Coursera, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Coursera's second quarter 2022 earnings call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I'd like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.

Hi, everyone, and thank you for joining our Q2 earnings conference call. With me today is Jeff Maggiancolta, Coursera's Chief Executive Officer, and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our press release, including financial tables, was issued after market close and is posted on our Investor Relations website, located at investor.coursera.com, where this call is being simultaneously webcast and where versions of our prepared remarks and supplemental slides are available. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure can be found in today's press release and supplemental presentation, which are distributed and available to the public through our Investor Relations website. Please note that all growth percentages refer to year-over-year change unless otherwise specified. Additionally, all statements made during this call related to future results and events are forward-looking statements based on current expectations. These forward-looking statements include, but are not limited to, statements regarding trends and their potential impact on our industry and our business, our ecosystem, platform, content, and partner relationships, our strategy and priorities, and our business model, mission, opportunity, outlook, and long-term financial framework. Actual results and events could differ materially from projections due to a number of risks and uncertainties discussed in our press release, SEC filings, and supplemental materials. These forward-looking statements are not guarantees of future performance or plans, and investors should not place undue reliance on them. We assume no obligation to update our forward-looking statements. And with that, I'd like to turn it over to Jeff.

Thanks, Cam, and good afternoon, everyone. Several days after our first quarter call, we held our 10th annual Coursera Conference. Over 3,000 live attendees from nearly 150 countries, including leaders from higher education, business, and government, came together to discuss, debate, and most importantly, collaborate on the most pressing issues facing the future of learning and work. We believe that cross-sector collaboration between businesses, governments, and academic institutions will be critical to addressing the scale of the skills gap crisis and lay the foundation for the future of higher education amid rapid transformation. We shared concrete examples of the innovation and collaboration that is occurring amongst institutions in the Coursera community, demonstrating incredible progress towards creating more equal access to education. And I was personally excited to introduce new offerings like Career Academy for Institutions. This Career Training Academy leverages our entry-level professional certificates and guided projects created by the world's leading companies and experts to deliver the skills and credentials that prepare learners for in-demand digital jobs. even those with no college degree or prior work experience. It's one of the ways that we are focused on creating greater access to high-quality education that can be delivered through institutions at accelerated speed and scale to unlock economic opportunity for learners around the world. And now turning to our results. In Q2, we grew total revenue 22% to $125 million. Our enterprise segments delivered strong revenue growth across business, campus, and in particular, government customers, and our growing catalog of entry-level professional certificates continue to see strong demand from both individuals and institutions. Nonetheless, our overall revenue growth was lower than anticipated, particularly the performance in our consumer and degree segments. In consumer, we saw somewhat weaker conversion rates in several markets outside of the U.S., with a more pronounced impact in EMEA. along with a negative impact from several pricing and payment-related tests that we ran. In degrees, we are seeing lower than expected student enrollment, particularly in mature US and European degree programs where our revenue is concentrated today. Kim will cover each in more detail during the discussion of our financial results and our outlook for the remainder of the year. But in this dynamic environment, it is advantageous that we have a differentiated business model given our three-sided platform. Our diverse offerings, unique assets, and global distribution provide us with multiple opportunities for growth, and allow us to navigate the long-term trends shaping higher education and adult learning more broadly. Let's briefly discuss the latest on the three key trends that we see at play. The first trend is digital transformation. The forces of technology, globalization, and increasingly remote and hybrid work are transforming industry after industry. The impact of these forces has amplified the criticality of technology and digital tools, has caused businesses, governments, and campuses to redefine the way that they operate and has reshaped both the supply and demand for jobs globally. At its core, this ongoing transformation has created an accelerated rate of change that we believe will be a permanent feature of our increasingly digital world and a long-term driving force of Coursera's growth. The requirement for all of us to keep pace with this accelerated change leads to my second major trend, skill development. In the past, we've discussed the ways in which institutions are adapting to a changing skills landscape. But this quarter, I want to share the most prevalent feedback I was able to hear directly from our Coursera for Business, government, and campus customers around the world. Businesses are investing to upskill and reskill their talent, but they want to be able to drive and measure the ROI of skill programs and to better understand the skill proficiencies of their workforce. Additionally, as automation reduces the need for jobs that are repeatable and predictable, businesses are focusing on reskilling existing employees into new roles that better align with their future business needs. Governments told us that reducing unemployment and underemployment, especially among young people, was a key priority, and they are looking to hire education to create more employable graduates. And campuses or higher academic institutions, they told us that they need to bridge the gap between employer needs and the skills that students graduate with, while finding ways to attract and retain new students. Each of these use cases will require a flexible, affordable, and responsive system of higher education that can keep pace with skill requirements as they evolve. We believe that Coursera's offerings really are suited to these needs. This leads me to the third trend driving our business, the transformation of higher education and adult learning more broadly. As technology and automation accelerate a changing field landscape, a new and inclusive lifelong learning model must meet this challenge with rapid speed and scale. Adaptive to this change will require institutional collaboration between academic institutions, industry leaders, and government to meet the needs and tastes of this new digital world. One example of this is a recent Coursera for Campus partnership. Louisiana Tech University, along with the University of Louisiana System, is launching a system-wide four-credit initiative in partnership with Coursera and Google. Beginning with the summer programming series open to faculty, the Louisiana Tech University Office of Professional Education Outreach is offering Google's entry-level professional certificates on the Coursera platform as a complement to their regularly scheduled professional development. Later this year, they plan to expand the initiative to other universities in the University of Louisiana system to reach faculty via their Bridging the Divide program, and more broadly to students who are interested in gaining the in-demand skills for high-growth jobs like data analysts and UX designers. We believe that innovative programs like these from forward-thinking institutions demonstrate the future of higher education. The future is not universities or industry. It is the collaboration between universities and industry. Critical thinking, coaching, and community are all hallmarks of the university experience that higher education institutions do exceptionally well. But at the pace of digital transformation, many universities and colleges lack a connection to industry, a fast-changing skilled landscape, and evolving employer demands. This is the power of Coursera's three-sided platform and innovations like Career Academy, connecting learners, educators, and institutions in a global learning ecosystem designed to keep pace with our rapidly changing world. Our platform has three distinct advantages that we continue to reinforce. First are the leading educator partners who have created a broad