Thanks everyone for coming here today to J.P. Morgan's 51st annual TMC conference. My name is Noah Herman. I am a software equity research analyst here at J.P. Morgan. We're really excited to be hosting Greg Brown here today from Udemy, the CEO. Thanks for joining us, Greg. Really appreciate it.
It's great to be here.
I mean, you know, welcome to the conference, and maybe, you know, you can give us a brief moment or two to just introduce Udemy, introduce yourself to the audience.
Yeah, no, happy to. Yeah, I've been fortunate to have been on with Udemy for about 2.5 years. I came on initially to oversee and run our enterprise business and recently, about 3 months ago, took over as CEO. We've got a very unique company. We're a very mission-driven company, you know, focused on improving lives through learning. You know, that's our core, and that's what we come to work every day to do and accomplish. We're unique in the category in that, you know, our focus is all about improving the experience for organizations and professional learners through our online marketplace.
One of the things that makes us very unique is our online marketplace is a massive global marketplace that enables upskilling and reskilling at significant massive levels. You know, we've got over 70,000 instructors on our platform on a global basis that have generated over 210,000 courses that are locally developed in the countries that are native to the instructors, that supports learning across over 62 million learners on our platform. You know, we couldn't be, you know, more excited about the opportunity ahead and, you know, really the marketplace for us fuels the growth of our growth engine, which is our Udemy Business, which is our enterprise software as a service learning platform.
You know, what we've effectively done is curated the best of the best content from our marketplace and made that content available for our enterprise-class customers. That really equates to 22,000 courses that comprise topics anywhere from leadership, business, professional and technology topics that fulfill the needs of our organizations, you know, again, on a global basis. You know, it's been a great run and we're at the front end of some massive tailwinds that are, you know, fueling the industry growth and surely our growth as well, which is, you know, the transition from offline to online training and enablement, upskilling and reskilling, consolidation effect that is happening within organizations large and small.
A big migration that Jamie Dimon talked about recently from a curriculum-based learning around degrees and now the intense focus on skills development. We sit at the front end of that and, you know, again, are really excited about the opportunity ahead.
No, that's a great overview. You know, you sort of mentioned you recently stepped into the CEO role. Previous to that you were pretty much, you know, leading the Udemy Business side of things. I mean, what have you sort of been learning, you know, coming into the new role, and what do you really see as the long-term opportunity for the company?
That's a good question. You know, one of the first things I did was I went on a bit of a listening tour and spent time up and down our organization hearing from our employees, what they felt like we were doing well and where we had opportunities to improve. The insights were tremendous and really did further validate that, you know, our strategy and plan, is on point, but that there are definitely opportunities for us to enhance, you know, the capability we provide them to do their jobs, every day, as well as provide additional value and impact to our customers, which is really at the core of what we're here to do.
On that listening tour, I actually went out and met with instructors as well as customers, because I really wanted to get a 360 degree perspective on the areas that I just mentioned, what we're doing well and where we can improve. Anyway, it was a fulsome, you know, array of folks that I met with and, you know, the information that I acquired really was validating in that I really do believe we're on point with our strategy and we're carrying that forward and we're doubling down on investments in our operating model that support both, you know, the development we have made around AI and badging certification and some of the other strategic initiatives that I've talked about in the last earnings calls.
Yeah, and, to that point, you know, you brought up AI and that's come up in probably every conversation here at the conference. You know, I think, you know, investors want to get a better sense of how that's really just impacting the ed tech space in general, as well as, you know, specifically to Udemy as well. You know, what are your overall thoughts on just the impact of generative AI and what's your perspective maybe of the overall impact onto the ed tech space in general?
Look, I think with respect to the space, you know, generative AI, it truly is gonna transform how we enable learning to happen within organizations. Within Udemy, we have been investing for over 10 months now to better understand how we can leverage AI to promote an accelerated content development process for our instructors and more expanded learning experience as they're looking at ways to, you know, provide, you know, additional value and impact. Through the courses that they're enabling on the marketplace as well as within our Udemy Business content collection. We couldn't be more excited, you know, about the developments that we have seen and the testing that we've done.
