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spk06: Welcome to Udemy's third quarter 2022 earnings conference call. There will be an opportunity to ask questions after the prepared remarks. To ask a question during the session, you will need to press star 1-1 on your telephone. Now I'd like to turn the call over to Udemy's Vice President of Investor Relations, Dennis Walsh.
spk08: Thank you. And welcome to Udemy's third quarter 2022 earnings conference call. Joining me today are Udemy's Chairman and Chief Executive Officer, Greg Kokari, Chief Financial Officer, Sarah Blanchard, and President of Udemy Business, Greg Brown. During this conference call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. Our forward-looking statements are based upon information currently available to us. We caution you to not place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements, except as required by applicable law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements paired in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measure is included in our earnings press release. These reconciliations, together with additional supplemental information, are available on the Investor Relations section of our website. A replay of today's call will also be posted on the website. With that, I will now turn the call over to Greg.
spk12: Thank you, Dennis, and good afternoon to everyone on the call. Udemy delivered another strong quarter as we beat expectations at both top and bottom line. Total Q3 revenue came in at 158 million, up 22% year-over-year, driven by solid execution and healthy customer demand. Udemy Business had another impressive quarterly performance and continued to serve as our leading growth engine, as revenue and ARR grew 67% and 59% year-over-year respectively. On the consumer side, we continue to see encouraging signs of resilience as both our traffic and monthly average buyers increase on a year-over-year basis, despite the challenging macro environment. It's clear that customers across the globe are seeing the value of Udemy's platform for their upskilling and reskilling needs. I'd like to take a slightly different approach for our call today. It's been one year since Udemy's IPO, and in celebration of this milestone, I want to reflect on some of our major business achievements. Our team has a lot to be proud of, including, first, we've made significant progress toward establishing Udemy as a leading global provider for high-quality learning. As of Q3, we have more than 70,000 courses rated four stars or higher out of five stars. Second, we continue to recruit expert instructors to produce best in class and relevant courses and practice exercises. Udemy is home to nearly 74,000 instructors that produce the high quality courses that Udemy has become known for. Our instructors add an average of almost 5,000 new courses each month and even more updates to keep existing content current. Third, We are attracting and retaining a growing community of learners worldwide to our platform. Since our IPO, we've added more than 13 million new consumer and business learners, bringing our total learner base to 57 million globally. Fourth, we have dramatically expanded our international footprint. Our vast international presence and localized experience are a clear competitive advantage. We now have nearly 90,000 non-English courses across 75 languages, 14 curated international language collections available to Udemy business customers, and numerous new partners in APAC and Sub-Saharan Africa. Fifth, we have continued to deliver strong Udemy business growth. Since our IPO, Udemy business and recurring revenue grew by nearly 70% to $350 million as of Q3 2022. Udemy Business Now has over 13,000 customers around the world. And as forecasted, the mix of revenue surpassed consumer revenue this quarter. And finally, we consistently delivered strong financial results for Udemy's first four consecutive quarters as a public company. As you can see, we've accomplished a lot. But we are still in the early innings of a massive and growing market opportunity, and only one year into our journey as a public company. There's still much more to do to help instructors, learners, and organizations succeed through the best and most engaging global learning experiences. I'd be remiss if I didn't acknowledge the team effort here at Udemy that makes this all possible. We have some of the brightest talent in the industry, and I'd like to thank all of our more than 1600 Utamates across the globe for their hard work and dedication to our mission. Before I conclude, I wanted to highlight a few exciting events that we have coming up this month. Next week, Udemy Business will host our annual Forward event. Thousands of decision makers, including CLOs, CIOs, and people leaders from some of the world's largest companies will attend the conference virtually to get inspired about new learning strategies. It will be a day packed with key insights and tips from Udemy leaders and customers to help companies upskill and reskill their workforce. And lastly, we hope all of you will be able to join us for our first Investor Day on November 17th. During this virtual event, you will hear about Udemy's long-term growth strategy, products, partnerships, financials, and future expectations. We look forward to diving deeper into our business, introducing our team, and sharing more with you about Udemy's vision. With that, I'll now turn the call over to Sarah to summarize our financial results.
