Udemy, Inc.

Good day, and welcome to the Udemy's third quarter 2024 conference call. All participants will be in listen-only mode. Should you need 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 a touch-tone phone. To withdraw your question, please press star, and 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 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 a complete discussion of risk 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 prepared in accordance with U.S. 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 in comparing period-to-period results of operation 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 fresh release. These reconciliations, together with additional supplemental information, are available on the investor relations section of our website. Please note, we have provided a supplemental deck that 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. We delivered a strong Q3 with revenue and adjusted EBITDA margin exceeding the high end of our guidance ranges. Revenue grew 6% year-over-year, including a two-point headwind from FX, and profitability reached a new record with adjusted EBITDA coming in significantly higher than anticipated. This was a direct result of our disciplined approach to driving operational efficiency throughout the business. We also achieved a new milestone of over 500 million in Udemy Business ARR. I'm immensely proud of our entire Udemy team and thankful for their unwavering commitment to our business and delivering on our mission. We have a lot to be excited about as we look toward the future for Udemy, and I'm eager to provide an update on some of the strategic actions we've taken, as well as some of the other exciting developments, including the launch of our AI-powered skills mapping and AI Assistant. As a reminder, on our last call, we announced the strategic decision to deliver a more balanced mix of growth and profitability, while reallocating resources toward our highest return opportunity, the large enterprise customer cohort within Udemy Business. This transition is both timely and necessary as we look to deliver long-term, sustainable value for all stakeholders, particularly in an environment that remains stable but subdued. Over the past several years, we've successfully built a strong foundation for our enterprise business and our consumer marketplace. We've also expanded our global footprint to support nearly 17,000 Udemy business customers and 75 million learners across 180 countries, which represents one of the leading market positions globally. Given the solid foundation we have in place, now is the right time to focus on operational efficiency. The opportunity in this category is massive and growing, so we're capitalizing on it to create a more resilient business model capable of delivering sustainable financial performance in any market environment. Since our Q2 call in July, we moved quickly to optimize our cost structure to align with our more focused strategy. Ultimately, we were able to achieve over 50 million of cost savings against our initial target of 25 million. Our outperformance on these efficiency initiatives increases our confidence in our ability to deliver our target of adjusted EBITDA of 130 to 150 million in 2026. As you can see from the Q3 results, these actions are already impacting Udemy's profitability. We are significantly increasing our flexibility to allow us to operate from a position of strength and enabling us to deliver value to our customers and shareholders. We're confident that this approach will position us as a stronger, more competitive company well into the future. Turning specifically to Udemy Business, with our new Chief Revenue Officer Rob Rosenthal in place, we're aggressively capitalizing on our category leadership and realigning our resources upmarket and into key verticals that we believe will drive the highest returns. With the world of work expected to undergo rapid transformation, Fueled by the widespread adoption of generative AI, Udemy is the company that will help organizations bridge the growing skills gap. A cornerstone of our strategy is our decision to focus on large enterprise customers, which we define as organizations with over 1,000 or more employees and represents approximately 75% of our Udemy business revenue. These companies have a more strategic approach to learning and development, move fast to adopt AI and other new technologies, and are increasingly turning to Udemy to support their skills development initiatives. By prioritizing large customers and deemphasizing the SMB segment, we're optimizing our resource allocation toward higher growth, higher margin opportunities. Today, this cohort of customers have the highest retention, win rates, and upsell rates. Historically, we've been most successful generating high-quality pipeline from customers in this category, resulting in the majority of bookings coming from this cohort. Importantly, we will still support the SMB market, but we'll be addressing new opportunities through more efficient channels such as self-service over time. Although reallocating resources to focus up market will create temporary headwinds to the SMB and consumer portions of our business, these actions will create a stronger company and will enable long-term profitable growth for Udemy. As we navigate an era of unprecedented technological transformation, The importance of preparing organizations for the future has never been more clear. With rapid advancements in generative AI and other emerging technologies, we're witnessing the beginning of a seismic shift in how businesses operate. In this context, enterprise learning and development has become a strategic necessity for future-proofing workforces and ensuring long-term business success. Recent research underscores the urgency of this moment. A recent report from BCG found that only 6% of companies have trained more than 25% of their workforce on generative AI tools. Further, an astounding 46% of employees will require upskilling within the next three years, regardless of the impact of GenAI. As the shelf life of skills shortens, driven by digital transformation, a versatile and future-ready workforce is essential, and the focus on upskilling helps businesses stay competitive. This