We talked a little bit about some of this in our last earnings call, but with respect to, you know, the capability for instructors to now, with the press of a button, develop, you know, coding courses and content in a matter of minutes, that took them hours or even days before. In addition to the ability to, you know, use smart search, to foster micro-learning in ways that before we knew there was demand for, but we did not have the ability to enable. We continue down the path of exploring ways by which we can leverage AI, to, you know, in a broad sense, improve the overall learning experience, for learners across the array of organizations that we support. For us, you know, we really do view it as opportunity.
We really don't see any short- to mid-term threats with respect to AI. We really just do view it as an opportunity to enhance the overall learning experience as our instructors are very focused on that every day.
You see it overall as a tailwind for you.
For us, absolutely.
Mm-hmm.
There's no scenario by which we view AI as not being complementary, you know, for our business, because again, we're focused on enabling the professional learner, you know, to, you know, have the tools and resources necessary to upskill and reskill themselves, you know, toward either the current job that they're in and/or the job that they're aspiring to obtain. you know, from that end, you know, the instructor experience is really paramount, and we're gonna enable the instructors to develop content faster, more efficiently, more effectively. The instructor experience really is at the core of what we know our learners need to be able to, you know, to acquire those skills. yeah, we don't see any threats in the, in the short to mid-term at all.
Got it. maybe if we pivot a little bit just to the macro a little bit. Last quarter, the company saw upsell and expansion deals elongate a bit due to the macro environment. Maybe you can just touch on what you're seeing from a macro perspective, and what are some of the levers you're able to pull to mitigate some of the risks that you're seeing?
Yeah. From a macro perspective, we started seeing some softness in Q4. We called that out that, you know, that sales cycles were elongating. While our top of funnel remains very strong and healthy, the elongation was in the middle of the funnel, and then we did see that extend from Q4 into Q1. You know, I think, you know, holistically, you know, we couldn't be happier with what we were able to deliver in Q1. As much as, you know, the softness does remain in terms of sales cycle elongation, and we are still seeing some compression downmarket in the SMB business, you know, we've remained very optimistic in our ability to continue to execute through, you know, the turbulent macro and deliver against the guidance that we provided.
You know, really no fundamental change in Q1 from Q4 in terms of the softness or the sales cycle elongation. You know, at the same time, if you listen to Jamie talk just a little bit ago, you know, we don't expect any near-term, you know, green shoots and/or, you know, change to the, you know, to the positive on the macro. We think it's gonna be a fairly turbulent year, and we plan for that.
That's embedded in the guidance?
It's embedded in the guidance. It is.
Got it. Maybe, you know, with that, if we could touch on the go-to-market a bit. You've recently implemented some new changes to the go-to-market, including expanding your partnership strategy and restructuring with some reps to name a few. Can you walk us through the go-to-market playbook at this point?
Yeah. The changes we made, you know, over the last, it was really about the last year and a half, was moving from a inbound responsive sales organization to a much more strategic solution sales orientated sales organization and go-to-market approach. Really what that entailed was, you know, training and enabling our sales organization to sell a much broader and deeper value proposition to the C-suite versus, you know, historically we had landed effectively on the IT side of an organization and then found our way to expansion. Right... you know, now what's changed is, again, those conversations are starting much higher and much wider, much earlier on.
Really what we saw in this last quarter as a result of that was we saw the largest number of 6-figure deals, you know, be closed in that quarter that we've ever seen amidst this tough macro environment. The investments are paying off. We're seeing our sales organization again being able to establish value and expand those relationships faster than we've seen in prior quarters, and we expect that momentum to continue as we move through the year.
When thinking about the Udemy Business side of things, at your Analyst Day in November last year, you called out that the Udemy Business segment, you penetrated that, I think at a 10% clip of potential licenses within the existing enterprise customer base, and you see that as at least a $2 billion opportunity. I think based on what you can control and irrespective of the macro, you know, what are some of the initiatives you can pull to drive that penetration further? 'Cause that just seems more of like a low-hanging fruit opportunity.
