Udemy, Inc.

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 that this event is being recorded. I would now like to turn the conference over to Dennis Walsh, Udemy's Vice President of Investor Relations. Please go ahead, sir.

Thank you. Joining me today are Udemy's Chief Executive Officer, Hugo Sarrazin, 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 risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and 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. During this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements. which are 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 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 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 Hugo.

Thank you, Dennis, and good afternoon, everyone. Udemy reported strong quarter as we exceeded expectations for revenue and adjusted EBITDA. As you know, this year we've been very focused on driving operational improvements to set ourselves for efficient growth acceleration. Separately, we have made significant progress on our strategic priorities. This firmly positions us for growth acceleration in the coming quarters. Q2 revenues were $200 million, up 3% year over year, and above the high end of our guidance range. Revenue for our Udemy business segment, which I remind you is our main growth engine, increased 7%, year over year, and we ended the quarter with an ARR of $520 million. On the bottom line, we delivered positive gap net income for the first time since our IPO, and adjusted EBITDA was stronger than expected. I'm very proud of the Udemy team for achieving this major milestone and for delivering another successful quarter. It's now been four months since I joined Udemy as CEO, In that short period of time, we've taken decisive actions to strengthen our leadership team, refine our strategic focus, and accelerate product innovation. Our early progress reinforces my confidence in Udemy's potential and demonstrates our newfound ability to execute with urgency. With that in mind, I want to share some updates in our strategic priorities, which includes, number one, increasing our emphasis on subscription products, Number two, expanding our partnership ecosystem and third-party channels. Number three, executing comprehensive global market activation. And number four, most importantly, positioning Udemy as the leading AI-powered skill acceleration platform. This will increasingly differentiate us vis-a-vis our competition. We are not playing the same games as others. During Q2, we made early and impactful progress across each of these priorities. Let me go through each one of them. First, we continue to emphasize subscription product across our business. With approximately 70% of our top line now subscription base, we are building a more predictable revenue stream. During Q2, we surpassed a milestone of 200,000 paid consumer subscriber and revenue from subscription accounted for 15% of the consumer segment, up two points from Q1. It is exciting to see that progress in just one quarter of focus effort by our team. To better serve individual learners navigating career transition, we will be expanding our subscription offering with multiple options aligned to specific career goals. We're now on track to grow consumer subscription to more than 250,000 by year end. We plan to more than double that next year. Beginning later this quarter, we will pilot programmatic advertising across our free course on udemy.com. We believe there is significant opportunity to unlock a new revenue stream through advertising by monetizing our audience. This will also strengthen our upsell motion to our paid subscription offering. Second, we're expanding our partnership ecosystem to extend our reach and impact. In April, we announced a strategic partnership with Indeed to integrate Udemy's comprehensive content with its vast career marketplace. This creates a seamless solution for individuals looking to advance their careers and for employers seeking skill talent. We also recently entered into a partnership with UKG, a leading provider of HR, payroll, and workforce management solution. Udemy Business can now be integrated with UKG Pro and UKG Ready. This enables streamlined enterprise learning management that aligns with existing workflows and simplifies administrative work for L&D professionals. We also extended our reach in the Latin through a new reseller partnership with BCN Global, an influential technical training organization in the region. We aim to create strategic reseller partnerships like this in each of our priority markets, following the playbook we've developed with Benesse in Japan. Finally, we are adding new revenue streams to include reselling certification and closing the learning to credential loop by providing enterprise customers with accurate data, such as employees test completion. Each of these examples provide an early look at how we expect to unlock further revenue growth through our global partnership strategy. Third, we're taking decisive action to drive growth in key regions through global market activation. We launch targeted campaigns and localized content strategy in high opportunity markets such as Brazil, India, and Japan. that we expect will increase engagement with Udemy and improve conversion. Specifically, in Japan, our second largest market, we appointed a new GM a few months ago to address some softness in that market. We quickly took action to refine our go-to-market and operational approach, and we are already seeing tremendous results. For Q2, we delivered double-digit year-over-year ARR growth and the highest gross retention in over three years. This strong performance demonstrates the significant international market opportunity and the actions we took provide a blueprint we are now applying to other regions. Finally, as I mentioned earlier, positioning Udemy as a leading AI-powered skill acceleration platform is and will increasingly be a source of differentiation. I want to remind you we are pursuing a different product positioning than our competitor. The future of talent development is rapidly converging with the widespread adoption of AI. Very soon, every employee will need ongoing personalized expert support at their fingertips. This evolution represents a significant market opportunity that Udemy is uniquely positioned to capture with our unparalleled collection of more than 250,000 courses covering virtually every professional skill domain. That is our data moat. It is hard for traditional publishers to keep up with Udemy's pace, particularly with fast-moving AI. our dynamic marketplace motivates instructors to create content and keep it fresh. For example, dive coding has recently experienced a rapid rise in demand. This new approach to software development leverages LLMs to generate code. Udemy's instructor community responded fast to the demand signal, and we now offer more than 100 courses on the topic. Compare that to fewer than 20 offered across leading competitors platform combined. Our marketplace model is stronger in a fast moving AI world. We are launching a beta test of our model context protocol server