spk09: Thank you, Greg. Udemy had a strong third quarter, and we exceeded expectations for revenue and adjusted EBITDA margins. Total Q3 revenue of 158 million came in above the high end of our guidance range of 153 to 157 million. The 22% year-over-year increase was driven by continued momentum and execution in our Udemy business segment, which consistently performs well across a broad array of verticals and geographies. The recent strength of the U.S. dollar against major international currencies has reached levels we've not seen in decades, and a diverse geographic footprint exposes us to foreign exchange, or FX, headwinds. As a result, the year-over-year increase in total revenue includes a negative impact of five percentage points from changes in FX rates. As we move down the P&L, note that all financial metrics are non-GAAP unless stated otherwise. Q3 gross profit was $92 million, up 27% year-over-year. Gross margin was 58%, or an approximately 220 basis point improvement from Q3 of 2021. This margin expansion resulted from the continued revenue mix shift to Udemy Business, since content costs as a percent of revenue are lower for that segment. Given this shift, we also experienced an increase in customer success costs to support our growing roster of Udemy Business customers. Total operating expense was $109 million, or 69% of revenue compared to 57% in Q3 of last year. During the quarter, we continued to invest in key focus areas as planned while furthering operational efficiencies. We were employing a disciplined approach to managing costs across the entire business while keeping an eye toward achieving profitability. Sales and marketing expenses were 43% of total revenue compared to 39% for the same quarter last year. During Q3, we continue to shift our marketing investments to Udemy Business, where we are experiencing strong growth in ROI by expanding our global go-to-market and enterprise marketing capabilities. As always, we are committed to disciplined and efficient marketing spend, while also investing where we see clear, sustainable growth opportunities. R&D expense was 14% of revenue compared to 12% in Q3 2021. We're making strategic investments in areas that will be most impactful and that we believe will generate an attractive return for our business. This includes continuing to build out our comprehensive learning platform for corporations. That platform is powered by highly rated content, proven product features, and machine learning models from our consumer marketplace, which also provides powerful data and insights and serves as a robust lead gen engine. In addition, we are rolling out immersive and personalized learning experiences, including labs and assessments and also investing in the ability to guide learners through their journey. For example, last year we launched Udemy Business Pro. This new offering enables customers to evolve their technical skill development with in-depth learning experiences for employees. Upro features Udemy paths, skills assessments, workspaces, and hands-on labs across the most critical and sought-after skills in cloud computing, software development, data science, and DevOps. We continue to build hands-on labs with real-world scenarios and increased our total number of labs by nearly 50% since last quarter.
spk04: We believe these investments will provide more tangible outcomes, ultimately increasing engagement in LTV over time.
spk09: Finally, G&A expense was 12% of revenue versus 7% a year ago, primarily driven by an increase in costs associated with operating as a newly public company. On the bottom line, net loss in the quarter was $21 million, or negative 13% of revenue. Adjusted EBITDA loss was $13 million, or negative 8% of revenue, well ahead of our guidance range of negative 14% to negative 12%. Moving on to cash flow and balance sheet items. We ended the quarter with $494 million of unrestricted cash, cash equivalents, and marketable securities. On free cash flows, the ongoing growth of Udemy Business, which fundamentally has a better free cash flow margin compared to adjusted EBITDA margins, was offset by increased DSO and changes in working capital timing, resulting in negative $19 million in free cash flow for Q3.
spk04: Now, turning to our results by segment.
spk09: Starting with our enterprise segment, our Udemy business, we grew Q3 revenue to $84 million, or an increase of 67% year-to-year, which includes a negative 4 percentage point impact from changes in FX rates. As Greg mentioned at the start, Udemy Business accounted for 53% of revenue in Q3, surpassing the consumer segment as a majority share of total revenue. We ended the quarter with over 13,400 Udemy Business customers, up 40% from a year ago, and annual recurring revenue of $350 million, up 69% year-over-year.