It very much is. You know, one of the areas that we've been focusing on is what I just mentioned, which is we are roughly penetrated, you know, approximately 10% across our 14,000 plus customers. To enable our sales organization to expand more rapidly from the initial beachheads that we've established when we land is one of the areas that we've invested heavily in. One of the other areas is over the last year and a half, we've added two additional products to our product portfolio. I will say prior to that, the majority of our upsell motion has been on seat expansion. Now we're starting to see, some significant material impact from product expansion.
To the tune of last quarter, we saw a 6x increase in our Udemy Business Pro, you know, sales as a result of the investment in that product and our sales organization now, becoming very effective at bringing that product to market. We expect similar results from our Leadership Academy product as we move throughout the year. It'll be a combination of seat expansion, product expansion, as well as, you know, selling high and wide, a much broader and deeper value proposition, which really reflects our belief. That we are the platform that organizations can and should standardize on as their primary partner for upskilling and reskilling across their enterprise.
I'll just add to that, you know, one of the other areas that, you know, gives us a lot of confidence and belief that, you know, that we're gonna be able to execute against that and approach that 50% penetration is the localized content that we have in the countries that we serve. It's a very different experience, for instance, in Japan, if you're taking a course from an instructor that is Japanese, in country, developing their content and with, you know, local language context and understanding as to how learning transpires in that market versus a course that's been dubbed and subtitled from English, which is the experience that, you know, that outside of Udemy that, you know, a lot of organizations have had to face.
You know, we have a distinct value proposition advantage there on the international side, in addition to the other areas that I mentioned. Yeah, we're very bullish about our opportunity to expand from 10% penetration to approach 50% penetration across our enterprise customers, which would be, as you mentioned, you know, $2 billion in sales.
How does consolidation also play as a factor into this? 'Cause last quarter you mentioned that you notched a, I think it was a seven-figure deal. You know, it was a consolidation opportunity. How does that also play into the, I guess, just the overall growth driver for the business side of the company?
It's definitely a factor. You know, we're seeing more and more organizations looking to down select the amount of vendors that they have to work with to be able to support learning and development, upskilling and reskilling across their organization. You know, as a result of that, you know, when organizations are, you know, gonna run a bake off or run us side by side, one of the other folks that they're looking at, it really does give us an opportunity to highlight the advantages I just mentioned, the breadth of our platform, right? The quality and breadth and depth of our content library. In addition to something that we haven't talked about that we invest heavily in, which is customer success.
The services and support we provide customers to ensure that they have the resources to develop the right strategy to enable upskilling and reskilling to happen across, you know, the org, in addition to executing that strategy. This is an area we invest heavily in. We're fairly unique in the category that these investments are significant. They have, you know, played out as expected and as we had hoped, in that they've helped us increase the percentage of multi-year contracts from two years ago, which was 5%. Now, this last quarter, we had 44% of our revenue come in from multi-year contracts. In addition to that, I mentioned earlier, the largest number of six-figure deals that we've ever closed came in last quarter.
The reason that's happening is because the customers have a belief that we're the right strategic long-term partner for them as they're thinking about the, you know, the technology and the services they need to have on board to be able to sustain, you know, the competitive advantage around the skill development. Again, you know, we feel very strongly about the playbook, if you will, and the approach we're taking to help organizations in that endeavor.
Who are you typically competing against in some of these larger consolidation opportunities?
You know, the cast of characters that we're competing against really hasn't changed through COVID and through the macro. You know, there's companies out there that you know, have been in industry for a while. It's, you know, LinkedIn Learning. It's, you know, Coursera out there doing good work. Pluralsight on the technology side, on the tech side of the house. Skillsoft has been out in the market for a number of years. Down market, we see, you know, some folks that are emerging that are consolidators like Go1. You know, all of them have, you know. They're very, you know, unique and distinct value propositions.
You know, we again, feel very strong and confident about the approach we're taking and, you know, are having a good amount of success, you know, competing against these folks.