catalog of branded content and credentials. Second is the global reach of Coursera. And the third is the data technology and ongoing product innovation that powers our unified platform. Let's discuss recent highlights for each of these. First, our educator partners. We now have more than 275 educator partners on Coursera, including world-class universities and globally recognized industry leaders. Recently, we welcomed four premier Indian university partners, including the Indian Institute of Management Ahmedabad, the Indian Institute of Management INGAR, the Indian Institute of Science, and the International Institute of Information Technology, or IIIT Bangalore. Additionally, we announced 11 new industry partners at Coursera Conference, and that will continue to expand our catalog of high-quality, job-relevant content. These industry partners include Accenture, ADP, Coinbase, Genentech, Goodwill, Hero MindMind, PwC India, SAP, and Tally Education. Our broad catalog of content and credentials created by these educator partners continues to grow. We announced 10 new university certificates from the Indian Institute of Technology Guwahati, the Indian Institute of Technology Ruki, and the University of Colorado Boulder. These programs generally take six months or less to complete and help learners develop expertise in cutting-edge fields like machine learning for finance, supply chain management with AI, and natural language processing. Additionally, we unveiled three new master's degree programs expected to start their first student cohorts later this year. They include a master in data science from the International Institute of Information Technology, Mandalore, an executive MBA from the Indian Institute of Technology, Rootki, and our first-ever university and industry collaborative degree on Coursera with a master's in management in digital healthcare transformation from Northeastern University in Mayo Clinic. This new program combines a top academic research institution with the expertise of one of the world's best hospitals. We believe that this type of partnership demonstrates the promise of cross-sector collaboration. Students benefit from the cutting-edge skills of Northeastern's faculty, along with the real-world expertise, case studies, and hands-on projects drawn directly from Mayo Clinic. Finally, we announced a significant expansion of our entry-level professional certificate catalog. For existing partners, these new certificates include Google's fifth certificate, designed to prepare learners for a career in digital marketing and e-commerce. Five new certificates from Meta for in-demand careers in the field of software engineering, including front-end, back-end, Android, and iOS developer, as well as database engineer. And three new certificates from IBM in technical support, supply chain, and operations. We also previewed the first entry-level professional certificates expected from several new partners, including Akamai, HR Certification Institute, and Microsoft. In total, we have announced 32 entry-level professional certificates across nine industry partners. Twenty-three of these certificates are live on the platform today, and 12 of those have secured American Council on Education, or ACE, credit recommendation, which enables more universities to accept the certificates for credit toward a degree program. These entry level professional certificates provide online job training for high demand entry level digital jobs that don't require a college degree or any prior work experience. They're well suited for the millions of career starters and career switchers looking to land a high paying digital job. The second major advantage is the global reach of our platform. Our large grown learner base attracts educator partners looking to teach both individuals and institutions around the world. Once again this quarter, we added approximately 5 million new registered learners, growing our global learner base to 107 million by the end of June. Learner growth continues to be broad-based, with double-digit increases in all regions and the fastest growth coming in the Asia-Pacific region. Additionally, we've grown the number of paid enterprise customers by 64% this quarter to 958, with the majority of new additions coming from Coursera for Business customers. Our final advantage is the ongoing product innovation on our unified platform. Our product team continues to introduce a number of new capabilities to better serve our learners, educators, and institutions. As I mentioned earlier, I was thrilled to announce Career Academy for institutions at the Coursera conference in May, and we're excited about the early feedback that we're getting from our enterprise customers. Career Academy enables higher education institutions, governments, and businesses to offer a co-branded turnkey solution to upskill and reskill entire populations of students, workers, and employees for new economy careers at rapid speed and scale. Campuses can help attract and retain students by offering industry-recognized certifications and micro-credentials, along with skills development that helps graduates enter in-demand careers. Governments can provide job seekers a path to a better career and help them gain the skills they need to achieve it. And businesses can become a career destination to attract frontline workers and expand their talent pools while reskilling and redeploying their current workforce. Career Academy leverages our entry-level professional certificates and guided projects, which equip learners, particularly those with no college degree or prior work experience, with two critical elements designed to help them in landing a good job. First is a branded credential created and endorsed by an industry leader that provides employer signaling value. And second is the ability to build a portfolio of hands-on projects using the software applications and tools of the trade to demonstrate their skills proficiency. For example, an aspiring data analyst can practice SQL, Python, and Tableau, while UX designers can build projects using Figma and Adobe Creative Cloud. And they can do this in a cloud-based desktop browser without the need for a license or local installation on their device. As we continue to expand our catalog with the announcements I highlighted earlier, institutions will be able to offer learners a more diverse selection of roles from a wider range of industries, brands, and languages. Next, we introduced Qlips for Coursera for Business customers starting in May. Qlips allows companies to make the most valuable in-demand skill development content more easily accessible to their employees. Leveraging existing Coursera content Clips deliver short 5-10 minute videos and lessons that address in-the-moment learning needs. Videos and lessons are surfaced within the context of our longer courses, providing a clear path to deeper skill development when the learner is ready to enroll in the full course. We launched with over 10,000 clips that we expect to scale to more than 200,000 clips by the end of the year using our existing catalog of content and credentials. Finally, innovation for learners. Our team has been focused on creating a more personalized, engaging learning experience to better serve the unique needs of each individual learner. At Coursera Conference, we introduced a number of new tools and features focused on the motivation and support of learners. These include the ability to input a personalized schedule into a course and receive data-driven deadlines for each item based on the real experiences of prior completers, AI-powered nudges and in-course coaching, with features like highlighting key lectures and content that other learners reviewed prior to an assessment. And machine learning generated summaries of key lecture videos, providing learners with an easy way to review prior course material, gain a quick understanding of a topic, and progress more quickly through their studies. Before I turn the call over to Ken for a closer discussion of the financial results, let me remind you of several of the key priorities that we are focused on to grow in the years ahead. First, we will continue to invest in our fast-growing enterprise segment, focusing on both new customer acquisitions and expanding existing relationships. Second, we are still in the early stages of our degree segment and are focused on expanding our program catalog, including the types of degrees offered and a greater variety of subject matters and languages from new and existing partners. Third, we will broaden our entry-level professional certificate catalog, sourcing new partners, expanding with existing leaders, and offering learners a greater variety of job roles, industries, and languages to choose from. And finally, we will continue to scale the Coursera platform, investing in growing our registered learner base, increasing our network of educator partners and their content and credentials, and expanding our reach into more countries, more institutions, and to more learners around the world.

