Earnings Call: Q1 2021

May 4, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the Coursera's First Quarter Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen only mode. And please be advised that today's Call is being recorded. After the speakers' prepared remarks, there will be a question and answer I would now 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. Call. With me today is Jeff Magiancalda, Coursera's Chief Executive Officer and Ken Hahn, our Chief Financial Officer. Following their opening remarks, During this call, we will present both GAAP and non GAAP financial measures. A reconciliation of non GAAP measures to 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 located at investor. Coursera.com. Please note that all growth percentages refer to year over year change unless otherwise specified. Additionally, I'd like to remind you that all statements made during this call that relate to future results and events are forward looking statements based on current expectations. Actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our press release, SEC filings and supplemental materials. 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. Welcome to our first earnings call. I've been a CEO for almost 25 years And I have never been so excited about spending my time and talent to help build something so important. Coursera was launched in 2012 by 2 Stanford Computer Science Professors, Andrew Ng and Daphne Koller. They put a few computer science courses up on the Internet and they were stunned when more than 100 1,000 people signed up. These learners came from around the world, from many countries, across many age groups and from many walks of life. And most important, they included people who did not otherwise have access to a great education. Our number one goal has been and always will be to serve learners. Now since those early days Coursera has grown into a global learning platform with 82,000,000 registered learners at the end of Q1. Our mission is to provide universal access to world class learning so that anyone, anywhere Has the power to transform their life through learning. Today, I am pleased to report we are delivering on that mission. We grew revenue 64 percent to $88,400,000 Each of our business segments, Consumer, enterprise and degrees saw strong double digit growth reflecting the continued trend of individuals and institutions embracing online learning certificate and to learn the skills needed for an entry level digital job in less than a year. Professional certificates can also provide access to career pathways, Which connect these learners with hiring partners looking to fill open digital roles with candidates from non traditional backgrounds. But it's not just career pathways, Coursera also offers degree pathways to learners who complete certain entry level professional certificates with our university partners able to award academic credit Allow anyone to develop skills online at low cost, earn a professional certificate, get a job and then start their degree while working. This is what the future of learning looks like for many adults and it is being driven by several global fundamental forces at play. Our world is accelerating driven by technology and globalization. The force of technology, especially the Internet, Cloud Computing, Social Media, Mobile and AI is transforming industry after industry. And just about every person in every job Needs to keep learning throughout their life to stay relevant in a fast changing workplace. But higher education, One of the largest industries in the world at $2,000,000,000,000 has seen relatively little innovation over the past 3 centuries. Traditional college degrees are not affordable to many people. Their monolithic 4 year structure doesn't meet the needs of lifelong learners. Degrees often lack relevance to today's employers and they're not designed for working professionals who don't want to quit their job or move their families to a college campus in order to get a college degree. Coursera is a platform that is enabling the digital transformation of higher education and adult learning more broadly. Our platform is transforming the way learners learn. It is transforming the way educators teach. It is transforming the way employers upskill and rescale And unlike many other platforms, Coursera is more enabler than disruptor because Coursera works directly with leading universities in higher education to enable them to do a better job meeting the needs of all learners in this new digital world. We believe the world needs high quality education to be more accessible and the need for this kind of change has never been more urgent. 1,300,000,000 people around the world are projected to reach working age over the next 10 years and they'll be entering a labor market that looks nothing like What we have ever seen before. The world is becoming more digital and jobs that are repeatable and predictable are being automated by technology. Jobs most at risk of being automated like freight movers, retail clerks and waiters are typically held by lower skilled workers making lower wages. These are also the jobs that have been most impacted by COVID-nineteen. The pandemic has accelerated trends that have been at play for decades. We've been fast forwarded to a new normal of online learning, digital skills, digital jobs and remote work. 84% of employers report that the pandemic has increased their intent to rapidly digitize work processes And businesses and governments around the world are looking to upskill people so that they have the knowledge, the skills and the credentials to enter digital jobs. We believe that the Coursera global learning platform is designed to meet this challenge with a number of advantages over other players in the market Now I'll discuss in more detail. First is our educator partners. Coursera has a 3 platform that connects learners, educators and institutions in a global learning ecosystem. Our large growing learner base and global brand make us an attractive partner educators who want to reach a global audience of learners and deliver high quality affordable education at low cost. More than 150 universities and 60 industry partners have come to Coursera to teach the world and we're proud to have recently welcomed more, including 10 new university partners spanning the globe from the U. S. And Latin America to the Middle East and Asia. And just last week, a new collaboration with industry partner Microsoft with a beginner specialization on Microsoft Azure helped kick start our learners' cloud careers. Additionally, our enterprise channel allows these partners to also address the evolving needs of the workplace. More than 6,000 institutions, businesses, governments and campuses have used Coursera to upskill and reskill individuals in data science, cloud computing, business and many other skills required to compete in today's economy. Whether learners need to quickly grasp a new skill at work Or pursue life transforming degrees at their own pace, the power of our global ecosystem allows industry and university partners to continuously deliver more job relevant skills, content and credentials and to do this at greater scale and lower cost. The second big advantage