Udemy, Inc.

Good day, and welcome to the Udemy third quarter 2023 earnings conference call. All participants will be in a listen-only mode, and should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Dennis Walsh, Vice President, Investor Relations. Please go ahead.

Thank you, Joe. Joining me today are Udemy's Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard. 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 or 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 prepared in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investors in evaluating our performance in comparing period-to-period results of our operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules into our financial earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These reconciliations together with additional supplemental information are available on the investor relations section of our website. A replay of today's call will also be posted on the website. With that, I will now turn the call over to Greg.

Thank you, Dennis, and good afternoon to everyone on the call. Udemy once again delivered results that exceeded our expectations for both revenue and adjusted EBITDA. On a year-over-year basis, Udemy business revenue increased 30%, while consumer revenue increased 1%. We also raised our outlook, which now projects our first full year of positive adjusted EBITDA well ahead of plan. During the quarter, Udemy business customers remain highly engaged with our platform, as demonstrated by the 14% year-over-year increase in logos and the 114% large customer net dollar retention rate. We added new or expanded existing relationships with global customers, including Assurant, Deutsche Telekom, Schlumberger, Shell, and Walmart Chili, to name a few. We closed many six-figure deals during the quarter, including three $1 million plus deals, contributing to Udemy Business ARR growth of 26% year over year. Compared to the prior quarter, deal velocity improved, Our win rates increased, and we are seeing higher average enterprise plan contract values. Given these results, we are very encouraged by the demand on both sides of our business. While still too soon to call the bottom, we are seeing customers beginning to ease their budgetary constraints, although still below historic norms. As customers plan for 2024, it is clear that investments in upskilling and reskilling are a key focus. Our conversations with CLOs across the globe suggest that developing skills-based practices will be a top priority for the foreseeable future. This gives us confidence in the significant opportunity for long-term growth. With that in mind, today I wanted to share some insights into, first, what is driving the transformative shift that is reshaping companies' approach to skills-based practices? And second, the strategic investments Udemy is making now in order to capitalize on this opportunity and drive long-term, profitable growth. Let's start with the market trends. The current environment is characterized by an accelerated pace of innovation, driven by digital transformation, the emergence of generative AI, and the widespread adoption of hybrid work. These profound forces are reshaping the way we work and redefining the skills needed to drive future growth and success. A study from McKinsey underscored the urgency of the situation, revealing that 87% of executives are already identifying skills gaps within their organizations. In addition, the World Economic Forum found that 60% of all workers will need retraining before 2027 as skills rapidly evolve or become obsolete due to automation. It is abundantly clear that we are in the early innings of a dramatic global transformation. one that businesses must fully embrace to enhance productivity, foster innovation, and create sustainable value. This new reality demands the immediate and ongoing attention of all organizations and workers. Many forward-thinking companies are already responding to this challenge by recognizing skills as the new currency within their organizations. Global enterprises such as IBM, Bank of America, Kellogg's, and Walmart as well as multiple U.S. state governments, are leading the way by prioritizing skills proficiency, including implementing credentialing programs and easing degree requirements for certain roles. Having a clear skills-based transformation strategy is critical for companies' future success. It ensures talent decisions are based on what workers actually are capable of achieving. A study by Deloitte reinforces this. revealing that organizations embracing skills-first practices are 107% more likely to place talent effectively, 52% more likely to foster innovation, and 57% more adept at anticipating and navigating change. We firmly believe that companies aiming to stay ahead of the pace of change must invest in talent mobility to support career growth and the attraction and retention of top-tier talent. In today's world, people are as vital as technology in creating sustainable differentiation. For example, a prominent global airline partnered with Udemy Business this quarter to enhance the digital skills of its employees. The company chose Udemy as its learning partner to increase digital literacy, improve productivity, bridge skills gaps, and retain talented staff. Udemy Business was chosen over an incumbent because of our demonstrated ability to develop and implement a skilling strategy, the breadth of our skills content, and skills validation capabilities. Layering onto that, AI continues to reshape industries across all geographies. Organizations and professionals must understand how generative AI will impact individual roles and how it can be integrated into transformation strategies to foster agility, resilience, and competitiveness. During the quarter, a large global pharmaceutical company doubled its seat count with us in a multi-year expansion deal to address the full extent of the AI opportunity. The CEO set a mandate for upskilling the entire workforce on this technology in order to increase the speed to market for its pipeline of drug candidates, drive efficiencies throughout the entire company, and protect its data with enhanced compliance. Udemy is supporting our customers' efforts