Udemy, Inc.

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 a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Vice President of Investor Relations. Please go ahead.

Thank you, David. Joining me today are Udemy's Chief Executive Officer, Greg Brown, and Chief Financial Officer, Sarah Blanchard. During this conference call, we'll 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 10Q 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 prepared in accordance with US generally accepted accounting principles referred to by the SEC as non-GAAP financial measures. We believe that these non-GAAP financial measures support management and investors in evaluating our performance and comparing period-to-period results of operations in a more meaningful and consistent manner. 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 website. Please note, we have provided a supplemental deck with tables and charts with details on some of the initiatives announced today. The deck can be found for download on the quarterly results section of our Investor Relations 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. I'm pleased to report that for the second quarter of 2024, our revenue came in at the high end of our guidance range, and we significantly exceeded the range for adjusted EBITDA margin. Udemy business revenue increased 19%, including the negative impact of two percentage points from changes in FX rates, while ARR grew to nearly 500 million, up 17% compared to the same period last year. As a result, total revenue increased 9% year-over-year, including a negative two-point impact from FX to $194 million for the quarter. The growth is primarily driven by Udemy business and was somewhat offset by an anticipated year-over-year decline in consumer revenue. On the bottom line, we over-delivered on our expectations for adjusted EBITDA as we continued to drive operational efficiencies throughout the business. This quarter, we also surpassed a monumental milestone of one billion course enrollments since inception. This remarkable achievement underscores our unwavering commitment to transforming lives through learning and highlights the profound impact we've made on individuals and organizations around the world. I'm extremely proud of our team's performance and can't thank our employees enough for their hard work and dedication. Now that we're more than halfway through the year, I wanted to provide an update on the current state of the market and several strategic initiatives that we're implementing to more effectively position Udemy for long-term success. The global workforce skill gap is widening as generative AI accelerates the pace of change across all industries and geographies. By 2030, it is estimated that there could be 85 million jobs unfilled due to a shortage of workers with the right skills, leading to $8.5 trillion in lost annual revenues. Companies and individuals need to adapt to a rapidly evolving job market, accelerated by AI, where skills are the new currency and traditional education credentials are becoming less predictive of job success and adaptability. Udemy is uniquely positioned with our comprehensive platform to help organizations address the skills gap challenge and to help individuals meet their career goals. To that end, we remain committed to establishing Udemy as the skills platform of choice and providing the highest value to our customers around the world. Over the past few years, these trends have contributed to the significant expansion in our global enterprise customer base. Notably, in just three years, we have doubled the number of enterprise customers we serve while simultaneously deepening our relationships with existing customers. As a result of our successful execution, Udemy Business is at a critical juncture where we are preparing to propel our business from a $500 million revenue organization toward a $1 billion industry powerhouse. In order to capture the significant future market opportunity, we are taking deliberate action to shift our strategic focus and resources toward large enterprise customers, which represent our highest growth opportunity. We anticipate that narrowing our focus on the large enterprise customer will enable us to deliver accelerated profitability given the better unit economics and higher returns on our go-to-market initiatives. As part of this shift in focus, and following a comprehensive review of our go-to-market operations with Udemy's new Chief Revenue Officer, Rob Rosenthal, we're implementing four key initiatives. First, we're reallocating resources upmarket toward enterprise companies with more than 1,000 employees, which we call our large customer cohort. The SMB segment has been more impacted by the current macroeconomic environment and therefore more budget constraint. Given its lower growth and less attractive unit economics, we are de-emphasizing our focus on the SMB cohort. We believe the large customer cohort represents the greatest growth potential for Udemy given the wider range of use cases and land and expand opportunities. The large customer cohort currently represents approximately 75% of our Udemy business revenue and is growing at a significantly faster rate than the SMB cohort. We've been executing successfully in this segment, with stronger pipeline build, larger deal sizes, higher retention, more upsell opportunities, and better unit economics. With just over 5,000 enterprise customers in this cohort, we have barely penetrated the global addressable market opportunity of more than 130,000 enterprises worldwide. Additionally, large enterprises are moving faster than SMBs to capitalize on the opportunities presented by AI and the skills-based economy. As an example, during Q2, a large global professional services firm with more than 85,000 employees came to Udemy with a defined set of challenges. They were facing several pain points, including the imperative to keep up with the rapid pace of