ACE credit recommendations to make it easier for universities to integrate those certificates into their calls degree programs. They are creating pathways from those professional certificates into degrees and now with the hiring solutions creating pathways from those certificates to employers who are specifically looking for entry-level talent in the job that you've earned that certificate. We think it's going to enhance the distinctiveness and the value of those professional certificates and that we expect will provide good leverage and good value across all segments of our business.

Your next question comes from the line of Josh Baer with Morgan Stanley. Your line is now open.

Great, thanks for the question and congrats on the quarter. I wanted to ask on Enterprise, I was hoping you could provide some more context on that step-down in net retention rate just thinking through churn how that's trended seat expansion SMB versus enterprise and that business versus government versus campus?

Thanks, Josh. I'll give you sort of high level. I won't give specific numbers for sale. But generally speaking, it's a combination of the denominator and the new numerator. I mean there is certainly more pricing pressure as LNG departments, want to reduce their budget. It seems to us like companies increasing they're saying I've got to some online learning benefit. It's becoming, like a pretty standard benefit that you have to offer. But if you could cut your costs down, a lot of LNG teams are getting cut in terms of number of heads, they're cutting their budgets down, et cetera. So there is more cost sensitivity and price sensitivity on the revenue retention rates and I think that they are a little bit less likely if they set the box to write a big ticket to expand as well. It's both pieces of that. If you look across regions there seems to be, you'll agree NRR like across all the verticals businesses, governments, campuses, particularly weakness in EMEA. Europe, Middle East, that's where we've seen the biggest weakness although it is pretty broad-based too. And then if you look at it by verticals, which is the business versus the government versus campus EMEA business is historically where we've seen more of the weakness. We're using this as an opportunity to keep on improving the offering, keep on with the skills profile with more certificates, better degrees et cetera. and all the AI building more value in so that when budgets come back a bit and people are more open on the spending we'll have the best solution there, but it is pretty broad-based. I mean, that's what I think, Ken, to your point on the guidance. It's one of the reasons we don't want to get too far ahead of ourselves because on the enterprise side, with businesses, it's pretty uncertain out there and there's a lot of pressure to watch costs.

Thanks, Jeff. That's really good context. And then just like a quick follow-up on that, I mean how should we think about the bottom are we there yet. Should we expect that to trend lower throughout the rest of this year, any context for how to think about the future of that? Thanks.

It's always hard to call bottom, but it feels like things are getting better from a bookings standpoint going forward. But there's still a lot of uncertainty broadly in the enterprise spend market. So I think I'd look to, how do you feel about the economies broadly and enterprise market spending that affects us. But again, we're starting to see some upticks in the right places and so we're not completely negative on it. We just, we want to be cautious in this macro environment.

One of the things I would add, Josh, there is a difference between campuses and business. I mean on the one hand, you see business, if you look across most software, staff software they're seeing similar kind of budgets pressures. It's not like campuses are swimming in money, but in the U.S. they are definitely dealing with demographic and declining enrollments especially like at community colleges and the non-elite universities out there. There seems to be a recognition that offering industry micro-credentials that are going to attract more students and help those students get placed into job like that seems to be resonating pretty well. It's still very, very early in this new market. I mean that market doesn't really exist today, we're sort of creating that market. We're seeing some positive indicators. But it's still pretty early, it's still pretty small. So it's not really moving the overall NRR a ton. But I think this whole idea the industry is going to help reinvent higher education, I'm pretty sure that's going to happen. It's going to happen through the integration of content and credentials from industry into these more traditional degree programs. I'm pretty sure that's certainly the indications that we're seeing.

Your next question comes from the line of Brian Peterson with Raymond James. Your line is now open.

Thanks guys. I'll keep it to one. So I just wanted to talk about Coursera hiring, how do we think about the go to market effort needed for that? Any details you can provide there. And as you kind of stack rank some of the long-term growth vectors, because there's a lot, how do you stack rank hiring in that delinquent? Thanks guys.

Sure, Brian. I would say think of it out there a little bit further, and obviously, it's a huge market. I mean anyone who can play materially or in some impact full way in the way that talent gets placed and there's just a lot of economics there, the way we're thinking about, so certainly in the near-term like being in the next year, couple of years, it's going to enhance quality, it's going to create a better experience for our learners. It will be a nice value proposition. It already has been a nice value proposition for college is looking at career academy like all my students cannot only learn the skills and get credit towards a degree and integrate industry and build these projects they can now have something that really is a companion to the transcript. I got a transcript from my professor's courses and we have a skill profile from Coursera. One shows the more traditional course of study and the grades they got, the other shows the hands-on skills and the tools that they learned and the credentials that they from industry and together it's pretty compelling graduates. I don't expect monetization to come early. If we really -- this is probably obvious, but if we really crack into this emerging talent market and find an effective way to connect talent with employers in a way that's not really being connected today, we think there's a lot of upside there. But honestly, we're not really putting pencil and paper and calculators or spreadsheets for the numbers, because it's really big but it's kind of out there and we're not going to count right now.

Your next question comes from the line of Ryan MacDonald with Needham. Your line is now open.