And now I'd like to turn it over to Ken.

Ken, please.

Thanks, Jeff. And good afternoon, everyone.

We continue to demonstrate strong progress across our platform, expanding our number of educator partners and their catalog of job-relevant content and credentials, growing our global reach with individuals and institutions, and delivering new innovations for learners, educators, and our enterprise customers. In Q2, we generated total revenue of $124.8 million, which was up 22% from a year ago, on strong demand for our entry-level professional certificates, and sustained momentum across our enterprise segment. As Jeff mentioned, our revenue performance was mixed this quarter, with strength in enterprise offset by lower than expected growth in consumer and degrees, which I'll cover in more detail shortly during the discussion of our segment results. Nonetheless, the long-term structural trends driving our business have not changed. First, individuals and institutions are increasingly turning to online learning to supply the digital skills required in today's economy. Second, we have a powerful combination of university and industry content that delivers the in-demand skills and branded, recognized credentials required by learners no matter the stage of their career. And third, our three-sided platform provides us with global reach and the ability to leverage our strategic assets across our segments to compete differently. Please note that for the remainder of the call, As I review our business performance and outlook, I'll discuss our non-GAAP financial measures unless otherwise noted. Our non-GAAP adjustments remove only stock-based compensation and related payroll tax, nothing else. Gross profit was $79.2 million, a 63.5% gross margin, up 28% from a year ago. This margin was approximately three percentage points higher than the prior year period, due to the ongoing drivers we've discussed the past several quarters, particularly the positive changes in our segment content margin for both consumer and enterprise. Our consumer segment content margin rate increased from 66 percent in the prior year period to 73 percent this quarter, and our enterprise segment content margin rate increased from 67 percent in the prior year period to 71 percent this quarter. This expansion continues, to be driven by learners consuming a larger proportion of industry partner content, which tends to have a lower than average content cost. Total operating expense was $99.3 million, or 80% of revenue, compared to 67% in Q2 of last year. The increase was partially driven by one-time impairment expenses associated with the subleasing of a portion of our Mountain View office. As a reminder, during our outlook last quarter, we discussed our expectations around a likely partial sublease of our Mountain View headquarters, which was consummated in a lease during Q2. This resulted in $3.2 million additional costs this quarter, which are included in the departmental expenses and account for a portion of the OpEx increase as we did not pull the cost out as pro forma. As discussed previously, we expect the net benefit to accrue over the coming quarter and years with much of the savings expected to be redeployed to fuel our talent strategy. Now, moving to the expense details. Sales and marketing expense represented 38% of total revenue, up from 32% in the prior year period as we expanded the capacity of our enterprise sales force and invested in the marketing programs related to higher margin content and credentials. Research and development expense was 26% of revenue, up from 22% in the prior year period, driven by content development investments associated with our entry-level professional certificates. In general and administrative sense, with 16% of revenue, up from 13% in the prior year period. Our net loss was $21.6 million, or 17.3% of revenue, and our adjusted EBITDA loss was $15.6 million, or 12.5% of revenue. Now, turning to cash performance in the balance sheet. As of June 30th, we had approximately $783 million of unrestricted cash, cash equivalents, and marketable securities with no debt. Our free cash flow was a use of $3.2 million compared to $8.5 million in the prior year. The strength of our balance sheet, in combination with the modest cash requirements for operating needs, provides us with a strong financial base. positions us well in any environment, and allows us to invest confidently in our long-term strategy. Now let's discuss the segments in more detail. Consumer revenue was $69.7 million, up 12% from the prior year. At the start of this year, we communicated that we expected Q2 to be a seasonally light quarter for learners, reflecting the traditional education cycle. With that being said, our consumer growth was lower than anticipated. First, We saw softness in several markets outside the U.S., particularly in EMEA, with new payer conversion rates that were below our seasonal expectations and may reflect ongoing macroeconomic challenges in the region. Second, we conducted several pricing and payment-related tests in markets around the globe that resulted in a negative impact on consumer revenue. To be clear, we continue to see increased demand for our job-relevant portfolio of entry-level professional certificates, particularly in North America. and we expect to rapidly expand this category with new and existing industry partners, as Jeff highlighted. Segment gross profit was $50.7 million, or 73% of consumer revenue, up from 66% in the prior year. The expansion in our consumer segment margin demonstrates the ongoing benefit we see from a lower content cost rate associated with higher consumption of industry partner content. We added another 5 million new registered learners for a total base of 107 million. Next is enterprise. Enterprise revenue was $43.7 million, up 55% from a year ago, on strong growth across business, government, and campus customers. The total number of paid enterprise customers increased to 958, up 64% from a year ago. and our net retention rate for paid enterprise customers was 111%. Segment gross profit was $31.1 million, or 71% of enterprise revenue, up from 67% in the prior year, driven by a higher consumption of industry content that similarly benefited our consumer segment, although less pronounced. And finally, our degree segment. Degrees revenue was $11.4 million down 4% from a year ago on lower than anticipated student enrollment in our mature programs and lower overall student activity. The total number of degree students grew 19% from a year ago to 17,460. Our degrees performance reflects what we believe to be broader macroeconomic trends at play, particularly with U.S. and European enrollments and master's degree programs. which is where our revenue is concentrated today. As we've discussed, our degree segment is still in its very early stages. We have a small base of fully mature existing programs, which is where we experienced decreased student enrollments. While we remain excited about the momentum in new program announcements that will diversify our degree's revenue base, it will take time to see their contribution, given the extended ramp cycle we've discussed and the lower range of international tuition price points. As a reminder, there's no content cost attributed to the degree segment. The degree segment gross margin was 100% of revenue. Now, on to our updated financial outlook. For Q3, we are expecting revenue to be in the range of $126 to $130 million, or 16% growth at the midpoint of the range. For just EBITDA, we're expecting a loss in the range of $10.5 to $13.5 million. For full year 2022, we anticipate revenue to be in the range of $509 to $515 million, or 23% growth at the midpoint of the range. With a three-sided platform, our business has exposure to the needs of learners, educators, and institutions that affect our three operating segments in different ways. Given the revised full-year outlook, we thought it would be helpful to provide new growth expectations by segment for 2022 to reflect our latest view. For consumer, we expect to grow in the high teens for full-year 2022, which is slightly lower than our prior expectations given the softer conversion rates seen in Q2. For enterprise, we expect our broad momentum to continue with full-year percentage growth in the mid-40s. inclusive of some macroeconomic headwinds related to EMEA Coursera for Business customers. And for degrees, we anticipate a mid-single-digit decline on an annual basis given the enrollment challenges witnessed in the first half and forecasted for this fall in our most mature program. For full-year 2022 adjusted EBITDA, We're expecting a loss of $42.5 to $48.5 million, or a negative 8.9% adjusted EBITDA margin at the midpoint of revenue and EBITDA guidance ranges. Our messaging and annual operating framework with regards to EBITDA margin has been consistent over the past two years. At the beginning of the year, we set an annual EBITDA margin target and work within that plan to maximize our growth opportunities across the business. With our reset revenue expectations for the second half of 2022, we have adjusted the pacing of our investment to align with the annual EBITDA margin target. Continuing to maintain the same margin target results in a lower adjusted EBITDA loss in dollar terms for a midpoint of $45.5 million down from the previous $48.5 million loss. This, along with our strong cash position and minimal cash burns, allows us to prioritize near-term growth opportunities while strategically positioning Coursera for the long term.