spk04: Udemy Business is proving resilient against a challenging macro environment.
spk09: The opportunity continues to be massive as businesses around the world are seeking to upskill and reskill their employees to achieve business outcomes more effectively by leveraging Udemy's platform. As a result, we continue to see an increase in new and expansion deals, demonstrating that customers see the value that the Udemy platform can bring to their businesses, even in challenging times. During Q3, we closed the most deals over $1 million in our history. And revenue from multi-year deals accounted for over 40% of Udemy business revenue, which increased 135% year over year. In total, we added more than 900 new domestic and international Udemy business customers during Q3. Notably, we thank Kia, Oris, and Samsung Electronics America. Many of our existing customers are increasing their spend over time, driving compelling LTV. Our Udemy business net dollar retention rate was 117% this quarter, a slight 100 basis point decrease from the prior quarter. The decline in NDRR is primarily due to the smaller businesses that are taking a more cautious approach to external spending given the challenging macro environment. When you look specifically at net dollar retention for our enterprise cohort or customers with at least 1,000 employees, it was even higher at 123%, and that cohort's net dollar retention has remained consistently above 120% for the past several years. This level of retention demonstrates both the quality of our content and the continued success of our land and expand strategy. For example, during Q3, we closed several large expansion deals with global corporations such as TACA Consultancy Services, a global leader in IT consulting, the Permanente Medical Group, the largest medical group in the United States, and Gale, part of Cengage Group, a global provider of educational resources that acts as a reseller for Udemy. Udemy business segment gross profit for the quarter was $56 million, or 67% of segment revenue, which represents a roughly 200 basis point increase year-over-year. The increase was primarily driven by growth in our reseller partner program, where we record revenue on a gross basis, inclusive of reseller fees. In our consumer segment, Q3 revenue was $75 million, down 6% year-over-year, which includes a negative 6 percentage point impact from changes in FX rates. In spite of those macro headwinds, we are encouraged by the continued resilience we are seeing in our platform. Traffic was strong in the third quarter, with an industry-leading 35 million monthly average unique global visitors of 7% year-over-year. More than 1.3 million monthly average buyers purchased a course or subscription on our marketplace during Q3, an increase of 4% year-over-year. And we are tracking thousands of instructors that regularly add high-quality, fresh content. All of this supports the powerful flywheel effects that we get from having a vibrant marketplace, which amplifies Udemy business growth. The symbiotic system of these two parts of our business is a differentiated model that we believe will continue to drive total company cap line growth over the long term. Consumer segment gross profit was $39 million, or 52% of segment revenue, approximately 120 basis points lower than in Q3 2021. the slight year-over-year decline in consumer segment gross margin was primarily driven by higher mobile transaction and hosting fees. Now turning to our outlook. Consistent with the last few quarters, we continue to face a volatile and uncertain macroeconomic environment and increasing FX headwinds. Like many other companies, we are also seeing a greater impact on our small and medium-sized customers. Although these forces that are beyond our control may have a short-term impact on U2V business revenue, We have increasing conviction that these factors are driving many larger organizations to prioritize cost-effective training, reskilling, and upskilling of their workforces. Udemy Business provides clear value for our customers, is rapidly deployable, and delivers strong employee engagement, demonstrating the immediate impact of our learning platform. Together, we believe these factors promote a certain level of resilience and counter-cyclicality in our business that positions us well for long-term success. With that as a backdrop, we expect Q4 revenue to be between 164 million and 167 million, or 22% year-over-year growth at the midpoint, driven by continued Udemy business momentum. We expect that Udemy business segment revenue, as a percent of total revenue, will further increase from Q3. Given the historic rate at which the U.S. dollar has strengthened this year, we continue to expect foreign exchange to be a headwind in Q4. Assuming foreign currency exchange rates remain constant, FX is expected to impact total