to achieve these critical business objectives by providing its employees access to relevant AI content, curated learning paths, and certifications. The demand for generative AI-related content on the Udemy platform is remarkable. Currently, we offer an extensive selection of over 1,500 courses, which have collectively garnered more than 2.5 million learner enrollments. The organic creation of content in response to demand reaffirms the effectiveness of our marketplace model, which seamlessly adapts to evolving technology and learner needs. It's important to note that as technology continues to advance and new demands arise, our platform organically fosters the creation of fresh, relevant content. GenAI is a prime example of this dynamic process. Looking ahead, with further technological advancements on the horizon, we are confident in Udemy's ability to lead by providing relevant, high quality content that will continue to attract a growing number of learners and customers. As demand for training skills and digital transformation strategies increases, we will align our own strategy as well as our investments in product innovation, brand, and go to market to capture that demand. Heading into the new year, you can expect to hear more about our investments and new campaigns that we believe will have the potential to dramatically increase Udemy brand awareness globally. As part of those efforts, we plan to bolster our go-to-market engine and lean into strategic partnerships that extend our reach more rapidly and into new markets. We recently announced a partnership with Docker, a leading provider of development tools, and have more exciting collaborations with technology leaders to announce over the next few months. These partnerships will allow us to expand and introduce Udemy to millions of new learners. For example, we are already seeing significant traction with our AWS partnership. During Q3, total contract value of bookings through AWS increased 214% quarter over quarter, and we grew the number of deals transacted by more than 5x year over year. Over time, we anticipate our strategic partnerships will become even more impactful. In addition, we remain bullish on the opportunities that generative AI brings to our business that built a robust product roadmap that will supercharge the Udemy experience. We are building highly relevant generative AI enabled capabilities for three distinct personas, our enterprise customers, learners, and instructors. In response to the evolving needs of our enterprise customers, Udemy is committed to delivering tailored solutions. With industries undergoing rapid transformations, organizations are turning to Udemy to address their specific upskilling requirements. To serve them better, we're developing a cutting-edge generative AI-powered skills mapping system. This innovative solution, when integrated with our extensive course catalog of more than 210,000 courses, positions us at the forefront of addressing each customer's precise skills demands. Leveraging generative AI, we will automate the creation of personalized learning paths and guidance. ensuring that every professional skills development need is met. For learners, we are focused on enhancing the experience on our platform. We are harnessing the power of Gen AI to guide learners directly to content that aligns precisely with their unique needs to optimize their personalized experience. For example, we recently introduced smart search capabilities that enable learners to access bite-sized micro-learning opportunities within our vast course catalog. This not only streamlines the experience, but it also enhances engagement and optimizes time spent on our platform. Finally, we are committed to empowering instructors with tools that supercharge their ability to create high quality content more efficiently and effectively. Instructors often spend substantial time responding to learner inquiries, with some even hiring teaching assistants. We will leverage AI to automate responses for learner questions, saving instructors valuable time. Learners too will benefit from a more responsive and engaging experience. Instructors also dedicate significant time developing practice tests and quizzes. We will apply generative AI to automatically create interactive materials for instructors. These enhancements will be applicable to all new and existing courses and will be available to all 75,000 Udemy instructors. The synergy between generative AI coupled with the depth and breadth of Udemy's content, will further enable us to deliver learning and skills development solutions to the market at scale. In order to properly fund these initiatives, we announced to our instructor partners today that we will be adjusting our instructor revenue share. Our plan is to gradually lower the rate for our subscription programs over the next few years, which will reduce costs as a percentage of revenue. We believe that our investments in brand and product will be a net positive over time for instructors. Sarah will share more details on this in a moment. Finally, our commitment to innovation extends beyond our customer offerings. We are actively leveraging the power of AI to transform our internal operations, ultimately enhancing the service we provide to our valued customers. Our recent investment in cutting-edge technology is leading to the launch of a generative AI-powered chatbot that can efficiently handle over 70% of incoming requests, streamlining our support processes, and providing quicker resolutions for our customers. In tandem with this development, we're equally committed to upskilling our customer support teams, underscoring our dedication to becoming a premier center for generative AI support. In conclusion, we are committed to helping individuals and organizations navigate this exciting period of rapid change. Udemy is prioritizing skills, embracing the potential of AI, adapting to the hybrid future of work, and fostering a culture of agility and resilience. These strategic pillars will guide us as we continue to lead the transformation to a skills-based economy and innovate in this ever-evolving landscape. Now, I'll turn the call over to Sarah for a financial review.