technological change and the anticipation of competitive pressure from the emergence of generative AI. They needed an effective learning solution to prepare the company's consultants for certification exams and to develop a strategy for transitioning to a holistic skills-based organization. The company selected Udemy for our industry-leading learning programs and hands-on immersive learning experiences. The customers reported remarkable results. In just three months since launch, nearly 50% of its 6,000 licenses were being utilized across various roles and over 10,000 hours of learning have been completed. New large enterprise customers like this represent significant opportunities to grow meaningfully through our proven land and expand strategy, which brings us to our next initiative. Second, we will focus on increasing penetration within our existing large customer base. Udemy Business has penetrated less than 10% of potential licenses within this cohort with significant headroom to grow. We estimate our seed expansion opportunity alone to be over $1.5 billion based on 50% penetration of the more than 85 million employees in our current install base of large enterprise customer accounts. As an example, Devoteam, a leading digital transformation consulting firm headquartered in France, has been a customer since 2016. Devoteam is a workforce of more than 10,000 employees across 25 geographies in EMEA. The past two years, Devoteam increased its coverage of Udemy business licenses from 30% to 100% of employees, enabling comprehensive training in generative AI across the organization on general AI proficiency and Google's Gemini. This strategic investment has notably accelerated the attainment of industry-leading IT certifications among their employees, with certification rates rising from 40% to nearly 70% across all consultants within the same time frame. Devo Team set a goal to have all employees certified on AI before the end of this year. We know from experience that once we prove our value, we can accelerate expansion and upsell opportunities within our existing customer base, particularly with large enterprises that have a strategic approach to critical skills development. One of the primary benefits of the land and expand strategy within the large enterprise customer base is that it represents our highest margin opportunity and return on investment. In addition, we have several new AI-powered capabilities launching over the next few quarters, including skills mapping and AI learning assistance, which have received strong feedback from early testing. We believe these products will support further expansion within our customer base. Third, we will continue to support growth through strategic partnerships, strengthening our global distribution capabilities, opening up new routes to market, and providing additional ways to access the Udemy platform. Partnerships are not only a critical way to drive revenue growth, but also an important way to drive customer satisfaction. As you can see from our recent announcements, we're focused on building relationships with hyperscalers such as AWS and large developer platforms like Docker and CNCF. Just last month, we expanded our partnership with AWS and launched our first collaboration to develop branded content specifically for Udemy. The program, Unlocking GenAI Opportunities with AWS is a six-week cohort learning program offered exclusively through Udemy Business Leadership Academy. This program is designed to equip mid- to senior-level leaders with essential generative AI knowledge and change management skills. This collaboration aims to help leaders across various industries develop the skills necessary to drive digital transformation within their organizations. Fourth, We're accelerating operational efficiency initiatives in order to emerge a more durable, competitive company. These initiatives include accelerating the reallocation of resources into lower-cost geographies, reducing organizational layers, and optimizing the go-to-market organization consistent with segments and regions where we see the most opportunity, specifically focusing on our fastest-growing, more profitable large enterprise customer cohorts. These initiatives are intended to enable us to more effectively navigate the near-term market conditions to generate greater profitability and capitalize on the massive long-term opportunity that is available to us. Not only that, but we expect that these initiatives will also better position Udemy to serve our customers and enhance the coordination among our R&D teams. With more than 60% of revenue and 80% of traffic to our website coming from outside the United States, It's important for us to have a workforce that can support our customers, instructors, and learners' needs quickly and effectively on a global basis. Ultimately, we anticipate that these operational efficiency initiatives will generate meaningful cost savings. Our goal is to deliver adjusted EBITDA of $130 to $150 million in 2026 and to achieve further meaningful adjusted EBITDA expansion in 2027 and beyond. Before I turn the call over to Sarah, I wanted to reiterate that we cannot be more excited about the future of Udemy. We're making strategic decisions to build upon our past successes. ARR is approaching a half billion dollars. We have robust gross margins. We're profitable on an adjusted EBITDA basis. And we have a solid cash position to fund future growth. Our competitive positioning is strongest with large global enterprises who are moving quickly to capitalize on AI and upskilling. and our runway is massive within these organizations. The deliberate and purposeful initiatives discussed today will make us a stronger, more durable business and position Udemy to deliver meaningful value to all stakeholders as we enter our next stage of growth. We thank you for your continued support on this journey. And now, I'll turn the call over to Sarah for a financial review.