revenue year-over-year growth by approximately 6 percentage points in Q4. In addition, we expect an adjusted EBITDA margin of negative 17% to negative 15%. As a reminder, we typically experience some seasonality during the fourth quarter when we ramp up our marketing investments around Black Friday. With that in mind, for the full year 2022, we expect revenue to be between $628 million and $631 million, or 22% year-over-year growth at the midpoint. Lastly, we are raising our full year 2022 adjusted EBITDA margin guidance to a range of negative 10% to negative 9%. In conclusion, Udemy has established that health is an enduring platform, serving a clear need for organizations and learners. Despite the challenging environment, Udemy business is expected to continue performing well. Our consumer marketplace is resilient and well-positioned to deliver the content that supports sustainable long-term growth for Udemy business. We will lean into and invest in our biggest growth opportunities, including shipping R&D and marketing spend toward Udemy Business. As always, we will be prudent with expenses to ensure we generate the greatest ROI possible with a goal of achieving profitability on an adjusted EBITDA basis in the near term. Ultimately, we are as bullish as ever about the long-term opportunity available to Udemy and hope you will continue to support us on our journey. So with that, we'll open up the call for your questions. And as a reminder, we also have Greg Brown, President of Udemy Business, joining us today.
spk04: Moderator?
spk06: As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Rob Oliver of Baird. Please go ahead.
spk13: Great. Thank you guys very much for taking my question, and good afternoon. I had two. My first was for Greg Brown. Greg, you know, continued really strong performance on UB, and just curious, obviously a couple of big countervailing trends here on the one hand, economic, you know, headwinds, which you guys have mentioned, I think Sarah mentioned you guys are not immune to, on the other hand, really seems like companies are buying into the value proposition of UB. So I was wondering if you could talk a little bit about those two trends, what you're seeing in the macro, if there was any change in linearity throughout the quarter, particularly towards the end of the quarter. And then I had a quick follow-up for Sarah.
spk14: Sure, Rob. Thanks for the question. So now as far as trends are concerned, I remain pretty consistent with respect to further consolidation of enterprise organizations. moving more of their spend from offline to online. And, you know, we saw that, you know, again, this quarter, reflective in, you know, the performance, the net dollar retention, we saw at 123% on the enterprise side of the business. And, you know, an example of that is, you know, one of our large multinational financial services firms went through a consolidation effort and multiple vendors in different areas of the business. And, you know, they went through the consolidation effort in an effort to you know, standardized on one platform to enable them to, you know, across both tech and business skills more efficiently at a more effective cost per learner, you know, drive upskilling and reskilling. And we were, you know, fortunately to come out on the right side of that, and that netted out to, you know, a three-year contract of, you know, just under a million a year. And we're seeing more and more of this type of consolidation as we move further into the recession and And, you know, we do expect growth to remain durable across our enterprise business, and that's just an example of it.
spk13: Great. Yeah, that's super helpful, Collar. Thanks, Greg, for that. And then, Sarah, just a question for you. You know, you guys outperformed again on the bottom line, so really nice job on the cost side. I know, you know, last quarter you guys had also called out sort of a stabilization in the consumer business at a lower spend rate there in terms of marketing dollars. And is that – consistent this quarter. I know more stabilization, but have you guys, you know, found ways to drive that consumer business at a lower, you know, spend point in terms of marketing? Thank you.
spk09: Thanks for the question, Rob. Yeah, so, you know, we're really pleased that we were able to receive guidance again on adjusted EBITDA. A few things that are going into this, obviously we're managing our expenses closely, but as you called out, you know, we are being really careful with our marketing spend on the consumer side. We raised our ROI targets And even in raising those targets and reducing spend, we were really happy to see traffic up across the board. So just continue to see positive signals. We're really encouraged by the resilience and, you know, we're cautiously optimistic going into the fourth quarter.