I'll now turn the call back to Jeff for final comments.

Thanks, Ken. We've entered a new and ever-evolving era of work that consistently requires new skills. Technology is creating new career opportunities, but students and workers need access to flexible, affordable, and fast-tracked learning and career pathways to transition into well-paying jobs of the future. This is particularly true for women and other underrepresented groups who've been disproportionately impacted by the pandemic and automation. With many of our learners based in emerging markets, we partnered with the International Finance Corporation and the European Commission to publish a global study seeking to better understand how these learners, particularly women, have been learning online since the pandemic's onset. During the fourth quarter of 2021, we surveyed nearly 10,000 learners on Coursera in four focus countries. Egypt, India, Mexico, and Nigeria, targeting learners that had completed at least one graded item between January 2019 to the end of June 2021. And nearly half of the respondents reported earning in their country's bottom 50th percentile of income. Our research found that women and other underserved populations view online learning as more accessible than in-person education. In fact, 45% of women and 60% of women caregivers said that they would have had to postpone or stop study if online learning weren't an option, citing mobility, safety, and family obligations as their top deciding factors. Women also said that they faced more restrictions that limited how and where they learned, but that online learning had provided an opportunity for them to achieve their goals. The study also confirmed links between online learning and career outcomes in emerging markets. The IFC research found that online learning produces gains in the broader economy through direct and indirect effects, with one new job created for every 30 people trained on Coursera in our four focus countries. About one-third of the women surveyed said that they found a new job, set up a business, or improved their job or business performance after taking online courses. And 22% of women saw an increase in their income, with nearly 40% reporting an increase of 10% or more. Finally, 99% of respondents said that they plan to continue learning either online or in a blended format after the pandemic. These results demonstrate why increasing access to online learning in combination with broadband connectivity and remote work have the power to advance equal opportunity in the post-pandemic economy. However, it will require significant collaboration from both the public and private sectors to address the scale of the crisis and build competitive, equitable, and sustainable workforces. People often say talent is equally distributed, but opportunity is not. With our Coursera community encompassing leaders in higher education, business, and government, we are working together to expand access to economic opportunities for learners around the world.

Now, let's open up the call to questions.

At this time, I would like to let everyone know if you would like to ask a question, please press star and the number one on your telephone keypad. We'll now take our first question from the line of Stephen Sheldon with William Blair. Your line is open.

Hey, thanks for taking my questions. The first one here, just on the revenue guidance for the rest of the year, it seems like it assumes a year-over-year deceleration in the third quarter and then some re-acceleration in the fourth quarter. So can you talk about that? And I know you gave some segment-level expectations for the four-year business.

there underlying segment level dynamics um that you're kind of factoring in in the second half that are kind of in play there yeah yeah hi stephen the um so uh no it was it's simply based on mechanics of our forecasting what we're seeing in the pipeline and the usual ratios that we use to determine our forecast um there's nothing unusual in that um you know we're ensuring or wanting to ensure that we're careful to hit our numbers this coming quarter. But there's nothing unusual in there from a seasonality standpoint.

Got it. And then on the, I think you previously talked about 50% growth, I think, this year for enterprise. I think now you're talking mid-40s. And I think you called out some headwinds in EMEA. Can you just give some more detail on, I guess, what those headwinds look like in EMEA and just generally? You know, what's kind of changing there? Is it the slower new client wins? Is it churn picking up maybe a touch? I mean, just what's driving the slowdown there?

Yeah, hey, Steve. It's a combination of things. I mean, when we look at enterprise, we've got Coursera for business, we've got Coursera for government, and we've got Coursera for campus. And then we've got the different regions. What we're seeing in EMEA is more of a Coursera for business environment. challenge you know relative to what we were expecting north america actually has been pretty solid on the enterprise side across all three segments um and gov globally the coursera for government has been quite positive so it really is kind of europe coursera for business and um most of that is really more in a pipeline uh development process uh as opposed to the churn rates but but that it is kind of coursera for business in europe where we're seeing the biggest sensitivity. And we suspect that that is kind of due to macroeconomic factors of what's going on in Europe right now. But that seems to be where we're seeing the localized weakness.