is our content catalog. Our stackable system of branded high quality freemium content Enables us to attract learners at low cost and serve them at a range of price points from free to $45,000 for a master's degree. Content on Coursera is modular and stackable, designed to meet the needs of learners across all stages of their lifelong journey. Bitesize learning like hands on projects and short courses can build towards a broader course of study such as a professional certificate or multi year accredited bachelor and master's degrees. And our catalog of world class branded content and credentials continues to grow. At Coursera Conference last month, I was proud to announce some exciting new products from our educator partners, including 5 new degrees from leading international universities, including the 1st degree programs on Coursera from universities in Brazil and India, 6 master track programs from leading universities around the globe, including our 1st master track program from an Ivy League University, our first Spanish Language Business Master Track Certificate and our 1st Master Track program from Australia and 3 additional entry level professional certificates from leading technology companies, including IBM and Salesforce for today's most in demand skill. With these recent additions, the Coursera catalog now includes over 1,000 guided projects that offer hands on learning, More than 5,000 courses and 550 specializations, over 40 certificates including professional certificates that require no college degree and now 30 bachelor's and master's degrees. The final competitive advantage I'll mention is innovations to our learning platform. To further enhance the learning experience on Coursera and make it easier for educators to create in demand content, our product team continues to introduce a number of new platform innovations. For learners, we are introducing real time personalized content recommendations, preferred language subtitle translations for over 2,000 top courses and WCAG 2.1 AA accessibility that supports both desktop and mobile experiences for learners of all abilities. Innovations for educators include scalable tools to author content efficiently and effectively, including upload based authoring and LMS content ingestion to Coursera, Which speeds up the authoring process. And innovations for institutions include the Data Science Academy and skill sets to help organizations develop, measure and benchmark skills. Individually, our key advantages, including leading educator partners, world class branded content and credentials and continuous product innovation, increased scale, reduced acquisition costs and increase the value of customers on Coursera. But the real power is the way that these advantages reinforce each other on Coursera's unified platform And produce a flywheel effect as a growing selection of content and credentials attracts more individuals and institutions, Which in turn motivates educator partners to create more content and credentials. We believe that the shift in higher education is only in the early innings, and we see many opportunities to drive growth for Coursera in the coming years and decades ahead. First, we will continue to invest in our growing enterprise channels using a land and expand strategy that focuses on acquiring new customers and efficiently growing our relationships with existing customers. In particular, we launched our Coursera for campus offering only recently in October of 2019 and we see a large market opportunity developing as universities and colleges around the world turn to online learning to help 2nd, on the degree side, we will look to grow the number of students in current degree programs And to expand the number of degree programs offered on Coursera. Today, more than 160 university partners author courses on Coursera, but fewer than 20 of them currently offer degree programs on Coursera. We believe there is a big opportunity for many more university partners to offer 3 programs on Coursera. 3rd, we will continue to grow our learner base and build our brand, investing in increasing the number of registered learners on our platform. We will also continue to grow our content and credentials catalog and our network of educator Partners. And finally, we are seeing some of our fastest growth in emerging economies and we will invest in localizing certain content, pricing, payments and content discovery. When I look at the fundamental trends driving our growth, branded high quality content, world class educator partners and a scalable platform model continuously delivering new innovation. I believe that Coursera is in a unique position to deliver the in demand skills, programs and degrees that our learners and learners around the world need today and going forward. And now, I'd like to turn it over to Ken to discuss our financial results in more detail. Ken? Thanks, Jeff, and hello, everyone. Our first quarter performance marked a strong start to the year as we continued to build on the robust momentum we saw throughout 2020. Total Q1 revenue of $88,400,000 was up 64% as compared to the year ago quarter, driven by strong execution across all three of our business segments. For the remainder of the call, I will discuss key operational metrics as well as non GAAP financial measures, excluding pro form a adjustments unless otherwise noted. Gross profit was $49,600,000 up 71% from a year ago and represented 56 0.2 percent of revenue. That gross margin percentage was approximately 230 basis points higher than the year ago quarter. Let's look at the 2 components of our cost of services and how they have changed in the past year. The first is our Content costs will vary depending on the revenue mix amongst our segments and the content margin rate for each of these businesses. To illustrate the effect of mix shift, in rough terms, our consumer business has a 57% content margin, our enterprise business has a 68 percent content margin, and our degrees business is 100% margin given it has no content costs. So the relative mix Volume affects our overall gross margin rate. Over time, we expect this to be a significant driver of our overall financial performance and profitability as our Enterprise and Degrees segments become a larger portion of our total sales, driving structurally expanding gross margins. The content margin percentage rate for each of these segments can also vary. This quarter, our consumer segment content margin rate increased from 54% to 57% year over year due to a larger consumption of lower revenue share content. The second component of cost of services is non content costs. On a year over year basis, our non content costs decreased as a percentage of total revenue from 10.7% to 9.7%, Resulting in a 100 basis point improvement in overall gross margin. Next, I'll provide some details of our operating expenses. But first, I'd like to be sure we are clear about definitions as related to stock based compensation. In Q2, we expect a large stock based compensation charge associated with restricted stock units For which amortization began with the completion of our IPO. The non GAAP income statement measures that follow in today's remarks exclude stock based compensation and related payroll