Hi. Congrats on a great quarter and thanks for taking my questions. Jeff, obviously Degrees is pumping along quite nicely and seeing strong demand trends in terms of customer adoption or new degree program announcements. But to the extent that maybe some of the Q1 wins were already late in the pipeline when the Department of Education situation him up with the new guidance, I'm just curious in maybe some of your earlier stage conversations with existing university partners are you seeing any impact in the conversations because of this uncertain situation with the department?

We're really not, Ryan. At least not that we've seen and I think part of it though is -- well, first of all, the Department of Education, the 2011 Dear Colleague Letter, there's no change at this point on that. There's this third-party services a new Dear Colleague Letter that they put out with -- they got more than a thousand comments back, a lot of those comments were not positive. They were negative. They pull back from the original position. The DOE has pulled back from the original position. They've suspended the effect of the Dear Colleague Letter, it's kind of pending with an indefinite suspension at this point. So there is uncertainty there, but it's not I think fast on that front. And when we think about what we're hearing certainly in North America where those regulations would have an impact, I mean internationally it doesn't matter. I mean not really. Most of the company is going to look at the policy, but for the most part, this is a North American thing. In North America, there's just a lot of colleges and universities, who need to serve new populations of students and that's really imperative to say there are not as many younger people coming to my campus. I've got the final population served. This is the second time the governors are saying, we've got to ups kill and re skill our citizens to make them employable. We've got the chips ACT, we've got the infrastructure bill, we've got the inflation reduction ACT. There's a lot of money going into infrastructure and reskilling, there's a lot more talk about apprenticeships. So there's a lot of emphasis on colleges and education. You've got a serve working adults and this degree design I pointed out University of Colorado Boulder and that program where you can start it free for [technical difficulty] really appeal to working adults. So when you see what's coming on the supply side of degrees there seems to be a lot of interest in those kinds of tailored for working adults degrees and we haven't really seen as far as we can tell

A major friction or headwind on that sourcing from North American universities looking at Department of Education potential policy changes.

All right, that's really good color. And before I follow up with Ken, Jeff, sorry for making you go through the quick background and all that mess on the call, but you summarized it well.

No problem.

On the adjusted EBITDA for second quarter. I apologize if I missed it but are given the strong performance in Q1, we're obviously taking a slight step back in second quarter, were there any investments that you held off on in the first quarter that are falling into Q2? Can you just walk us through maybe why --

There is a little bit of a shift, Ryan. Most importantly though is we don't focus on particular quarters it's always how do we get to the annual number. And we were -7% last year. As you know, the guidance says -500 basis points or 5% in this year, and then positive in '24 as well. Positive in Q4 of this year. But it's really, it's an annual basis and we shift our spending around to maximize growth and future growth within that year, within that budget, it's our operating cadence. It has been for years since well before we were public. And so it's really the 5% we always point people to focus on for the year as opposed to any individual quarter. So yes, this quarter ended up being better, but as we look at it again we managed the whole business to the year, the quarters are too short and a lot of what we're pursuing has longer-term paybacks. So we're scaling regularly, but we're not trying to do it on a quarter-by-quarter basis.

Your last question today comes from the line of Jason Celino with KeyBanc. Your line is now open.

Hi, thanks for fitting me in Jeff ken sorry I've got more enterprise question,

No problem.

It appears the better-than-expected strength that you saw this quarter is coming from new lands, is this a reflection of consolidation benefits I guess what is enabling you to drive these lands especially as enterprise is trying to bring down those budgets like you mentioned?

I would say that you're picking up on something that we see in the numbers, which is, there seems to be more weakness and I'll kind of focus on the weakness, part of it because 104 is not at all the NRR that we aspire to achieve, I mean it is lousy. But when you think about where is there more strength, where is there more weakness, it does feel to us like companies are I've got to have this benefit like online learning is here to stay. Everybody knows that you've got to have train up your people more automation is coming. There is a World Economic Forum report that's coming out and it was in a podcast which is why I can say because I don't think the report is actually out yet, but when the World Economic Forum interviewed businesses and asked what the most important thing that governments can do to support your business. More than tax policy, more than regulation, they said train people. I need people to be trained. So I do think that there is value in companies just recognizing that they've got to be doing that. It's really a structural trend for learning despite an environment where people are trying to really cut their spend, like if you do have the benefit you don't want spend as much on it, you want to try to bang down your suppliers. So there is one price sensitivity and at the same time a recognition that this is going to be a benefit that I think most companies are going to need. So I wouldn't call it super strong but I think you kind of picked up on something which is most of the weakness we've seen in the NRR.

Perfect. And then maybe just to quickly follow up on this. So I know it's still pretty early in the year, but if you going to think about your Enterprise pipeline, how does it compare today versus maybe three months ago?

Three months ago, Ken, I mean I don't know if you want to give any thoughts on that. Ken is kind of shaking his head.

I don't know, it's hard to characterize. Again there's this overall constraint on spending the corporate markets where in pipeline always the question on pipeline is how real and it's hard to tell early stage. What I would say is there's been no deterioration in the pipeline. There is some stability there. I want to make sure we're not being overly negative on it. We're just being conservative in this environment, which I think is wise.

And partly we're being conservative because the environment doesn't look great.

Yes. Tough enterprise spend environment.

Yes.

That wraps the Q&A. A replay of this webcast will be available on our Investor Relations website along with the transcript in the next 24 hours. We appreciate you joining us.