reality presents a massive opportunity and a critical responsibility for organizations to invest in upscaling and rescaling their talent. As an example of Udemy helping a customer overcome this challenge, Old Mutual, a South African financial services company, engaged Udemy Business in 2021 to address their upscaling needs. Since the beginning of our relationship, Old Mutual has seen more than 18,000 employees adopt licenses and averaged approximately 47 hours of learning per user per year. which is nearly double the industry average. Of the course enrollments, nearly 60% relate to developing digital and data capability skills. Organizations that prioritize skills are seeing tangible benefits, such as improved retention, innovation, and business growth. Millennials and Gen Z employees who now form a significant portion of the workforce value autonomy, internal mobility, and opportunities to learn new skills. Organizations that can provide these opportunities through robust learning and development programs are best positioned to attract and retain top-tier talent. By investing in learning and development, companies not only enhance their talent pool, but also reduce turnover, improve employee engagement, and build long-term resilience. A couple of great examples of organizations that are prioritizing skills development are Udemy customers, U.S. Steel, and Caliber. U.S. Steel is a manufacturing company with a workforce of more than 20,000 employees, and has been a Udemy customer since 2020. U.S. Steel provides access to Udemy business courses to all nonrepresented employees as a way to foster a culture of continuous learning and to support internal mobility. This strategic approach to learning and development also ensures U.S. Steel employees stay current on important business, technology, and leadership skills. In the past year, employees utilized 100% of licenses. and 85% of employees who claim licenses were actively taking courses on the platform. Caliber, a UK-based data technology consultancy, has been a Udemy customer for two years and has made Udemy business its primary L&D platform. Udemy plays a critical role in helping Caliber ensure its teams are certified in core technologies, have the foundational skills required to serve clients, and have the soft skills needed to deliver exceptional service. Since partnering with Udemy, Caliber employees adopted 93% of the assigned licenses and logged an astounding 300 learning hours per person. One of our customers, Emphasis, an Indian multinational technology company that offers business consulting, IT, and outsourcing services, has partnered with Udemy on a CSR initiative that recognizes the importance of skills development and is extending access to Udemy beyond its own workforce to the broader community. One of our largest deals of the quarter, Emphasis expanded its partnership with Udemy to 150,000 licenses as part of its Emphasis Springboard Initiative, a digital learning platform providing free access to educational resources, skill-building courses, and certifications. The program focuses on enhancing employability through digital literacy, technology, and soft skills, empowering students, women, and professionals in the community to become lifelong learners. We are honored to have been selected by Emphasis as a partner to foster continuous learning and drive societal progress, equipping individuals with the tools needed to thrive in the evolving digital economy. This brings us to an exciting product update. By offering our enterprise customers access to innovative learning tools on our intelligent skills platform, such as our recently launched AI Assistant, skills mapping, and AI-powered learning paths, we're helping organizations build a workforce that is not only ready for today's challenges, but also capable of adapting to tomorrows. This major product launch will provide significant value to our customers and has been met with much enthusiasm. Specifically, with the introduction of skills mapping and AI-powered learning paths, we're helping leaders identify the critical skills needed for their organizations. With this capability, we're enabling customers to create a skills framework or skills tree that provides a clear, logical structure for skills development and ultimately match skills to top-rated courses from the Udemy Business Collection. With the use of AI, we can now bring personalization and guided learning to organizations at scale. In addition, the AI system will help transform the experience for individuals, helping them more easily discover and engage with relevant learning content. The system will guide the learner and will provide course and lecture summaries to help learners understand key concepts and navigate to the most relevant content. This system will also help answer course and career-related questions with step-by-step advice and simplified explanations of complex topics. Ultimately, early indications show that the Assistant and the more personalized experience it creates will lead to more learner consumption and engagement on our platform. We're thrilled to introduce these innovative products to our customers, but this is only the beginning. In August, we welcome Udemy's founder, Aaron Bali, back to the leadership team as our Chief Technology Officer. Aaron is excited to return to an operating role where he will drive our product strategy forward. Together, we will deliver cutting-edge solutions that empower learners worldwide to achieve their career goals and better business outcomes for enterprises. With the major launches of our AI assistant and skills mapping behind us, now is a natural time to further streamline responsibilities on our leadership team, including consolidating the chief technology and chief product officer roles. We're expanding Aaron's role, and he will now lead both product and engineering teams. Our focus on operational efficiency allows us to prioritize investments in innovative, high-impact products, like the ones I just described, that are tailored to meet customers' needs. We believe that by empowering enterprises and individuals with tools to meet their learning needs, we can unlock significant value for stakeholders. And with that, I'll turn the call over to Sarah for a financial review.