tax. Please refer to the reconciliation of GAAP to non GAAP results and the appendices of our earnings release and supplemental presentation for additional detail. Total operating expense was $62,700,000 or 71 percent of revenue compared to 76% in Q1 of last year. Sales and marketing expense represented 35% of total revenue, down from a prior 37% as there were lower investments in media spend in Q1 this year. We expect our overall sales and marketing expense in 2021 to represent a similar percentage of total revenue as in 2020. Research and development expense Was 23% of revenue versus 27% in the year ago period as our strong growth has provided higher leverage. We expect our overall R and D expense in 2021 to represent a similar percentage of revenue as in Q1 of this year. General and administrative expense was 13% of revenue versus 12% in the prior year, given personnel, consulting and systems investments ahead of our IPO. We expect this higher expense as a percentage of revenue to continue in 2021. Net loss was $13,400,000 or 15.1 percent of revenue, and our adjusted EBITDA loss was $10,100,000 or 11.5 percent of revenue. We have been consistent in our communication that 2021 will be an investment year, focusing on growth in our learner base through sales and marketing, expanding our content offerings and driving innovation on our platform. We anticipate that we'll continue to incur losses for this foreseeable future that we plan to incrementally demonstrate scale and leverage on an annual basis. Free cash flow was a use of $8,600,000 or $1,300,000 better than the $9,900,000 figure a year ago. Looking at the balance sheet. We ended the quarter in a strong cash position. As of March 31, We had over $280,000,000 of unrestricted cash, cash equivalents and marketable securities. On a pro form a basis, Taking into account the $525,000,000 of net proceeds from our IPO we closed in April, Total cash, equivalents and marketable securities would be over $800,000,000 with no debt. Regarding capital allocation, we are in the early stages of our lifecycle and believe we have substantial growth opportunities ahead of We intend to continue to invest aggressively to pursue these opportunities and ensure ongoing scaling and leverage in our business model. Turning to our business segments. We report our results in 3 segments: Consumer, Enterprise and Degrees. While each segment benefits from our unified platform of content and credentials, technology and data, they are unique in how revenue is generated and the associated segment margin, which we define as segment revenue less content costs in our audited financial statements. First, let's discuss our consumer business. Consumer revenue was $51,900,000 up 61% year over year on broad based strength across All regions and strong initial adoption of recently launched professional certificates. While we have a freemium model Where learners can view course lectures and other content at no cost, we earn consumer revenue when a learner purchases a specialization or professional certificate subscription, Subscribes to Coursera Plus or pays for certificate of completion. Segment gross profit was $29,700,000 or 57 percent consumer revenue as we benefited from a lower content cost rate during the quarter. Our consumer segment is important Because it serves as top of funnel source for our enterprise and degree segments, and we added 5,000,000 new registered learners during the quarter for a total base of $82,000,000 Next is enterprise. Enterprise revenue was $24,500,000 up 63% with strong growth in new and existing customers across all institutional categories. We earn enterprise revenue when these institutions, businesses, governments and campuses purchased seat licenses that provide access to our partners' courses, specializations and professional certificates in order to upscale and reskill their employees, citizens and students. Our net retention rate for paid enterprise customers 113%. Segment gross profit was $16,600,000 or 68 percent of enterprise revenue, Which was slightly lower on a percentage basis than the prior year due to a lower content cost rate in Q1 of 2020. And finally, our Degrees segment. We earned Degrees revenue when learners take a university degree program hosted on Coursera. Our degrees revenue was $12,000,000 up 81% as prior student cohort scale and new students embrace our expanded offerings. With the recent announcement of 5 new degree programs, our portfolio now includes 30 degrees from university partners spanning the globe from the U. S. And LatAm to the Middle East and Asia. And our total number of degree students reached 13,493, up 88% from a year ago. Segment gross margin was 100% of Degrees revenue There's no content cost attributable to the Greece segment. Students pay tuition directly to the university and the university pays us a fee based on the amount of tuition. Now moving on to our financial outlook. We have fairly good visibility into the revenue on a quarter to quarter basis, particularly in our Enterprise and Degrees segments. However, we don't have perfect visibility as revenue in our consumer segment is impacted by our large and growing registered learner base, For individuals can pay in the form of one time single courses or as a subscription. For Q2, we're expecting revenue to be in the range of 89 to $93,000,000 This represents a growth rate of 23% at the midpoint of the range versus Q2 of 20. As a reminder, next quarter, we will begin to lap difficult compares from the onset of the COVID-nineteen pandemic. In Q2 of last year, our revenue grew more than 60% from the prior year. For adjusted EBITDA, we're expecting loss in the range of $9,500,000 $12,500,000 which translates to an adjusted EBITDA margin of negative 12% at the midpoint. For full year 2021, we anticipate revenue to be in the range of $369,000,000 to $381,000,000 representing nearly 28% growth at the midpoint of the range. For adjusted EBITDA, we're expecting loss of 45.5 to $52,500,000 or an adjusted EBITDA margin of negative 13% at the midpoint. Our outlook for full year 2021 reflects additional investments in personnel related costs, sales and marketing and product development, as well as incremental general and administrative costs associated with being a public company. We manage our business for the long term and do not plan to optimize for any single quarter. We run our business on an annual cadence for expenses and adjusted EBITDA. As our business grows, we intend to continue to invest as we see opportunities to expand our competitive moats. We plan to pursue growth opportunities in the transformation of online learning, while also demonstrating scale and leverage over time. Before passing Jeff for closing comments, I'd like to summarize several highlights of our business model. First, In addition to the rapid sales growth we're experiencing, we expect to have clear forward visibility on our top line in the years ahead as our mix of revenue evolves, including A greater contribution from the Enterprise and Degrees segments. Within Enterprise, our annual recurring revenue is growing strongly with customer cohort growth That increases predictability over time. This includes early customers along with the layering of new customer cohorts as we sign multiyear contracts. Additionally, our degrees business has even better forward visibility, given that we fill student cohorts from one academic year to the next And the revenue naturally and predictably builds. 