with our enterprise customer. We are the first to do so in our category. This technology is designed to help organization embed personalized learning directly in the flow of work for employees. Our MCP server allows organizations to access targeted learning within AI-powered applications such as Cloud and ChatGPT. This helps employees build skills in real-time without disrupting productivity. Ultimately, we aim to create personalized assistance for every employee. Since announcing our beta program last week, We have received overwhelming response from enterprise customers that want to be included. Innovation like this perfectly illustrates how we are repositioning Udemy to be differentiated as an AI powered skill acceleration platform. To win this race, we need to be more than a destination for high quality content. We are evolving Udemy to be an essential partner with our powerful suite of AI tools, embedded throughout the enterprise technology stack to provide personalized support to every employee. Udemy has more than 4,500 courses on GenAI, which is nearly five times the amount as one of our top competitors. Paid enrollment across these courses recently surpassed 11 million. As discussed previously, we are making important changes to the way we merchandise our offerings. During the quarter, we saw early success from two new SKUs for enterprise customers, AI readiness and AI growth packages. These packages are designed to help organizations build AI fluency across their entire organization, not just technical roles. This expands our addressable market opportunity. Let me share some example. During Q2, a large global medical technology company partnered with Udemy to launch an AI fluency initiative to approximately 40% of its employees this year. They selected Udemy's new AI research package for the breadth and freshness of our AI content, for the quality of our AI assistance, our AI power skill mapping, and our one-of-a-kind role-play experience. Another example is DevoTeam in Europe, a longtime Udemy business customer and AI-driven digital transformation company. DevoTeam recently implemented a GenAI literacy program across their organization using Udemy's AI learning path and content. Within a few months, approximately 70% of their employees participated in the training. This initiative was effective at building critical AI skills for employees and all roles and function while contributing to a 4% reduction in attrition. And finally, ProDAP, a telecom service provider, engaged Udemy to leverage AI-driven learning to thrive in a hybrid era. The organization needed to ensure employees across global locations could access meaningful, engaging learning opportunities without disrupting their workflow. Ultimately, the program delivered meaningful business outcomes achieving 90% organization-wide AI literacy, 75% of previously unassigned employees moving directly into revenue-generating client projects. This comprehensive approach enabled them to transform their technical talent and deliver more innovative solutions to their clients. What I like about these examples is that they are all companies that need their workforce to be at the leading edge of AI, and they chose Udemy as their partner. Turning to AI products, we are thrilled to have Ozzy Goldschmidt as our new Chief Technology Officer. Ozzy's deep expertise in AI, machine learning, cloud technology, and scaling businesses will be invaluable as we accelerate product innovation and enhance our AI-powered learning platform. During Q2, we accelerated our product development and innovation. Let me give you a few examples. In May, we launched AI-powered role-play, which allowed professionals to practice and refine their skills in realistic scenarios with an AI coach. I am thrilled to say that the reception has been exceptional. We have more than 7,000 unique role-play creations by instructors. That's more than the entire category combined. This is a testament to the advantage we can leverage by building AI tools to support content creation and launching them through our more than 85,000 instructors. We also provided Udemy business customer with the ability to create custom role plays. This has resulted in hundreds introduced to their employees all over the world and strengthened our stickiness with those customers. The AI role play unlocks substantial new market opportunities beyond NLD. For example, we will be exploring bespoke solution for sales enablement and customer service. At the end of the year, we launch our in-course AI assistant, which continues to gain traction. The assistant helps learner navigate content, answer questions, and deepen their understanding of complex topics. The early data is exciting, and we are seeing that learners are more engaged, have stronger retention, and higher completion rates. But this is only the first step towards a broader personalized AI assistant. We are working to ingest our broad course catalog to provide more engaging and multimodal experiences to our learners. We also expanded our creative capabilities for instructors with the addition of Lumi, These design tools are integrated into our content creator workflow, allowing them to leverage AI to develop more engaging, interactive content, which enhances the learning experience. Our investment AI are transforming the learning experience, while also fundamentally enhancing the economics for our instructors. We are building a virtuous cycle that enhance our competitive advantage. We want our instructor partners to earn more from our platform. When they earn more, they create more fresh, in-demand content, and that content attracts more customers and their engagement generates more data to further advance our AI capabilities. As we enhance their economics, we ensure that Udemy maintains the most current, comprehensive, and engaging platform in the category. As we look forward, to the rest of the year, we are increasingly encouraged by the signals we are seeing. The majority of our business is B2B. As you know, it takes time to move metrics on all enterprise businesses, but I'm excited about what I'm seeing. I like the early traction from our new AI SKUs. I like our increasing enterprise win rate, and I like the pace of building our pipelines. For consumer, we saw subscription GMV growth of over 40% year-over-year in June, and it's tracking towards 50% year-over-year in July. While these early indicators have not yet translated into the top-line reacceleration, we believe we are nearing an inflection point as we shift our focus towards accelerating growth. Before handing it over to Sarah, I want to emphasize that to keep up with the pace of change from AI, Udemy's instructor-powered marketplace provides a unique advantage that publishers cannot match. In addition, we are the first in our category to reposition our solution to be an AI platform. This moves us away from being a content catalog, creating new forms of value, and creating stickiness for our enterprise customer. Lastly, our evolving platform becomes more resilient to inroad that horizontal LLMs are likely to make in our space. With that, I'll now turn it to Sarah.