You know, recently, you know, your team launched this investor engagement program, inviting different customers to come and talk about their experience with Udemy and some other tools in the industry. What has been sort of the investor feedback from that engagement program that you've launched? 'Cause I thought it was, it was unique. Not every company does it, and it was great to get that, you know, face time with some of the customers that you invited to that program.
You know, I appreciate you calling that out. You know, it's, it's been very well received. You know, Dennis and our team have just done a terrific job preparing the content and really establishing a framework by which we can, you know, engage and interact with the investment community, in a more personalized way and provide insight into, you know, our planning and the approach that we're bringing to the. I think, you know, the broader effort with respect to how we serve the investment community. It's an area that we were under-invested in historically, and, you know, our team's doing a great job in bridging some of those gaps and providing, you know, valuable insight, even ahead of conferences like this.
You know, we get a lot of compliments, you know, throughout the day as we're meeting with folks on the materials and preparation, that Dennis and team have provided to enable them to come in and ask very informed, you know, questions and have a very informed conversation. You know, the feedback has been very, very positive.
No, that's good. It's great to hear. Maybe when we sort of think about the overall growth profile for the company, it's obviously it's two different stories. You know, the Udemy Business side, that's showing very robust growth. I think on the consumer side, there's a little bit more pressure on that. With that, with the consumer side of the business, that's where you really get all of the great content that's generated that really fuels the business side of things. What are some of just the top priorities, if we could maybe segment both of those different segments for this year?
Yeah, it's a good question, because, you know, I think this may be one of the more misunderstood areas of, you know, the evaluation of the business, in that we really view the consumer business as you just described, which is the fuel that drives our growth engine, which is Udemy Business. You know, for the consumer business, I'll start with that. You know, we're really not focused on growing the top line of that business. Yeah, for us, it's about marketplace vibrancy. That's what the optimization effort, you know, is ongoing for us and really is focused on. The way we measure that is in three specific areas. We measure traffic, course creation, and instructor payments.
We know that if we're healthy and vibrant in all three of those areas, we're gonna have all of the fuel we need to be able to accelerate the growth of Udemy Business for years to come. We pay a lot of attention to making sure that flywheel continues to turn in support of the investments we're making on the Udemy Business side. You know, with respect to Udemy Business, you know, for us this year, we throttled back the hiring on the sales and customer success side of the house as a result of the macro, which is reflective in the guidance from last year.
We delivered 68% year-over-year growth on $320 million in revenue. We're guiding in the mid-30s in terms of growth this year, purely as a result of, you know, the macroeconomic conditions. You know, as the macro starts to freshen and starts to improve, we are absolutely gonna start investing again in staffing our sales and CS organization globally. In addition to that, on the partner side, we've got, you know, a tremendous amount of momentum right now in Asia Pacific with Benesse in Japan, which is our fastest growing country, and we do not have any salespeople on the ground there, which is still astounding to me that we've been able to achieve the growth that we've seen in Japan through a very exclusive and dedicated partnership with Benesse in country.
They're doing all of the marketing, sales, and services on our behalf. We're replicating that same model in Vietnam and Korea, and we're seeing very similar results, albeit earlier days. The partner motion right now in our new ventures group is outperforming expectations candidly.
We've developed a strategic relationship with Amazon that we've talked a little bit about in the past that, this last quarter, you know, resulted in us closing the largest deal through that partnership that we've closed, multiple six-figure deal, which was a boomerang deal that came back from a customer that initially went with a lower price solution, didn't have success, came back to us, and in two weeks made a decision to purchase, and that purchase went through Amazon as a result of the partnership that we have. You know, nonetheless, we are very excited about the opportunity through the partnership strategy that we're enabling and executing against in addition to, you know, the organic side, which I just touched on.
With that partnership with Amazon, I mean, how do you think about being able to potentially replicate that partnership with maybe some of the other hyperscalers as well? How does that look?