2nd, we believe we will have ongoing structural gross margin expansion over the long term, driven by a mix shift to higher margin business and by our scaling platform. And finally, our business benefits from our freemium model, which enables us to attract new registered learners at low acquisition costs through the power of Coursera's platform and the brands of our partners. As learners are attracted to Coursera for free projects and course lectures, we are able to match them with personalized learning opportunities based on their background and goals, including higher value degree and certificate programs that support our high margin businesses. In summary, we're proud of the business we've built, and we're just getting started. With our key advantages, We see a significant opportunity ahead of us to attract new learners, institutions and educators to the Coursera platform, rapidly grow revenue and expand our margin profile over time. And with that, I'll turn back to Jeff. Before we open the call for questions, let me leave you with a few thoughts. We believe that learning has the power to transform our world from illness to health, from poverty to prosperity, and from conflict to peace. It has the power to transform our lives for ourselves, Our families and our communities. No matter who we are or where we are, learning empowers us to change, to grow and to redefine what is possible. We believe that access to education creates more equal opportunity And more equal opportunity creates a more just world. That's why in February Coursera became a B Corp, which means that we have a legal duty to balance shareholder needs with the needs of society more broadly. We announced more than 18,000 scholarships for underserved learners with Facebook, Google, Microsoft, Goodwill, Black Girls Who Code and Women in Cloud. And on April 27, Time Magazine included Coursera in its 2021 100 Most Influential Companies alongside companies like Tesla, Airbnb, SpaceX and DoorDash. It's a testament to how the world views Coursera's We embrace this responsibility wholeheartedly and we always have. The desire to help, To serve to move humanity forward was the reason that Andrew and Daphne started Coursera in the first place. It's what has drawn our employees to join Coursera and inspires us to work so hard every day and it is what has attracted leading universities and companies to join us in our mission. If we can unlock the full potential in every person, we will help transform lives and we will help transform the world. With that, let's get to Q and A. Could you please introduce the first question? Thanks. And for our first question, we have Josh Bair from from Morgan Stanley. Josh, your line is open. Great. Congrats on a very strong first quarter. My question is on the COVID relief efforts and as it relates to the enterprise side and just the timing of those efforts, Wondering where are we as far as the monetization potential of converting some of those institutions from free to paid? Yes, Josh, thanks for the question. This is Jeff. And obviously, we started doing the workforce recovery initiative back in March of 2020. And then the workforce the campus response was first with the campuses and then the workforce recovery was with governments and that was in April. I would say that we are starting to see an acceleration of uptake in the conversion of those free Workforce recovery relationships with government agencies, that seems to be happening at a bit of a quicker pace. And I think one of the big reasons is The level of unemployment and the urgency of getting people back to work and into new digital jobs is definitely higher now than it was a year ago. Another thing that we're seeing is that most seems to me at least that most government agencies didn't have experience with online training programs. I mean, they were doing it Kind of the old way. They were all forced to embrace online based workforce development programs. I think they're seeing that the how modern it is, how How well it works in a pandemic environment is all working pretty well. So we're pretty good with the conversion efforts there. On the Campus response initiative, it's we think it's a bigger opportunity just in terms of the number of institutions out there. We continue to move along, but different regions around the world have different policies, regulatory stances, faculty have different levels of influence and power. I'd say we're making good steady progress. It is not in Q1 like a hockey stick of conversion on the campus side. We're seeing Good steady conversion of the pipeline that we have built in 2020. Great. Thanks, Jeff. If I could just ask Ken a quick one on degrees, we know Segment margins are 100%. I was hoping you could talk through some of the other costs of Degrees and what does OpEx look like for that segment? Thank you. Sure, Josh. You're welcome. So we do not plan to break out specific costs Of course, on the different segments of the operating line, but to discuss the structure and what it looks like, the biggest cost of the biggest group Supporting that effort is the university partnership people who both bring in new universities, expand degrees and operate and help On a day to day basis with those clients, with those universities, to ensure that they have what they need. So there's a group dedicated to doing that And that lives in our operating expenses. Another thing I will just add Josh is, as you can probably imagine, we are a technology company and so we love, Love seeing human processes that are automatable. And so we don't only build technology that is learner facing. We're doing a lot on the back end to automate the capabilities associated with serving degree programs. And I'll also just point to, I think a pretty big accomplishment that Andrew and Daphne and the team in the early days got to, which is, for the most part, when you look at course Just single courses, not degrees, but single courses, which there are now over 5,000. Those are pretty much all self serve. Pretty much our partners just they know how to use the tools, the professors know how to author, they author, they post, it goes through a QA process. But For the most part, that is self serve, and we can see a lot of leverage over time as it relates to building more scalable, repeatable automated processes on the degree side as well. One general add on to that which is why we haven't broken out these ARRIS costs is because and it's part of the overall business model That benefits and helps us scale differently than other competitors, is the fact that that technology is used across all of the businesses. And so the only distinct one is the university partner people for that segment. Great. Thanks. Yes. For our next question, we have Stephen Sheldon from William Blair. Stephen, your line is open. Hi, thanks for taking my questions and congrats on the successful IPO and strong Q1. First, I guess within the Enterprise segment, really strong trends there this quarter and nice acceleration in