Coursera, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Coursera's fourth quarter and full year 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. And if you would like to withdraw your question, simply press star one again. And now at this time, I'll turn things over to Cam Carey, head of investor relations. Mr. Carey, you may begin.

Hi, everyone, and thank you for joining our Q4 earnings conference call. With me today is Jeff Maggi and Calda, 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, 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 and beliefs. These forward-looking statements include, but are not limited to, statements regarding the potential impacts of trends affecting our industry and uncertainties in the current economic and educational environment, our ecosystem, platform, content, and partner relationships. Our anticipated plans and the anticipated benefits thereof, our strategy and priorities, and our business model, mission, opportunities, outlook, and future intentions. 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 welcome, everyone. It's great to be with you all. You know, I've been a CEO for over 25 years. And in that time, I have witnessed many economic cycles, societal challenges, and technological leaps that have required individuals and institutions to embrace how to learn, change, and grow. The past year has proven to be one of those times. Organizations are exercising caution given the macroeconomic uncertainty. Students are demanding an education system that is more affordable, accessible, and relevant. And as the year came to a close and ChatGPT mesmerized the world, we were all reminded of the transformative power of technology to change the way we teach, learn, and work. Despite the dynamic environment, I'm inspired by our team and confident in our ability to deliver on our long-term strategy. We grew revenue 26% over the prior year with total revenue of $524 million. We rapidly expanded the Coursera ecosystem, welcoming new learners, educators, and institutions around the globe. And we deepened the advantages of our three-sided platform. The structural trends reshaping our world are not slowing down. Let's discuss the latest on each, starting with digital transformation. The forces of technology and globalization have been accelerating the transformation of every institution in our society. And the rise of remote work has led to a globalization of talent that is reshaping the supply and demand for jobs no longer confined to a specific city, state, or country. Over the course of my career, I have seen how areas of disruptive technology, be it the internet, cloud computing, social media, or mobile, have helped advance the world and create opportunity. But they've not been without consequences, including dislocation and job losses. I believe that AI is ushering in the next major inflection point with implications that go beyond the traditional boundaries of automation. It appears that AI will impact the future of learning and the future of work more quickly and more profoundly than many of us had been expecting. This brings me to my second major trend, which is skills development. Employers are rapidly digitizing work processes and jobs that are repeatable and predictable. But generative AI has the potential to impact an entire new class of knowledge workers, unleashing a new wave of reskilling imperatives. We believe that generative AI will require businesses to retool systems, processes, and talent while harnessing these new technologies to improve their customer offerings, increase productivity, and stay competitive. It will push universities to enhance their curriculums and the learning experience, in order to make quality education more affordable, interactive, and relevant. It will drive governments to deliver job training programs at the speed and scale needed to keep pace with job dislocation and unemployment challenges. And it will push every individual in every job to keep learning in order to stay relevant. This leads me to the third trend that is driving our business, the transformation of higher education and adult learning more broadly. In a world where machines are increasingly capable of producing content at scale, we believe that trusted institutions will play an increasingly valuable role in education. The growth in online learning has provided more equitable access to learners around the world, but the design of traditional systems of higher education have not kept pace with the changing skill requirements that have been driven by technology and automation. These higher education institutions must meet this challenge with rapid speed and scale, evolving to better serve the needs of students, graduates, and communities in an increasingly digital and disruptive labor market. And this is why I'm glad to share that Coursera has partnered with the University of Texas system. This is a three-year system-wide initiative. Students and faculty at all eight UT campuses have access to the Coursera catalog, including our entry-level professional certificates that have been created by some of the world's best-known industry brands. Many of these industry micro-credentials come with ACE credit recommendations, and several universities have already begun integrating content on Coursera into their four credit curriculum, including UT Arlington, El Paso, San Antonio, and Tyler. We believe students will benefit not only from learning skills, but also from earning industry micro-credentials that complement the degree they earn from their local campus. And the University of Texas system will be preparing the next generation of talent to meet the state's workforce and industry demands. Historically, collaboration between industry and academia has been slow and piecemeal. By integrating industry expertise into university curriculum, at the scale of entire systems of higher education and government, we are beginning to witness what our platform and our ecosystem can make possible. Coursera is increasingly becoming the platform through which institutions are able to drive powerful collaboration to better meet the needs of our digital world. We believe our platform has three distinct advantages that allow us to compete differently. First, our leading educator partners who've created a broad catalog of branded, high-quality content and credentials. Second is our global reach and distribution. And third is the data and technology that powers our unified platform. Let's discuss our recent progress for each of these. First, our educator partners. Universities play a prominent role in society, fostering education, research, and knowledge while teaching durable skills like critical thinking, communication, and collaboration. And the curriculum can be complemented by practical hands-on learning from industry partners who are better equipped to keep pace with a fast-changing skills landscape and evolving job requirements. Coursera's learning ecosystem, includes a powerful combination of 300 university and industry partners. And we welcome many new partners to our platform over the last year. This includes top tier universities around the globe, like Georgetown University, Indian Institute of Science, and King Abdullah University of Science and Technology, as well as industry leaders in the fields of technology, business, and health. This