spk03: Great. Thanks again, guys. Appreciate it.
spk04: Thanks, Rob.
spk06: Thank you. Our next question comes from Ryan McDonald of Needham. Please go ahead.
spk07: Hi, thanks for taking my questions and congrats on a nice quarter. First one for Greg Kikari. You know, consumer, it's great to hear about the resiliency in the business. I'm curious as you look globally in areas or regions that are being maybe more significantly impacted by recessionary pressures, rising layoffs, etc. Are you seeing any pockets of strength or that resulting in learners coming back onto the platform to perhaps sort of create a bit of counter cyclicality on the consumer side of the business of sort of driving more re-skilling in that environment?
spk12: Yeah, Ryan, thank you for the question. We've actually seen a lot of strength in every region in the world. The traffic, which is our leading indicator, was up 7%. But it varies by country. We had some pockets of it that looked particularly good. Japan was very, very strong on the traffic side. The US was good. Germany was pretty good. The UK was down a little bit. So it's a little bit mixed, but overall, we're very happy with what we see. And on the learner side, we got growth, overall growth in our monthly active learners, but in both the new and existing. So we're driving more new buyers, more existing buyers, and we're spending less money. So we think we're showing some kind of cyclicality to the business.
spk07: Really helpful color there. Maybe my second one for Greg Brown. Greg, you know, great to see the performance on Udemy Business and the enterprise. I'm curious, clearly there's a nice seat-based expansion opportunity as customers consolidate around fewer vendors, but I'm curious to hear what impacts sort of the newer offerings like Udemy Business Pro, you know, some of this enhanced functionality around skills assessment is having on whether the that's creating sort of a differentiation for you in that consolidation process, and then does that have any impact on sort of price points per seat? Thanks.
spk14: Hi, Ryan. Thanks for the question. Yeah, so, you know, we really had a good, solid quarter with respect to not only expansion of, you know, seats of our on-demand learning product, but new products, i.e., cohort learning, as well as UPRO, and I'll give you an example. One of our large multinational enterprises that we're currently working with from an on-demand learning perspective, we identified an opportunity to help them with their emerging leader segment and to give them a platform and leverage to be able to educate and upskill the 3,000 emerging leaders on an annual basis. And really what that netted out to was a two-year contract worth roughly $1.6 million a year and on our cohort leadership platform in combination with their on-demand learning engagement that's already underway. So we are seeing a lot more interest and expansion in our additional products, and that momentum continues to build. We're really happy with the momentum.
spk07: Excellent. Congrats again.
spk03: Got it.
spk06: Thank you.
spk02: our next question comes from the line of stephen sheldon of william blair please go ahead something about pushing and incentivizing through slightly better pricing when going after new customers or or to consolidate spend for existing customers like an example you gave, Greg, or just generally what's driving that really notable growth in multi-year business deals.
spk00: Hey, Stephen and Dennis, I think you were muted at the beginning of that question. If you could just repeat it. Sorry.
spk02: Yeah, I was just saying, great to see the growth in multi-year deals. So just kind of more detail on that. Are you incentivizing it through better pricing? Just more detail on that.
spk14: Yeah, Stephen. So, you know, the we've made a concerted focus to lead with multi-year deals as a result of the up-leveling of both the product platform as well as the sales motion selling high to the C-suite and focusing on extended value that we're providing largely in partnership with our customer success team, which is really focused on driving outcomes. So but really our entire sales motion has evolved and changed over the last year. And that really is indicative of and supports what you're seeing now, which is a significant increase in multi-year deals, both of on-demand learning as well as across platform. And so expect that to continue. And it's not happening as a result of price, significant price incentives. It's much more around value and resources we're bringing to bear to act as a trusted advisor and long-term partner in support of the outcomes the customer is trying to achieve.
spk00: Great. I appreciate that, Culler.