paid enterprise customer growth. Can you maybe give an update on the size Of the direct sales force there and the trends you're seeing in productivity, especially for the additions you made to the enterprise sales force in the second half of twenty twenty? Yes. I guess what I would say, Stephen and Ken, I don't know if you want to put any sort of financial color on this. But we did take A reasonable amount of the, if you will, COVID tailwind surplus that arrived at our door in Q2 and Q3 primarily. And if you looked at our sales and marketing numbers in Q3 and Q4, that reflected a pretty reasonable ramping of our direct sales team. We are on track with respect to training with respect to hiring. We are on track with respect to ramping. We're feeling good about our progress here, and we expect that this is giving us the capability to continue to close a lot of the opportunities that And we pay a lot of attention to that because of sales capacity. You asked the question for an obvious reason and we're right on track with our sales capacity on the enterprise Thanks. Great to hear. And then just continuing to see advertisements from Coursera on different media types, So can you maybe talk some about plans for marketing spend over the remainder of the year and how much that could be helping brand awareness and point in more registered burners in the consumer segment? Sure. Last year in Q4, not unlike some of the additional investments that we made in the direct sales force, We also made some investments that were somewhat atypical in the portfolio of marketing mix that we took to market. We had an interesting and I think very cool Co branded campaign with Disney Soul. We ran more TV than we had in the past, just to kind of see in different markets and different things What might be the ROI? It left us feeling that we really love the basic premium model. I mean, it is hard to really build cost effectively awareness and brand with just advertising dollars. So I would say that through those experiments and as you see us rolling into 2021 here, we are going to go with our pretty standard marketing mix that we've been doing so far, pretty highly leveraged. Lava is just a freemium model, high SEO, word-of-mouth, some affiliate marketing, which seems to Do pretty well with our partners' content and credentials. But generally speaking, more in line with the kind of sales and marketing that we are doing earlier in 2020 Than we were in the later part of 2020 and you might see the more sort of TV advertisements. It might be the case that you are just noticing them more. We are not really Pushing heavily dollars against that channel. Ken, anything you'd add to that? Well, Stephen, I'm very glad you asked the question actually because we didn't have a Q4 earnings call because We're hitting on something that will be a recurring theme, which is that as we plan our expenses on an annual basis, We want to show leverage in the business. We plan to see EBITDA margins getting better year to year. We're not going to focus on that quarter to quarter And the discussion we're having right now around Q4 is spot on. We expect to do that again in the future. We're going to manage the business To show more leverage and to get better on an annual basis, but in between, we may experiment and accelerate our within that band And accelerate our spending. So we make sure we capture this market, right? And so anyway, I wanted to take the time to make that point, so everybody knows what we're doing going forward since we didn't have Q4 earnings call. Makes sense. Thank you. For our next question, we have Terry Tillman from Twist. Terry, your line is open. Yes. Hey, everyone. I'll echo the congrats on the IPO and also on the quarter. Hi, Jeff and Ken. Maybe the first question, I'll just throw it out there. In terms of specializations or these special certificates, maybe an update on how meaningful this is as a portion of the business, where you see some of the most notable traction and how does Microsoft fit into that? So unfortunately, that was a 3 part First question, I have another one behind it. No worries. Yes, so as we think about specializations, These are a product that was launched right around 2014. It was one of the first times that the monetization of Coursera started taking off. And I think that the Sort of the secret sauce on that. The first specialization was a Johns Hopkins data science specialization. It was a either 4 or 5 course series. At a time where it was really difficult to earn any kind of credential with data science, it was one of the first available and it attracted a lot of more advanced data science learners on to Coursera and they were going for these specializations. When you think specializations, generally be thinking business technology and data science Often comes from universities, often at the more intermediate or advanced levels. There is another type of product which is very similar. It's also a multi course series subscription base, which are professional certificates. These generally come from our industry partners, not universities. And there's a certain type of professional certificate, which is the entry level professional certificate. These are the ones created by Google And Facebook has got social media marketing and IBM has got a number of them in cybersecurity. They are all basically assuming that you don't have a college degree, you don't have any back And they are teaching you online in less than a year the skills that it takes for an entry level high demand well paying job. Those are the those entry level professional certificates are what we are seeing a lot more uptake across almost every segment, consumer, business, campus and government. And what we think is happening is a couple of things. One is the portfolio is getting bigger. So this time last year, we had 2. We had IBM Data Science for an entry level data science position and we had the Google IT support certificate, which was really the first and the reference professional certificate, if you will. Now we have 13 live and they cover many more different careers And they also include since then one from Salesforce. We've announced one with Intuit in bookkeeping. We got one from Facebook and social media marketing. We just went live in Q1 with 3 additional entry level certs from Google. So UX Design, Software Project Management and Data Analyst. And they're all again, no college degree required. These are really, I think the larger portfolio and the higher incidence of unemployment and people post pandemic really thinking I got to get myself into a digital job Is really seeming to resonate. So we put a little more texture around this in the script. We are seeing some nice numbers here And we think that this is going to be well suited for the environment, the sort of the job market environment that we see now and probably for many years to come. That's great. Maybe the second question, I thought it might be easy, but maybe it's not an easy win. So I don't know if this is if you want to give this to Ken Or you want to take it, but the vitality of the consumer business going forward. The registered learners, I mean, you still are adding a nice amount. Obviously, it's not quite at the COVID levels. But