And of course, Stephen, your question was enterprise, but we saw similar weakness in EMEA and consumer on conversion rates. So I suspect that's part of the same trend, the general pressures on the economies there.

Got it. All right. Thank you for the call. Yeah, thank you.

Your next question comes from the line of Taylor McGinnis with UBS. Your line is open.

Yeah, hi. Thanks for taking my question. Maybe just to touch on, you know, what you were just referring to on the last question about some of the macro, you know, weakness and how that's materializing and what you guys are seeing in the pipeline and, you know, with consumers. So can you talk, you know, I guess one on like the enterprise side, is that more a function of, you know, deals being, you know, delayed and pushed out or, you know, what, I guess, how are you guys thinking about, you know, that in terms of, you know, like the second half guide there? And then as the second part on the consumer side, maybe you can talk about, you know, activity levels on the platform, what you're seeing there and how that macro impact is materializing.

Yeah, thanks, Taylor. This is Jeff. So on the enterprise side, it's not a whole lot to add beyond what we mentioned to Steven. You know, I think it is, it appears to be a little bit of tightness with budgets in terms of how much do people spend, how quickly do they spend it. I feel like we kind of saw the opposite, that when COVID first happened, it just seemed like people were opening the walls, maybe with government money and in Europe kind of moving pretty quickly. It almost feels like the opposite is happening now. People seem to be a little bit more careful. with their spend, I would guess that's probably timing as well as kind of purchase size, but not totally clear on exactly the distinction there. On the consumer side, it's interesting because the professional certs are still performing really well, particularly in North America. In Europe, it's kind of more of a conversion rate challenge. And so, like Ken said, maybe it's the same kinds of effects, You asked about activity levels. I don't think that we're seeing any notable difference in activity levels. It seems to be, and even a lot of the top of the funnel seems to be similar between Europe and other regions. I will say that generally speaking, search volume for online courses and online degrees, this is not just on Coursera, but just general search volume is down. I think there's sort of a bit of the economy reopening and people, you know, doing things outside of their house that we kind of see globally. And that probably is happening in Europe as well. But a lot of it is sort of conversion rates on the consumer segment in EMEA and particularly Europe that we're seeing.

Got it. And then my next question is just on the enterprise piece. I think, you know, it looks like your net retention, you know, picked up a little bit. But it looks like at least like the net logo ads in the quarter maybe were the area that, you know, was a little bit weak relative to what we've seen in the past. So can you talk about that, like, you know, the new versus, you know, existing and expansion activity? And when you think about, you know, the guide, like, where, you know, you're seeing more of the impact and how that influenced it?

Yeah. On this one, you know, it is really a mixture of different size companies that we sell. We go mid-market. We do some small and medium business. And then, of course, we have bigger accounts as well. Also, when we look at deal sizes, they're different between a campus, a government, and a business. So part of this is variability within the segment. Part of it is variability in average deal size across sub-segments, if you will, of enterprise. I would say that as we – and we've seen governments growing faster than business in terms of revenue growth, and those are generally bigger ticket sizes. So I wouldn't be surprised if what we end up seeing is, you know, I guess what I'd say is general continued sort of variability depending on the mix of what's growing fastest. On the campus side, and we're seeing pretty good uptake of Career Academy. These are more, this is a more narrow, simple focus skew that might sell faster than the typical ones. We might have higher numbers with lower average ticket sizes. But it's really sort of a combination of mix across segments, I think, that we're seeing mostly. Ken, I don't know if you want to add anything to that.

Just a little bit on the data side, looking at the number of pigs, the net increase, which essentially you're referring to, of 41 versus 100-ish, let's generalize, over the previous four quarters, was definitely slower on the enterprise side, which is reflected in the lower forecast for the rest of the year. It's part of the same, but there's absolutely a mix, as Jeff said, between smaller and larger customers. But it's fewer conversions, once again.

Great.

Thanks so much for answering my question. Sure, Taylor.

Your next question comes from the line of Brian Peterson with Raymond James. Your line is open.

Hi, gentlemen. Thanks for taking the question. So I wanted to hit on the degrees business for a second. And I understand, you know, some of the programs can have different enrollment times. But I was curious, what drove the enrollment change, particularly in the second quarter for some of these programs? I guess in the traditional cycle, maybe that's not the case. And then, you know, maybe looking ahead, how do we think about, you know, that potentially getting better? It doesn't sound like maybe that's the case in the outlook, but you know, is there a possibility for those enrollment trends to change as we're, you know, looking ahead to maybe the fall semester of 2022? Yeah.

Hey, Brian. So when we look at the degree segment, I mean, clearly minus 4% in Q2 is lower than expected. A lot of that is lower than anticipated student enrollments. Part of it is also lower overall student activity. So the tuition paid depends on how many credit hours students are learning. partly probably because of working, maybe because of vacation, whatever. Students have pulled back in the activity level. So if you look at where the degree segment revenue comes from currently with our current portfolio of degrees, our four largest most mature degree programs, they saw limited to negative revenue growth year over year, and three of these four are in the U.S. We think that what's going on when we look at our funnel and also sort of outside information of what's happening with other degree providers in the U.S. market, we think that there are economic trends, particularly in the U.S., associated with a strong labor market. And the stronger labor market historically has led to lower enrollments. If you look countrywide at sort of national data on graduate enrollment rates, it's down 1%. in spring of 2022 compared to plus 4.6% spring 2021. So we do think that there's an impact in the US because of that, and that's where the concentrated and more mature programs are. I would also say that some people are like, yeah, but there's a recession. This should be counter-cyclical, right? It's a funny recession right now. People are talking about a recession, but the unemployment rate is really low. And generally speaking, degrees are countercyclical with mostly unemployment. And so if unemployment goes up and a recession happens, that's where you get the most. We're kind of looking at a potential recession, but with really low unemployment. So I don't think that we're seeing yet any sort of countercyclicality because it's more associated with unemployment rate. The other thing I'll add, and then I'll turn it over to Ken, but when we look at the revenue sort of year on year, part of it, as I mentioned, is the student's enrollments. And then part of it is the average revenue for students. And so the more intensely that students are learning, the higher their tuition in a given period, the average revenue per student was lighter in Q2 because of lighter kind of learning loads, if you will, that students have been taking. And so that was another difference from what we were expecting. Ken, I don't know if there's anything you want to add to that.