spk02: And then this is a follow-up. Curious heading into the fourth quarter. I know there's usually some moving pieces on the consumer gross profit or gross margin. And I think it's usually seasonally weaker given doing some of the promotional activity. Can you just maybe provide any commentary on kind of what we should be expecting on the gross margin side? for consumer in the fourth quarter?
spk09: I think that question, thanks for the question, Stephen. So, you know, you're right. We do have our big promotion around Black Friday in the fourth quarter, and that can put some pressure on our gross margin. So, you know, as we continue to see this resilience in the consumer business and as traffic is up and buying is up, we could see some pressure on it. And again, that's a great signal for us. because that means we're selling a lot and we'll see the impact of that in the first quarter.
spk03: All right. Great. Thank you. Thank you. Our next question comes from Terry Tillman of Truist.
spk06: Please go ahead.
spk11: Oh, great. Thanks. Hey, everyone. This is Connor for Terry. Thanks for taking my questions and congrats on a great quarter. Just the first one, digging into the demand internationally, particularly in APAC. There's been some really good traction in Japan and South Korea. And I know we talked about last quarter about a strong pipeline that was building in China. I'm just curious as to how that's developing and what maybe the key factors will be for determining success in this market. And then I have a follow-up.
spk12: Connor, thank you for the question. Yeah, as we've talked about before, we're building out APAC with a number of different partners. And Japan is a market that's doing particularly well for us. We've been working with Benese for a number of years, and we're seeing high growth there. The other markets are relatively new. So in China, we built out the collection. We have over 800 courses in Mandarin today. And so we built out the collection. We are hiring lots of salespeople and training them. It's early days, but we're seeing some nice traction. We've gotten a couple of nice deals already. So it's early days, but it's ramping up. On Korea, the same thing's happened in Korea, and then we signed a deal in Vietnam with Phoenix, and they are, and we actually closed a deal or two there and are, again, are building out the Vietnamese collection and hiring and creating small people.
spk03: Perfect. That's a helpful color.
spk11: And then just on a quick follow-up, so it sounds like another strong quarter for multi-year deals that are continually becoming a larger proportion of total ARR. So it sounds like a lot of multi-year deals are coming from existing customers. Just curious how the typical deal looks like for a new logo and maybe how that's evolved over the past few quarters if maybe you're landing more multi-year deals with new logos. Thanks, guys.
spk14: Yeah, this is Greg. Look, we're having success across the board both with existing as well as new customers from a multi-year perspective, largely for the reasons I mentioned earlier. You know, the motion, the sales motion, you know, that we're using now is much more orientated around, you know, outcomes that organizations are trying to drive aligned with strategic initiatives and strategic imperatives, you know, at a corporate level. So as a result of that, the relationships we're fostering, you know, by the nature of that are long-term relationships, long-term partnerships, trusted advisor, you know, type status. And that comes with the investment we're making early on. from a customer success standpoint. So as a result of that, customers are going into the projects with us with the multi-year horizon in mind. And, you know, we're starting to see that, you know, reflected in the numbers that we're putting out quarter over quarter. So you should expect that trend to continue, and both on the new business side as well as the existing customer side.
spk03: Sounds great. Thank you.
spk06: Thank you. Again, to ask a question, please press star 1 1 on your telephone. Again, that's star 1 1 on your telephone to ask a question. Our next question comes from the line of Josh Baer of Morgan Stanley. Your question, please.
spk01: Thanks for the question. You mentioned the SMB impact to net dollar retention rate. Wanted to dig in there. What is the customer behavior? Is it churn or contraction or just less expansion?
spk14: Hi, Josh. You know, what we're seeing is a slowdown in deals moving through the pipeline to closure. We're not seeing, you know, a significant departure in terms of the funnel, the marketing funnel and or opportunities that we have in pipe. So it really is just, you know, S&B Organizations, scrutinizing spend and budget as they're going through their buying process so you know we're still optimistic that you know we're going to have you know a very positive quarter on the SMB side albeit we do have some headwinds we are we are seeing a little bit of a slowdown but again it's not as a result of anything other than I think these organizations are being prudent with their spend and ensuring that you know they're allocating their budget appropriately okay that's clear and then just to
spk01: round that back to the larger enterprises, so you're not seeing that same scrutiny or impact as far as slowdown in deals upmarket. Is that correct?