we're going to get the question a lot about post COVID. If there is such a thing, kind of how does the vitality of your consumer segment look? Whether there was a commitment to double digit growth or just what can you say about the ongoing vitality, particularly because of the international opportunity on the consumer segment? Thank you. Yes, it is a tough question, so I'll turn it over to Ken. Now let me give you a real quick so here's how we think about it. In the long term the longer term, I really want the top of funnel, the number of registered learners to be generally pacing with the business. And so generally, we want to grow 30% or more per year. So we want to do definitely double digits on that number over the longer term. Of course, you can Generate more revenue by getting conversion rates higher and getting a mix shift and things like that. So, obviously, if we have more Products to monetize, you get higher conversion rates, you could have higher LTM. If you I mean LTV, if you get People buying say things like degrees at a higher average selling point. So I'd say overall, we do want to be growing the top of funnel. I think on the revenue side of the consumer segment, a lot of it will be these career oriented credentials. That's where We think that the strength and vitality of the revenue will be. And again, in a world where unemployment is a pretty big issue and a lot of the world is Switching towards digital jobs, we think that that will provide at least double digit longer term growth rates. We said on the roadshow, historically it's been mid teens, high to mid teens. We think we should be able to do that and better for some time. Thank you. For our next question, we have Ryan McDonald from Needham. Ryan, your line is open. Yes. Thanks for taking my question. Congrats on the quarter, Ken and Jeff. I want to start in the consumer segment. You talked about Pro Certs It's being quite strong in the quarter. We'd love to understand how free to pay conversion has been trending in the quarter and if you're seeing any improvements there. And I guess on top of that, has Coursera Plus contributed to any of that success at all? Yes. I will do it at a high level and then I will see if Ken wants to put any financial texture on it. So the professional certificates, One of the things that we are noticing about these and although we launched the Google IT certificate with Google in January of 2018, We had a pretty thin portfolio and we had 2 of these things and so we didn't have a lot of data. It's still early days. One of the things I think is quite interesting is when we think about Who is buying these? From the time in 2018 when we launched the first one, well over 75% Of the people that bought that first one came from off platform. They were new to Coursera. There's been an interesting phenomenon that obviously happened in 2020, A lot of people came to Coursera because they wanted to try online learning for the first time. They are not necessarily like advanced data scientists. It's a broad swath of society across many countries. And there is a question of like, well, are they equally monetizable? Not clear whether they are equally monetizable. But I will say that As we've launched more of these professional certificates, a higher and higher percentage of the monetization is coming from on platform learners Who are more of your sort of representative learners post COVID than it was in the early days of Coursera. And we are seeing that generally speaking, When someone is thinking about changing careers, the ROI that they are assigned to that, the commitment that they are assigned to that, the value that they are assigned to it is causing them to Be more higher propensity to pay. So relative to a general average course, these entry level professional certificates Do seem like they are a pretty compelling value proposition to the typical everyday learner who seemed to show up on Coursera in 2020. Ken, anything you'd add to that? And then I'll so Ryan, on the Coursera Plus side, we are seeing good results there. This is For those of you on the line who aren't so familiar, it's kind of a little bit of a Spotify model where with one subscription fee, you get access to Almost all of the courses from our partners on Coursera. We are mostly seeing this as a payment mechanism that could facilitate different types of offerings. We have seen certain types of learners who maybe wanted to sample across specializations or professional certificates, say, a Job seeker who is not sure if they want to do IT or do I want to do marketing or do I want to do cybersecurity. The ability to explore the catalog It is obviously facilitated by Coursera Plus and so it is looking like this will be a tool for certain segments at certain times in the consumption phase. And so We like it. It's not necessarily like going hockey stick in Q1, but it's a useful tool to have. It's helping us. And in the future, we hope to find ways that could help us even more. Great. And as a follow-up just on the enterprise segment, it looked like a near record quarter in terms of new paid enterprise edition. Just curious what the role of Coursera for business had in that strong additions and What you're seeing or hearing from enterprise organizations in terms of prioritizing rescaling and upscaling? Thanks. Yes. So on the enterprise side, I mean, I would kind of say it's useful to look at the number of paying customers. Obviously, customers come in all shapes and sizes, Some with very large franchises, some with smaller, some who are buying more expensive stuff and some buying less expensive. So I think it's a useful metric. I wouldn't look at it too carefully. There could be a quarter that's really great and that number doesn't look so good or vice versa. I think that a lot of what that's reflecting is of businesses and governments and campuses all really thinking about, oh my gosh, the world is really changing. It comes back to employability, but from a slightly different angle. The businesses know that they need to be competitive. So we have seen and this is from the World Economic Forum survey, businesses saying Because of COVID and just generally the rise of AI and digital transformation, we need to move faster in skilling people. We've not seen that abate. But in addition, government seem to be much more interested now than they were pre pandemic About using skilled training programs online to get people reemployed. So we've definitely seen good uptake there. And I will also say campuses in a more difficult job market, a lot of what students individual students are really looking for is, Should I spend my dollars paying tuition for 4 years or so in the hopes that I can get a better job and a better wage? On the one hand, it's a tougher job market, you want a credential that distinguishes yourself. On the other hand, you really want to make sure that it actually enhances employability. In Coursera for Campus, We see the value proposition of student employability really resonating in a way that it didn't when we launched the product back in October 2019. So I'd say long answer to say, yes, generally speaking, a tough labor market is creating demand across all three types of enterprise institutions, Businesses, Governments