includes Accenture, Mayo Clinic, NVIDIA, PWC India, and SAP. and these partners continue to expand the Coursera catalog. We announced 14 new degree programs in 2022, including two recent additions since our last call. We welcome the first liberal studies degree on Coursera from Georgetown University. This is a bachelor's completion program that offers an affordable, flexible way for adult learners to finish their degree. Additionally, we announced our first degree from West Virginia University, It's a master's of science in software engineering, and it's offered at an affordable price for students around the world. Next, we are rapidly expanding our catalog of entry-level professional certificates, adding new partners, job roles, and language translations, while creating stronger connections to career and degree pathways. A year ago, we had 18 of these certificate training programs. Today, we have 38 that have been announced. more than doubling the catalog with titles from new and existing partners. Recently, we announced the first entry-level professional certificates from two new industry partners, including SAP Technology Consultant and Goodwill Career Coach and Navigator. We believe that industry micro-credentials will be a critical component of the transformation of higher education. They offer learners with no college degree or prior work experience an affordable, flexible way to start or switch into a digital career. They provide a turnkey solution for campuses or entire systems of higher education to upgrade their curriculum with career electives and produce graduates who have the skills and capabilities that employers are looking for. And they enable businesses and governments to deliver workforce and talent development at scale. Our second major advantage is the global reach of our platform. We have a large, grown learner base that attracts educators looking to teach individuals and institutions around the world. Our freemium model, paired with the world-class brands of these universities and industry partners, allows us to grow our top of funnel, attract learners at low cost, and serve them at a range of price points. This year, we added nearly 22 million new registered learners, growing our global learner base to 118 million by the end of December. Learner growth continues to be broad-based. with double-digit percentage increases in all regions. We also grew the number of paid enterprise customers to more than 1,000, including new business, campus, and government customers. As the reach of our ecosystem continues to grow, the data generated by our learner base, including catalog performance, learner assessments, and feedback from institutional customers, allow us to identify and prioritize sourcing opportunities, deliver skillset insights to our enterprise customers, and create products, features, and pathways that deliver more value to our learners, educators, and customers. And this brings me to our final advantage, the ongoing product innovation on our unified platform. My first update focuses on the learner experience. Coursera is increasingly becoming a global destination for learners seeking job relevant skills and recognized credentials that can unlock the next phase in their education or career. Our team has been focused on creating strong connections between our open content and career and degree pathways. And this begins with the discovery experience. As part of our career academy launched last year, we began surfacing credentials through the lens of career pathways, helping learners better understand the job roles, number of openings, median salary information, and in-demand skills associated with our entry-level professional certificates. This quarter, we focused on degree pathways, and started rolling out enhancements to our catalog search and discovery with credit eligible filtering and badging that allows learners to more easily identify content and credentials that count as credit towards a college degree. This is tied directly to my second update on the American Council on Education, also known as ACE, which offers credit recommendations. From our campus survey in 2022, We learned that more than half of students want to earn a professional certificate that counts as credit towards their degree, and we have continued to pursue credit recommendations across our catalog. These credit recommendations provide learners with the opportunity to earn academic credit towards a degree program, typically at a much lower cost. And universities can consider offering credit for these industry micro-credentials, which can complement traditional curriculum with job-relevant skills, or what we like to refer to as career electives. This quarter, we secured ACE credit recommendations for two additional entry-level professional certificates, with a total of 14 now recognized for academic credit. We believe more of our professional certificates have the potential to receive this distinction in the future, and we are pursuing similar credit recommendations from accreditation agencies in additional regions around the globe. Now, my final update is for institutions. Our academies product is a complete skills development solution. It offers personalized skills first approach to enterprise learning for the most critical job roles. Today, we offer six academies spanning technical and non-technical domains. Customers tell us that stronger leadership, change management, and human skills are needed across their organizations, not just at the executive level, particularly with the unique challenges that remote work and hybrid work are presenting. We recently created a new Leadership Academy with a more targeted, more selective portion of the catalog, including 11,000 clips, 500 courses, and 70 guided projects. This has been designed for buyers looking to offer high-quality leadership training at scale for all levels of the organization. As AI accelerates change and puts more jobs at risk, one job appears to be more important and less at risk than ever, the job of a leader. Leaders are responsible for managing people through change, which is more important now, but also more difficult now than ever. Leadership requires human skills and an awareness of change and context that AI will likely never replace. We are seeing strong demand for Leadership Academy and believe that tailwinds will increase demand for this kind of workplace training. Before I turn the call to Ken for a closer look at our financial performance and outlook, Let me remind you of several key priorities we are focusing on in the years ahead. We're focused on growing our enterprise segment across business, government, and campus customers seeking to address their needs in this changing environment. We are expanding our portfolio of degree programs, especially those tailored to meet the unique needs of working adults, including flexibility, affordability, and stronger pathways from open content and industry micro-credentials into degrees. We are broadening our entry-level professional certificate catalog, expanding with new roles, new partners, new languages, and credit recommendations. We are focused on deepening our advantages while driving more scale and leverage across our platform. And we see exciting possibilities for the use of generative AI across our business model. And now I'd like to turn it over to Ken. Ken, please.