spk14: What we're seeing upmarket is CLOs, in many cases, they do have constricted budgets. If they had a $10 million budget last year, it may be $8 million this year, but they still have the same imperatives to upskill and reskill their employees to, again, you know, drive toward, you know, strategic initiatives that, you know, these employees need to be prepared for. So the way they're doing that is moving more of their learning from offline to online and leveraging platforms like ours to do so. And, you know, we're well positioned to take advantage of that trend. And, you know, that's what you're seeing right now in terms of the strength on the enterprise side, as I alluded to earlier, that consolidation effect. And, you know, there's a few reasons why we're I think, went in a disproportionate amount of the opportunities we're in. Largely, you guys are very well aware of the superior content we have, both quality and quantity. In fact, I think this was mentioned earlier, but this last quarter alone, we added 1,900 new courses to the Udemy business catalog, and that is unparalleled. It really does put us in a position of strength as we move forward. 1,300 of those were non-English. So again, we're investing heavily in an international array of content. It's all localized. It gives us a real strong position to be able to be, you know, the premier provider for many of these organizations that are looking to standardize on one platform.
spk03: Great color. Thank you. Thank you.
spk06: Our next question comes from Jason Salino of KeyBank. Please go ahead.
spk05: Hi, Sarah. Hi, Greg and Greg. This is actually Devin Howe on for Jason tonight. Thanks for taking our questions here. First one I have is on enterprise. I think we talked a little bit earlier, but just want to get a little bit more color on your pipeline for fourth quarter in enterprise segment. Any indicators that you're looking at that's giving you that level of confidence, and maybe are you seeing more robust pipeline development in certain geos or industries?
spk14: Hi, Devin. This is Greg Brown. You know, we exited Q3 feeling very good about our Q4 pipeline, in line, in fact, you know, ahead of, you know, what we expected, quite candidly, based on the macroeconomic conditions. That being said, you know, as was mentioned earlier, we have seen some softness and some slowdown on the SMB side in terms of deal velocity. Enterprise business across all geos continues to remain robust. albeit, as mentioned earlier, you know, we're not immune to the macroeconomic conditions, so we're going to be paying close attention to the leading indicators in our business as we progress through the quarter and adjusting accordingly. But right now, we feel good about the strength of not only the pipeline, but the opportunities that are in flight in the sales organization today. Great.
spk05: That's good to hear. And then one more question I have is on EBITDA. EBITDA margin came in in the quarter, you know, meaningfully higher, and I know that you mentioned, you know, benefiting from the increasing mixed shift towards enterprise, but were there any sort of dynamics in terms of investments being shifted towards the fourth quarter that led to that outperformance? Any other commentary you can provide on that?
spk09: And thanks for the question. So, you know, as we spoke about, we did pull back on our consumer marketing spend, and we're happy to see that that business remained resilient even with that pullback in spend. We've also been shifting our spend to UB, as that is our main growth engine. And so it wasn't really a shift of spend into the fourth quarter. We do tend to have some downward pressure in the fourth quarter because of our gross margin pressure we feel with our Black Friday, Cyber Monday promotion that happens. But it wasn't a shift in spend. It's just managing our spend carefully and just making sure we're investing in things that are going to have the most impact.
spk05: Got it. Got it. No, that's really helpful.
spk03: Thank you.
spk04: Thanks, Evan.
spk06: Thank you. Once again, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Our next question comes from the line of Brett Knoblauch of Cantor Fitzgerald. Please go ahead.
spk10: Hey, guys, it's Alex on for Brett. You guys in the quarter, I was just wondering, maybe on the consumer side, has the strength in Udemy business helped fuel some of the consumer strength you saw this quarter? Perhaps maybe people learning using Udemy business and then going home and getting their own personal account?