and Campuses that seems to be, we think, given some good tailwinds behind us there. Ken, anything you'd add on that? No? No. Excellent. Thanks for taking my questions. Congrats again. Thanks, Ryan. For our next question, we have Yoon Kim from Loop Capital Markets. Yoon, your line is open. Thank you. Congrats on a So let's start to the year, Jeff and Ken. Hi, Jeff. Just a high level strategic question around the international market opportunity. I am assuming that you are seeing a different user dynamics or learner dynamics on conversion rate and preferences between U. S. And the international users. And I'm also assuming there's a considerable difference in LTV lifetime value between U. S. And international learners. Can you just talk about How you are balancing the different economics and dynamics between the 2 different types of learners in your business, especially in regard to the acquisition model. Thanks. Yes, absolutely. Thanks, Ian. So a simple high level kind of first principle way that we think about this is At different stages in someone's life and also if you think regionally at the stock of human capital, if you will, in a given region, it's about Creating human capital and then through employability turning those human capital skills and knowledge, etcetera into financial capital. And obviously, if you don't have financial capital, you're not going to see very high conversion rates and a lot of not a lot of money paid. But in the longer We see that a young person in high school or college, let's say, an undergrad in college, although they cannot buy a lot of stuff right now, in fact, They often go into debt when they fund their education. Over their lifetime, there might be reasonable economic value to us if we can supply their lifelong learning needs. So When they're building human capital, they will be a little bit harder to monetize. But as they start developing that human capital, start making some income and then reinvest some of that In future human capital development, that's when they buy a bachelor's degree or that's when they buy a master's degree or that's where they buy an advanced specialization, We think that the conversion could be better. So similarly, when you think about it as a region, if you think about China, if you think about India, if you think about Latin America and in the so early stages, but Africa. Regions are building stocks of human And as the middle class rises, typically, they start putting more of their disposable income into education. But it's a long process. I mean, this is So today what we see is the highest conversion rates and the highest percentage of revenue across every segment of our business Coming from North America and Europe. Those are the developed economies, they have the disposable income, they're making the money to spend Over the longer term though, we are working on building the funnel at low acquisition cost, like almost free acquisition cost because that's the only way you could really do it in these emerging markets, Often through government and institutional partnerships to really keep our acquisition costs low and then we hope to build TV and conversion as those regions mature, as the middle classes grow as disposable income rises and a greater attention is focused on not only learning, but also learning credentials. That's at a really high level the way we think about it. Today, I'd say we're still in the early stages where Higher conversion of higher activity is coming from developed economies, but we think the long term play is more global than that. And I'd tack on just one minor. Hi, Eun. This is Ken. So I'll tack on one minor increment on the consumer piece itself. Beyond the institutions, which have been great, Also we're getting credit for SEO search, right. As we build the rest of it, the reason we have so much traffic is the quality of the content we have and the links to the universities. So So when these topics come up in SEO search, consumers are naturally drawn to the site. So once again, building on free content, SEO search as well as general brand awareness, word-of-mouth, that's a secondary piece of the building of that funnel. That's great, Ken. Thanks so much for that. So along that line, Ken, was there any material change in the pay versus organic new acquisition mix this quarter and how do you expect that to trend for the remaining of the year? There were not any notable difference This quarter, we haven't provided projections. It's on independent efforts and that the marketing group primarily Kicks off. So not much to say on future plans, but it's been consistent historically the last couple of quarters. Okay, Great. Thank you so much. All right. Thanks, Jim. And for our next question, we have Jason Celino from KeyBanc. Jason, your line is open. Hey, guys. Thanks for taking my question. I just didn't hear from everyone. Maybe a Follow-up to a previous question. As enterprise budgets recover this year and spending for a new version of hybrid work emerges, Are you seeing any uptick from any customer budget tailwinds for the enterprise business right now? Yes. Hey, Jason, this is Jeff. I would say that, not necessarily. It seems like in EMEA, right when COVID happened, There's a lot of emergency government action like don't fire people, don't throw up people like here's money, train people, keep them engaged, do what you need to do. I don't know that Budget was necessarily coming from the employers, but it was subsidized by mostly EMEA governments. That is starting to now taper off it seems And now companies are stepping back in and saying, okay, we're getting we're reopening, we're getting back to business and we need to be skilling our folks. So I don't want to say it's a wash because that would make it sound too precise. I just would say that overall, we haven't seen like a big opening of the wallets As businesses have been coming back online, I think it's been pretty steady. Okay. And then your academic partners, they likely know your learner base comes like 80% comes from outside the U. S. Or at least I hope. But for your U. S. Colleges that you work with, if they do in fact look to digital learning as a way to diversify and tap new markets of students, Will they look to international students for these digital offerings or is that more or how do we think about that opportunity? Thanks. Yes, for sure. I would say one of the Primary well, the primary the biggest value proposition that we offer to educator partners is reaching a global audience, both individuals and institutions, but frankly, a lot of it is individuals. And so they're really thinking about and I'd say pre pandemic, it was sort of just I want to reach a lot of people. There was a little bit of emphasis towards the global. In a world with a pandemic where travel has been curtailed and time zones have been really hurting people, the idea that you can reach a global Population builds your brand. Also, if you look at demographics, I mean, there's a much more favorable demographics in LatAm, Africa and especially in India, where you've got a lot of young people who are going to be growing the roles of enrolled students in colleges. The U. S. Demographics don't look so attractive. So we definitely