Thanks, Jeff. And good afternoon, everyone. We are pleased with our fourth quarter results, which reflect the diversification inherent in our business model, including broad exposure to the needs of individuals, businesses, governments, and campuses, a global footprint, and the ability to serve learners at every stage of their career. In Q4, we generated total revenue of $142.2 million, which was up 24% from a year ago, driven by strong growth in our consumer and enterprise segments. Over the course of 2022, we closely monitored the changing economic environment. This included our partners' and customers' priorities, as well as the implications for our own business as we navigate lower growth rates in the near term. We implemented a series of actions to pace our investments and resources with our revised growth forecast, most recently reducing the size of our global workforce and sharpening our focus on key investments. Please note that for the remainder of the call, All non-GAAP measures have been adjusted to reflect one-time charges related to our workforce restructuring actions of approximately $10 million, which is reconciled in our financial tables and supplemental slides. Gross profit was $88.9 million, up 24% from a year ago, and a 63% gross margin, which was in line with the prior year period. As a reminder, there are two components of cost of services. non-content costs that serve all three segments and the content costs paid to our educator partners. Our non-content costs have been largely consistent over time at approximately 10% of total revenue. The second component, our content costs paid to educator partners, will vary based on the revenue mix amongst our three segments as well as the content margin rate of each segment. Given the strong growth in our entry-level professional certificates, we have seen a large positive variance in our consumer content margin rate associated with the increased consumption of the industry partner content, which tends to have lower than average content costs depending on the partner's goals. As we've discussed, some industry partners have prioritized additional spend that is included primarily as part of our operating expense to promote their brands, reach, or social impact initiatives. as opposed to a higher revenue share. In conjunction with securing a multi-year contract extension of our strategic relationship as we began this new year, our largest industry partner has chosen to receive a more standard revenue share in the future. This will result in higher content costs and lower operating expense going forward, and I will provide more detail in the discussion of our financial outlook. Total operating expense for Q4 was $99.7 million, or 70% of revenue, compared to 83% in the prior year period. Sales and marketing expense represented 38% of total revenue, down from 44%. Research and development expense was 20% of revenue, down from 24%. And general administrative expense was 13% of revenue, down from 15%. Net loss was $6.5 million, or 4.6% of revenue, and adjusted EBITDA was a loss of $5.8 million, or 4.1% of revenue. For the full year, our adjusted EBITDA loss as a percentage of revenue was 7.1%, a 150 basis improvement over the prior year. We aim to show ongoing leverage in our operating model while also pursuing growth opportunities in our large and early markets. As a reminder, our annual operating framework with regards to EBITDA margin has been consistent. At the beginning of the year, we set an annual EBITDA margin target, and we work within that plan based on the trajectory of our business, which we again demonstrated with our reset growth expectations and disciplined expense management in the second half of 2022. Now turning to cash performance in the balance sheet. Free cash flow was a use of $7.9 million during the quarter compared to a use of $1.9 million a year ago. This included cash payments of $4.8 million in Q4 related to the restructuring charges, with the remainder to be paid out in the first quarter of this year. We ended the year in a strong cash position. As of December 31st, we had approximately $780 million of unrestricted cash, cash equivalent, and marketable securities, with no debt. We believe the strength of our balance sheet, in combination with the modest cash requirements for operating needs, is an asset that provides us the stability and the strategic flexibility to execute on our long-term strategy. Next, let's discuss each of the business sections in more detail. Consumer revenue was $79.8 million, up 21% from the prior year. Segment gross profit was $58.2 million, or 73% of consumer revenue, compared to 69% a year ago. And we added another 5.2 million new registered learners, despite Q4 being our historically lightest seasonal quarter for top of funnel activities. Our strong consumer performance continues to be driven by our expanding catalog of entry-level professional certificates, along with the growing adoption of our Coursera Plus subscription offering. As Jeff highlighted, we believe our focus on world-class brands and job relevant credentials has made Coursera a natural destination for learners looking to start or switch careers. Enterprise revenue was $50.5 