Early days, different phases of conversations, but optimistic. You know, because look, we do something that is native to us that is not their core competency, right? We're very focused on upskilling and reskilling, and we know that hundreds of thousands of learners come to our platform to acquire the knowledge to go pass a Google certification, an Azure certification, an AWS certification for sure, which was the genesis for the partnership with AWS in the first place. That dynamic continues to, you know, to grow. The opportunity for us to develop similar types of relationships with Google, Microsoft, and others is real. We're in those discussions and they'll evolve, and when I can talk more about it, I surely will.
We think that there's a win-win scenario for us as well as for them.
Got it. I think we'll just take a quick pause here to see if anyone has any questions. Someone in the back will come and assist you with the mic. Just raise your hand. No questions? Okay. I'll just keep going. Maybe we can talk a little bit about the guidance for this year. The 2023 guidance implies about mid-teens revenue growth with an acceleration for next year. Can you help us understand what really gives you confidence in achieving those targets and what level of visibility you have today on the business?
Yeah. You know, we had a strong Q1, as you saw. we exceeded on, you know, both top and bottom line. we factored in the macroeconomic conditions into the guidance for the year. Top of funnel, from a marketing standpoint, leads into the top of the funnel remains very strong and healthy. We're 40% ahead of where we were last year at this point in time. We have seen a little bit of cycle elongation in the middle of the funnel, but that's baked into the forecast. very optimistic around the top of funnel continuing to accelerate.
You know, our team continues to execute very well the playbook that we've laid out in terms of expansion, selling a broader platform, as well as expanding more rapidly, as I touched on earlier with the, you know, number of large deals that we're closing. You know, on all the key metrics that we measure in terms of sales effectiveness, you know, we continue to execute at a fairly high level right now. You know, it gives me a lot of optimism, you know, that we're gonna be able to continue that throughout the course of the year. Our guidance for next year, I believe is, you know, you know, 23%-25%.
We feel confident coming out of this year based on the investments we're making this year, that we're gonna be able to, you know, accomplish exactly that at the same time of being profitable. As we've stated, we're driving the company to profitability in the back half of this year, and we'll show modest margin expansion, as we move through 2024.
You know, the profitability piece, it's really impressive. You know, rapid cost-cutting on that end, how should investors really think about the different levers you're pulling to really drive that margin expansion longer term? Because I think in your long-term model, you're sort of thinking of, you know, 15%-20%.
Yeah.
EBITDA margins longer term. How to really think about that?
Yeah. I think, you know, longer term, should expect sales and marketing efficiency as we build our sales, organization out to scale, and we can then enable them to sell, our products and capabilities through, you know, the established org. We're still in build-out mode right now, so we're gonna get leverage, operating leverage, you know, as we move forward, you know, in 2024 and 2025 on the sales and marketing side. On the G&A side, you know, we had to staff up to take the company public just a little over a year ago, so we're gonna start to see operating leverage as we right-size G&A moving forward.
You know, out of our channel, the investments we're making on the channel side, there's without question leverage there that we're gonna take advantage of as we start to see, you know, the partnerships further materialize in Asia-Pacific as well as the hyperscalers, which we just got done talking about. You know, there's a number of vectors right now that we're focused on making sure that we're operating very efficiently as we, you know, keep our eye both on top-line growth as well as, you know, the, you know, margin expansion that we've committed to showing.
At this point, there's about $450 million cash on the balance sheet, no debt. And a very strong balance sheet at this point. You know, how are you thinking about the capital allocation policy at this point?
Yeah. You know, we're being very thoughtful about, you know, the strategic investments that we're considering. Without question, to supplement organic growth, we are looking opportunistically at ways to, you know, potentially bring an organization or two into the family that will either be a technology add for us, to give us extensibility across our platform and/or reach to market in some of the emerging markets like Latin America and Asia-Pacific and potentially EMEIA. That could be an accelerant for us as far as, you know, penetrating, further penetrating those markets maybe faster than we could organically. You know, in those areas, we're, you know, without question, you know, exploring, you know, different types of opportunities.