Not a lot. I just reemphasize that our revenue is quite concentrated in a few large U.S. and European master's degree programs, which is why you referred to graduate programs. That's, again, it's the large majority of our business today. So the effect on those markets affects us disproportionately in that business. And also that, you know, everybody understands, I think, our degrees model, it takes a long time to build revenue from new programs. We've recently had, the last few quarters, some great new program announcements. Those are still building and don't show in revenue immediately. We're excited about that trajectory over time, but we don't see any near-term impact. What we're seeing now is specifically what's happening in the U.S. and Europe for master's degree programs.

You asked, by the way, Brian, when's it going to get better? My best guess would be it'll be related to unemployment. That's my best guess based on historical patterns.

Understood. No, I appreciate all the context there. And maybe a follow-up for you, Ken. You know, just in terms of, you know, the growth environment, obviously an uncertain macro, we've referenced some cyclicality. You know, how do you think about that balance maybe beyond 2022 in terms of, you know, the growth versus the margin? But I appreciate you're not giving guidance for 23 yet. But, you know, has anything changed in terms of the thought process on how you're looking at some of the investment posture? Thanks, guys.

Sure. Now, that's an incredibly important question as to how we run the business. The environment has changed and the outlook has changed somewhat in the near term. But philosophically, we're not changing our approach. We want to continue to scale the business. We want to build leverage into the business. So we expect to see improving EBITDA margins. So this last quarter, we just reduced, of course, the forward look on revenue. And so we're reducing our rate of growth for the year, our rate of investment. We still want to fund growth, so we're not changing anything. We're in a great finance position from a cash standpoint. We're stable. We're burning, you know, $3 million a quarter that should continue at roughly that rate going forward. So we control our own destiny, you know, with $7.83 million in cash and cash equivalent. But we do want to have the model start to scale. We plan to continue to do that regardless of the revenue rate. And so you'll see us continue to adjust our investments on a go-forward basis. So I think Next year, what we'll see, depending on the growth environment, at the end of the day, we need to win in this market. We need to own these markets, and we need to have long-term growth. We are not going to be confused about that. This is a growth company. But at the same time, we need to see leverage. And so going forward, we don't have guidance yet, but you'll expect our EBITDA margin to be better next year. We've committed to that early on as we went public and we continue to hold the same philosophy.

And, you know, Kevin, if I just sort of to continue on that a little bit about sort of where are we continuing to invest? I mean, we did pull back on the pace of expense growth to try to match, you know, the lower than expected revenue growth to try to kind of hold adjusted EBITDA margin, you know, roughly the same. Where we're still, you know, leaning in heavily is building direct sales force to land and expand an enterprise, growing capital funnel, the distribution, providing more localized learner experiences around the world. Some of the product innovations we talked about, notably the Career Academy, those professional certificates, the clips, which is sort of the shorter, more accessible learning. These are all things that we're continuing to invest in because it seems like there's good demand for this and they're pretty differentiated. And so we don't really want to pull back on that.

Understood. Sure.

Your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

Great. Thank you for the question. I wanted to ask a couple follow-ups on enterprise and the step down in the net new account additions quarter over quarter from that 100 level to 41. Is that all in the EMEA region or was there impact in other geographies in North America?

Yeah, you know, our North America enterprise was pretty consistent with what we were expecting. I'm not sure exactly the number of deals. Maybe, Ken, you can grab that. But when you look at overall new bookings, like, that was pretty solid. Assuming the ASPs weren't changing a whole lot, I know that our new and expansion, well, the new logos in Europe was where it was really the lightest. I don't know if that accounts for the full amount of it, certainly on the on the revenue expectations, that's where we're seeing the weakness for the rest of the year. Can any additional code that you'd provide in terms of the net logo ads and kind of where those showed up?

You know, as you referenced, the focus is on ACB. It's on contract value. It's how we measure the sales force and measure our success over time. So the... So we were lighter than me, as Jeff said. The performance in North America was fine, but it's an ACV total contract value focus that we look at as opposed to a number of new ads. So I'd have to look that up, but it's not something we necessarily forecast, to be fair. We run the business on contract value.

Okay, got it. And with enterprise in mind and the guidance, I guess just wondering if you're – seeing some of these if you're seeing deals that are pushed out or are you or is there a change in I guess again for like the new account additions is there a change to win rates essentially like are you is this just a little shift in macro and in EMEA and you know demand that's getting pushed out or is there any other changes to note in the competitive landscape or anything else to note there.

Yeah, Josh, you know, we didn't mention competition in the script, but I'm feeling pretty good about our competitive position, especially in Coursera for Campus and Coursera for Government and with this Career Academy, these long-form job training certificates. We are growing that portfolio quite quickly, and that is just really resonating with, you know, governments are trying to get people trained for jobs and are looking for an affordable way to do that with, you know, good quality and good brands. And then, frankly, academic institutions who are seeing competition from others and saying, if I'm going to attract students, I've got to provide something to make them more job ready when they graduate. Industry micro-credentials is becoming quite a buzzword around the academic space. And not to say there's no competition, but we really feel good about our competitive position in both the campus environment and the government environment. C4B, honestly, not really much change that we've seen. And so, nothing stands out as being more exceptional than these macroeconomic factors that we're talking about.

So, Josh, I'd just add on briefly and confirm one piece. So, it would be more pushing out a lack of closure, particularly in Europe, is what we've seen. not that we're losing the competition. I'm always a little hesitant to say it's pushed out and it's delayed because a deal that doesn't happen might not ever happen if you're being realistic. But we're not losing. It's just we're not closing immediately. And again, that affects primarily in Europe.