spk09: Hey, Alex, this is Sarah. Thanks for the question. You know, there's no way for us to really track that, but certainly the more access exposure that individuals have to Udemy business or to Udemy through Udemy business, certainly that probably does have some spillover impact on the consumer side of things. I think as you've heard us say, the product is really engaging. And so you can imagine individuals having access to it at work and then going home. Greg, anything more?
spk12: Yeah, it also works both ways. we get a large number of leads for Udemy business offers on our consumer platform also. So, yes, there's cross-fertilization of both of our businesses. And now that we have two scaled businesses, it works even better.
spk10: Gotcha. Thanks. And correct me on the break order.
spk06: Thank you. Our next question comes from the line of Brent Thiel of Jefferies. Your question, please.
spk02: Thanks. Just on UB, the resiliency in a tougher macro downturn, assuming the macro economists are right, and this gets even stiffer into 2023 with the headwinds. Can you just walk through how you're feeling about managing during this downturn and what is giving you that strength? And then also, if we can just touch briefly on the consumer subscription business and how that's doing and what you're seeing, any trends there. Thank you.
spk14: Hi, Brent. Thanks for the question. This is Greg Brown. Yeah, so, you know, we spend a lot of time with the CLOs within our customer base. And, you know, right now what we're seeing is a consistent, you know, thread of, you know, continued investment, you know, through the downturn. albeit budgets will get compressed, as I mentioned earlier, but the need to invest in your employees when you're going through a downturn like this, when organizations are potentially going flat or even maybe doing some right sizing, it's a strategic imperative. You've got to be able to continue to develop the talent that you have to sustain you through a downturn. And we're hearing that message consistently across our CLOs. So the point is, we expect further consolidation of platforms we expect more budget to continue to move offline to online and as a result of that in our enterprise business you know we do feel that we're well positioned to help organizations as they're going through this transition and are well positioned to take advantage of the opportunity especially now with you know a portfolio of products that is that is unique and differentiated you know with our on-demand learning we now have immersive learning And we have cohort-based leadership development capability that is unique. And it does give us an opportunity to serve organizations in a way that, you know, that we haven't necessarily in past years and that other organizations don't necessarily have. And then last thing I'll mention is, you know, the partner ecosystem that we're developing with the relationships with Amazon and others continues to gain momentum and strength and with the continued investments as we move into next year. We expect these investments to give us continued leverage. So, you know, we do feel really good about, you know, our business proposition and the viability of us, you know, continuing to move into next year and beyond in a position of strength.
spk09: Yeah, and I'd like to just add to that. You know, when times get tough, one of the things that companies do is they really focus on operational efficiencies. And what that means is digital transformation efforts, you know, that are underway or about to be underway. People are continuing to invest in those to drive those operational efficiencies. And because our content is so fresh and it's able to keep up with the pace of change of technology, that gives us an additional advantage in a market like this. Greg, do you want to talk about subscriptions?
spk12: Yes. You asked about subscriptions. And as we discussed before, we think subscriptions are a very attractive product opportunity for us. Today, we're live in eight countries. We're actually turning on India in the next two weeks, so we'll be in our ninth country. We're doing lots of testing. We're testing our annual plan. We're testing local pricing. We're taking a very – we're doing – it's a very complex process, and we're just taking our time and doing it very methodically. And we have to be very careful that our instructors are being taken care of, that they're making more money along the way. We're making sure that we continue to get all the UB leads. And really, the goal is to make sure that we have a real value for our learners. So it's proceeding well, and our expectation is to ramp it up all through 2023.
spk03: Thank you.
spk06: Thank you. At this time, I'd like to turn the call back over to Greg Kakar for closing remarks. Sir?
spk12: I appreciate everybody's time today, and thank you for your time, and I look forward to talking to you in three months.
spk06: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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