see reach to a global audience as a number Proposition and within that increasingly post COVID reaching international students primarily in developing economies where there is a lot of Younger people who are going to be getting college degrees seems to be a big part of the value proposition that they are resonating with. Shady, can we have the next question? Yes, sir. And for the next one, we have Brian Peterson from Raymond James. Brian, your line is open. Thanks, gentlemen, and congrats on the really strong results. So just one question for me, and it's actually a follow-up to Jason's But Jeff, as you think about the degrees business and how maybe some of your partners would be looking to utilize that solution And post pandemic, when do you think we'll start to see an inflection point? I know the growth is really impressive, but I'm curious If those decisions are being made now or this year, I'm just I'm kind of curious to get a higher level comment on when people would really be looking to deploy that. Thanks guys. Sure. Thanks Brian. Yes, I think it kind of it's kind of a wide variety of responses. If you look at the degrees that we have announced in the last 6 months With our university partners, they have been disproportionately international. So we have been seeing a quicker uptake From international universities who want to move degrees online. Another thing that we have been seeing is that degree partners who have One degree offered one degree on Coursera are more likely to do multiple degrees on Coursera. So I do think that if there is going to be an inflection, I think part of it is the globalization of online degrees, where if you look at just our chronology of university partners putting degrees on Coursera, it was generally English speaking U. S.-based North America Europe. If you look in the last 6 to 12 months, it has diversified quite a bit in Latin America, Russia and India. I think that that's going to continue. I think that's going to continue. I think one of the reasons is, to Jason's question that you linked into, Brian, I just think demographics And the appetite and the need for this is important. The other thing too is that the OPM market is much more mature in the U. S. Than it is in international markets. And because back in the day, Andrew and Daphne wisely signed up 100 plus universities internationally right out of the gate, we've had relationships With international universities for many, many years, almost a decade in many cases. So we think I think that if there's going to be an inflection point and things If you said I have a crystal ball and I'm telling you Jeff or some genius telling me you're going to have a lot of degrees quickly, How did it happen? I would say things went global quickly and partners who aren't even one degree started putting on additional degrees more quickly because they can mix, Match and reuse. That's what I would say. And I'm not saying that right now we're at that inflection point, but I'm saying that our experience suggests If there were an inflection point, that might be kind of a reason why that would happen. Got it. Understood. Thanks, Jim. Sure. Hey, Sadie. We'll take one more. Yes, sir. We have time for one last question. It's from Brett Knoblauch from Berenberg Capital. Brett, your line is open. Hi, guys. Thanks for taking my questions. I have one on just, I guess, student outcomes. I was just curious, maybe what you guys do different in the degree segment to keep engagement high and if you could offer any quantitative or qualitative data about student engagement and outcomes regarding the degree segment? Sure. Hey, Brett, this is Jeff. So, one of the things that is useful about degree credentials As compared to say specializations or open courses or lots of other types of content that's on Coursera and also just out there in the world Is that degree credentials are pretty well known. I mean, people have a pretty good idea of what a college degree is and different degrees from different schools have certain outcome rates associated with job placement and things like Because the degrees that our university partners offer on Coursera are generally identical to the on campus program, Employers don't know whether you got it on Coursera or whether you got it on campus. Our best guess is we as we hear from university partners, the outcomes are generally the Outcomes are generally the same. The recognition of the degree credential if you get on Coursera versus on campus is the same. And I think that the outcomes you'd We would expect and we've not heard anything different that they would generally be the same as well. Obviously, the more elite universities teaching Who are more selective and teaching in domains that are in high demand, business technology and data science and healthcare, which are the 4 categories that we really focused on for degrees will have better student outcomes generally. When we think about how Students engage and retention rates, we do see term to term retention rates about the same as on campus programs. The demographics though are slightly different. So on degree programs delivered on Coursera, typically the average age is about 10 years older than on campus. And I'd say 75% to 90% of the students, depending on the degree program, are working already. So the employability piece is a little bit Already baked in because most of the people taking degrees are already working. So they have a job. The question really is will this help them advance in their job. I think there's a lot of evidence that suggests having a master's degree as opposed to just a bachelor's or having a bachelor's as opposed to no college degree really helps with career advancement. So We've heard only positive things from students and our university partners and that's kind of how we're seeing it so far. Understood. Thank you. And then maybe just one quick follow-up. As I think about the consumer segment progressing throughout the year, Should we talk about that potentially improving on a revenue base as we progress throughout the year or is there difficult comps that we should watch out for? Yes. Well, so when you say progressing in absolute dollars or do you mean year on year percentage, I think on the year on year percentage side, I would say no, Because I don't think we'll we're not expecting to do 59% year on year revenue growth in the Consumer segment in 2021, which is what we did in 2020. In absolute dollars, Ken, generally speaking, how are you expecting us to play out over the next three quarters? Yes. So we as I think, we don't guide to the individual segments firstly, of course. We provide overall guidance for people to have an understanding. There's a mix within that to state the obvious. And what we've talked about is we have no reason not to expect it to continue in the low single digits as it did before COVID, which is the Comments that we've made on the roadshow and on an ongoing basis. Perfect, understood. Thanks so much. Sure. Thanks, Brett. Thanks, everyone. That wraps the Q and A. A replay of this webcast will be available on our Investor Relations website along with the transcript in the 24 hours. Thanks for joining us today. This concludes today's conference call. You may now disconnect.