Got it. Thank you. Yep. Yep.

Your next question comes from the line of Ryan McDonald with NIDA. Your line is open.

Jeff and Ken, thanks for taking my questions. I had a question on the consumer segment. You talked about some pricing experiments during the quarter that perhaps had a bit of a negative impact or not the impact you're expecting. Can you provide a bit more color on what you were doing there and perhaps corrective actions you're taking that gives you more confidence and sort of a back half step up in the consumer revenues like you're implying in the guidance?

Thanks. Sure, not a problem. Yeah, it was a number of pricing and packaging experiments that we ran that Some of them, which came from some work we did in India with some shifts in how we handle subscriptions with some certain credit card rules there, where we saw some promise, actually some improvement in some of our metrics related to revenue. And so we ran experiments in other parts of the world, primarily Europe, and instead we saw a decline. And as a result, we changed those back to what we were doing. So yeah, so it hit this quarter. On an ongoing basis, we've factored any ongoing effects from them, although we've corrected it. And we did take some steps. It's a young company. We're growing. We try to be as aggressive as we can in figuring out where there's opportunity for growth. But we're ensuring a few new sign-offs as we look at future experiments. So cheers for the team for looking for more growth. And we've upped the operational game a little bit in that group. So that will not have a recurring effect beyond our forecast.

And, Ryan, you know, this is something that we actually saw in Q1. We ran some tests in Q1. We're like, hey, this looks pretty interesting. It might be a way to stimulate, you know, new paid learners with, albeit, you know, potentially a risk on the retention side. And it seems that we should run these a little bit more broadly. So, basically, we took some that worked in Q1. We ran a little bit more broadly in Q2. Basically, in May, we said, we don't like the back end of this on the retention side. We should hold it back. But to Ken's point, there'll be some persistence but diminishing effect over the rest of the year, and so we factored that in.

Excellent. Thanks. And maybe just a follow-up on enterprise. Obviously, you talked to Nazem about Europe and sort of delay of deals. I'm just curious, when you talk with your customers, what you're seeing in terms of head count and retention there. Obviously, we've seen in May and June start to see some tech layoffs en masse in the U.S. and some hiring freezes. Just curious what you're hearing in terms of potential expansion opportunities from a pure head count perspective at your existing customers. Thanks.

Yeah, sure, Ryan. This is one I think that is a little bit more specific to Coursera. Generally speaking, when we sell into companies, it's a higher price tag than the competition. It is usually not enterprise license agreement that covers all heads based on the number of heads people usually buy seat licenses at a higher price for a target population that's a generally a small portion of the overall company often what they're doing is they're upskilling people in very high demand roles like data science and tech and like digital marketing and things so um i think with respect to your overall layoffs i don't think that that's going to impact our sort of revenue retention, if you will, of enterprise accounts, because we don't typically have those broader enterprise license agreements. I mean, it might certainly have caused a pullback, and maybe you might be seeing some of that in terms of new spend or sort of cross-selling into other organizations. But anecdotally, you know, we are certainly seeing customers have their organizations restructured, downsized, and in some cases, the The point of contact that we've had are being moved around. So it looks like, and again, in Europe, there are changes that companies are making seemingly in response to the environment. But that's really pretty anecdotal. I mean, I couldn't give an exact count on that.

Thanks for the call, Eric. Sure. Thanks, Ryan.

Your next question comes from the line of Jason Salino with KeyBank Capital Markets. Your line is open.

Great. Thanks for fitting me in. Can we talk a little bit about the linearity of the headwinds that you saw by segment, how they kind of developed in the quarter? Did these materialize very early on or toward the end? Just trying to understand kind of how it played out.

Yeah, I think that this is going to be different by segment. One of the things about enterprise is it's typically very back-end loaded. That's kind of when the deals get done. So you don't get a lot of visibility until the last, you know, usually a few weeks. On consumer, it's a little bit more continuous. And then degrees, frankly, is based on one of the close dates for the application process. And so, you know, across each segment, the dates are a little bit different. But generally, it's back-end loaded on enterprise towards the end of the quarter. So, you know, I think, as I mentioned, on the consumer side, it was sort of a gradual shift. sort of recognition of the conversion rates in Europe and then these pricing tests, which are kind of midway through the quarter. On enterprise, we didn't really see anything until more the later part of the quarter because we just don't get a lot of visibility. It's not an equal and linear process. In a lot of degrees, it was more sort of the cohorts and seeing are they filling up or not when the close dates come. Ken, anything you'd add to that?

No, I think that captures it exactly.

Okay. And then, you know, just to clarify, the third quarter guidance, you know, I imagine it assumes for these trends to kind of remain consistent or get worse. Any thoughts there?

Yeah, sure. So, of course, we did a forecast with all available information where we think the trends are going. It also depends on segment, as Jeff referred to, the same as visibility. So, it depends how we do each of those existing. We made assumptions on all the key factors, the conversion rates, and certainly did not factor improvements on any of them. It's important for us to hit our numbers, so this quarter is a little bit painful. But we took into consideration everything we know and did not assume anything in an optimistic fashion. Great.

Thank you. Thanks, Jason.

Your next question comes from the line of Terry Tillman with Truist Securities. Your line is open.

Yeah, thanks for fitting me in as well on the call. I had a couple quick questions. I'll try to make it brief. So we've got about a 10 percentage point downtick in enterprise revenue. And I'm not trying to harp on that, but you're talking about enterprise sales capacity expansion and quota carrying headcount expanding. So it's kind of interesting that those are happening at the same time. Is that enterprise sales capacity levered to the European market where there seems like a softness, or is it in other markets where it's more resilient? And how quickly could that provide some offset in terms of assuming they become productive? And then I had a follow-up.