I would say on the technology side, just to expand a little bit, without question, AI is at the front and center of everybody's thought and level of investment in the category and we're paying a lot of attention to some of the emerging companies and technologies that are coming out almost every day that could potentially be an accelerant for us. There's also learning modalities. As we look at the different types of learning modalities that we all as learners enjoy and appreciate to complement a learning experience, things like coaching, mentorship, podcasts and those types of things that we potentially have the ability to layer in through acquisition that could be interesting as we move forward.
nothing right now imminent. you know, we'll continue to keep you all posted.
Got it. I think we'll take one more poll for questions if anyone has any. No? Okay. you know, in your discussion with investors, you mentioned that you've, you know, had a few of them today. you know, where do you really see investors underappreciating, overappreciating in just, you know, their overview of the Udemy story? What do you think investors are really missing at this point at a high level?
You know, I think at a high level, you know, the strength and durability of our enterprise business, if Udemy Business was operating standalone as an enterprise SaaS learning company with the metrics that we're putting up, last year coming off 68% year-over-year growth, $320 million in revenue, with Net Dollar Retention last year, 123. You know, the valuation we would be getting would be significantly different than what you see right now as a result of, you know, where we're valued in the public markets. I think largely because I think there's some confusion around this the consumer business and how investors should think about the consumer business vis-à-vis and juxtapose against the enterprise business.
I think, you know, one of the things we're doing is trying to bring a lot of clarity and understanding around how we're investing in the consumer business versus the enterprise business, so that hopefully the investment community, as we move forward and execute against our strategy of driving the company to profitability and continuing to grow that enterprise business in the mid-30s. Hopefully, folks, you know, will begin to understand that this is very purposeful, that the consumer business is not growing because it's not designed to grow. We're not investing to grow it. We're leveraging that consumer business as the fuel to grow the enterprise software business that is Udemy Business. You know, I think that's probably the most misunderstood, you know, aspect of, you know, who we are and how the investment community is viewing us.
You know, as we go forward, we are planning to do exactly what I've mentioned, which is run that consumer business EBITDA breakeven and invest to grow that enterprise business disproportionate to anybody else in this category. Over time, really start to view us as a comp against the top quartile SaaS businesses in the world, not necessarily, you know, edtech.
Right. Just a quick follow-up, but you didn't really talk about NDR at this point. You know, maybe if you can just unpack that a little bit. I know embedded in the guidance, you're assuming some moderation for that.
Yeah.
Like most software companies right now, maybe if you could just provide a little bit more color around the dynamics of the NDR, especially for the Udemy Business portion.
Yeah, that's a good question because I think to unpack that a little bit, 'cause as we go forward, we are gonna see that trend down, and we expect it. I think at a baseline, though, we don't actually disclose or report Gross Dollar Retention, but our gross is very stable and at a very high level. That's what we pay a lot of attention to right now. As a result of the fact that we've guided down and to the mid-30s off 68%, you know, growth last year, it's natural the NDR is going to trend down.
What we did see this last quarter, and we expect this to continue, is in terms of the percentage of bookings we closed in Q1, there was a higher percentage in Q1 coming from upsell and cross-sell than from net new, and we do expect that to continue, right? You know, the health of the business in terms of Gross Dollar Retention and then expansion into our existing customer base remains. It's just you're gonna see the Net Dollar numbers trend down off absolute numbers from last year, which were explosive, you know, at 68% year-over-year growth. Because we've guided down, those numbers are naturally gonna trend down. There's, you know, no cause for alarm.
In fact, a lot of expectation around, you know, the fact that, you know, the Net Dollar Retention, is gonna probably, you know, trend down into the, you know, to the, you know, into the teens without question, as the year continues. There's no concern around Gross Dollar Retention rate and/or percentage of bookings coming from upsell and cross-sell.
Got it. Well, I think that, you know, wraps up our discussion for today. I really appreciate you coming and visiting us, Greg. Thank you all for coming today. Really appreciate it.
It's great to be here.
Thank you.
Thanks, everybody.
Thanks.