Yes, a great question, Terry. So the answer is yes. The performance by the reps is varied by region. And by reps and by product is different. Jeff mentioned before, you know, C4C, which we're very excited about, has been slower in Europe. And so as we look, we'll reallocate quotas. We have not pulled back on the number of reps. We're, on an overall basis, happy with the performance of the reps. But any time you have a slower quarter, of course, you have lower productivity. But it's the one thing, we're not cutting capacity because we have any doubts of productivity going forward. We certainly did see variance by region. But that's typical. And so performance in Europe was weaker, as one would naturally expect, with results that weren't as good. But that's what we've seen. We've seen a bit of variability by product reps, because the reps are striped by product and a little bit by region.

Okay. And final question, and thanks for that. But final question, and thinking about kind of positive opportunities here at Career Academy, Maybe you could talk a little bit more about the actual pipeline, how many are signed up in terms of kind of referenceable customers and the ticket size for Career Academy. Thank you.

Yeah, sure, Terry. So Career Academy, we launched it on May 5th at conference. So it was really pretty much two-thirds of the quarter, maybe half the quarter that was out there. We were pretty happy with the progress kind of right out of the gate. It is a... is a sort of narrowly specified product. It's kind of the basic claim is add industry micro-credentials for your students so they can get jobs when they graduate. On the average ticket size, I'd say it's a relatively limited number of pieces of content. They're long form, usually 50 to 75 hours for these professional certificates. But it's about 22 professional certificates out of a catalog of 5,000. So it's a much more focused part of the catalog. And it is a much more sort of simple and standardized offering, the average ticket price is lower than a standard one because it's a more focused offering. And we're expecting, and so far the evidence suggests that this is the case, that the ability to move deals through the pipeline for Career Academy will be a little bit quicker because it's just simpler, it's easier, it's a little bit less expensive, and there seems to be a resonance of this idea of I've got to add industry market credentials to compete for students and then help my students get jobs when they graduate. So I think we're looking at some favorable characteristics, although to your point, and what I was kind of trying to allude to in one of the earlier calls, if the average ticket price comes down, we could see an increase in the number of deals that assign clients, but that might grow faster than the overall revenue. if the average size of the ticket is lower. And it's likely going to be with Career Academy, at least in Coursera for Campus.

Okay, thank you. Yep.

Your next question comes from the line of Brett Knobloch with Cantor Fitzgerald. Your line is open.

Hi, guys. Thanks for taking my question. First one on the enterprise side. I don't think you guys have added less than $3 million in enterprise revenue in a quarter since 4Q20. If you add 3 million, both 3Q and 4Q, you're at, call it 49% growth for the year. So I guess, you know, what is with the mid 40% guidance? Is that a result of conservatism? Do you expect increased churn? And to that point, you know, we've seen a lot of companies flag deal cycles lengthening. Have you seen that across Coursera for Business, campus, or government?

Yeah, again, it hasn't been renewal. It's been new bookings where it's been slower on the revenue side. Again, primarily Europe, but a little bit across the board. We've seen the effect more in C4C and C4B, but both are doing well. It was a deceleration versus historic. still are competent in the enterprise business. I want to be clear about that. We feel very good about where we are and the additional products we're introducing. So I wouldn't read into this a broad weakness in our enterprise business. That's not what we believe we're seeing. We think we've seen some slowdown in region, you know, and again, we're continuing to, it's the one area we've chosen to continue to invest, particularly as we, you know, right-size some of our investments going forward. Does that answer your question, or is there anything more specific?

Yeah, that helps. Then maybe another question on just the segment margins. I think the consumer segment margin has kind of continuously, I don't know, maybe outperformed your guys' expectations, definitely mine. It seems like that mix is really staying at the industry side from a content perspective. Is that something you expect to persist, especially as you seem to ramp more of your business towards the entry level or professional certificates? And do you think if maybe unemployment picks up, you'll see the university content maybe see that uptake a bit more? How should we think about that dynamic?

Yeah, I generally say on the consumer segment, it's kind of just what kind of content are individuals around the world looking for these days? It seems like what we're seeing is people are coming because they wanted to get a new job. A lot of people want to become data analysts and computer scientists and people who make money and have more flexibility in their jobs. So a lot of that kind of content does skew towards industry. I think that if we continue to see growth in consumer because of people looking to start and switch careers, which is what we've been seeing, and that has not abated, and there's not an obvious reason why it would abate, the kind of content that they would be looking for is this sort of career switchers, professional certificate content. And so, yeah, I remember when we first started talking about this as we started seeing it showing up in maybe it was Q2 of 21, it has, you know, continued to not just persist but grow a bit. Unless consumers switch away to a different kind of content, I think it'll persist. I also, I do want to say that we are reinvesting a lot of the money into supporting and promoting these programs. And so we're trying to build up the best, fastest, well, the best set of entry-level professional certificates as possible. We're marketing them pretty heavily. And so what's not showing up on some of the content fee cost of sales line is showing up a bit on the sales and marketing, where we're promoting these, and also some on R&D, where we're capitalizing some of the costs of the content development. So it's not that it all would just naturally be falling to the bottom of the line. We are reinvesting some of this in building up more content and making sure that we really promote this. We just think that this is a time when a lot of people are looking for this kind of content. And frankly, this content is pretty unique to Coursera, I mean, generally speaking.

No, I agree. And maybe just quickly one last question on Coursera Plus. I think last quarter you said it was 30% or more to 30% of the consumer revenues. Was there any weakness related to Coursera Plus and I guess any update on how or that metric as a percentage of consumer revenue?

So there was no specific weakness in Coursera Plus because Coursera Plus has grown throughout this year. It's still north of 30%. We're not looking to get specific guidance on the Coursera Plus composition of the total on an ongoing basis. But general color is what we like to provide. I'll confirm we're north of 30%, and it's grown throughout the year. So we feel great. It's continued to be adopted. Where does it cap out? We don't know. It's great revenue. It's nice to have recurring revenue. It makes it easier for the consumer team to continue to grow their revenue. So that's been great. But, yeah, so all is well in Coursera Plus.

Awesome. Thanks, guys. I appreciate it.

Sure.

Great. Thanks, Brett. That wraps the Q&A. A replay of this webcast will be available on our investor relations website along with a transcript in the next 24 hours. We appreciate you joining us today.

This concludes today's conference call. You may now disconnect.