million, up 41% from a year ago, on growth across all three of our customer verticals, businesses, campuses, and governments. Segment gross profit was $33.5 million, or 66% of enterprise revenue, compared to 68% a year ago. The total number of paid enterprise customers increased to 1,149, up 43% from a year ago. And our net retention rate for paid enterprise customers was 108%. While we benefit from multiple channels of distribution within our enterprise segment, we are seeing customers, particularly businesses, exercise caution in their spending priorities amidst increased macroeconomic uncertainty. And finally, our degree segment. Degrees revenue was $11.9 million, down 11% from a year ago on lower student enrollments, consistent with our forward-looking commentary on recent calls. as degrees growth in 2022 was challenged by enrollment headwinds associated with U.S. master's degree programs, where our revenue is concentrated today. The total number of degrees students grew 12% from a year ago to 18,103. As a reminder, there's no content cost attributable to the degree segment, so degree segment gross margin was 100% of revenue. Before I turn to our financial outlook, I'd like to provide some additional detail with regards to a recent multi-year contract extension we secured with our largest industry partner in this new year. As we've discussed previously, in lieu of a high revenue share, some industry partners prioritize additional spend to promote their brand, global reach, and social impact initiatives, which is included as part of our operating expenses, primarily as sales and marketing efforts and content production. The effect of these partners' success has driven large positive variances in our gross margin, most pronounced in our consumer segment margin, while also increasing our operating expenses. In consideration of the long-term strategic relationship, as well as the changing economic environment, our largest industry partner has chosen to receive a more standard revenue share arrangement as part of the recent contract negotiations. We are excited about the opportunities this renewed commitment provides, and I want to be clear about how this change will affect our financial outlook in 2023. First, the transition to a more standard revenue share will result in a geography shift within our P&L of an estimated 10 percentage points of total revenue, from operating expense to cost of revenue. We now expect both total gross margin and our consumer segment margin to be approximately 52% this year. Second, we will incur expenses of $25 million in 2023, which will be similar in nature to our historic spend for the program, including sales and marketing efforts, content production, and product development. These payments will be spread evenly across the coming four quarters and will not recur after 2023. As we work through these near-term impacts, we believe the multi-year contract extension is better aligned with our mutual priorities reaffirms our strategic partnership and allows us to best serve our learners and customers in years to come. Now into our financial outlook. For Q1, we're expecting revenue to be in the range of $136 to $140 million. For just at EBITDA, we're expecting a loss in the range of $12.5 to $15.5 million. inclusive of the $6.25 million related to the industry partner contract change. For full year 2023, we anticipate revenue to be in the range of $595 to $605 million, representing approximately 15% growth at the midpoint of the range. For adjusted EBITDA, we're expecting a loss of $26 to $34 million, or a negative 5% adjusted EBITDA margin at the midpoint of the revenue and EBITDA guidance ranges, inclusive of the $25 million impact related to the industry partner contract change. On a quarterly basis, we expect an adjusted EBITDA loss in the first half of the year and anticipate positive EBITDA by our fourth quarter. Additionally, for the first time, we thought it would be helpful to provide our expectations around free cash flow for the year. We expect a use of $12 to $18 million compared to our use of $52 million in 2022. Finally, as we enter a new year, we'd like to provide some color on the composition and pace of the business, particularly given the varying impacts of the changing environment across our platform. This includes one-time, segment-level annual growth expectations to help you better understand how we plan to deliver on our overall guidance. For consumer, we believe that learner demand for our branded industry credentials will continue with our initial outlook anticipating more than 10% growth. For enterprise, it is clear that businesses are being more cautious with their spending priorities, and we expect growth of approximately 20 to 25% as we monitor the environment closely. In four degrees, we anticipate a return to growth in 2023 of approximately 10%. with modest declines at the start of the year that inflect as we enter the second half. We are confident that structural trends driving our business have not changed and look forward to providing an updated view of our long-term strategy, key initiatives, and financial targets at the March Investor Day. We enter 2023 in a position of financial strength and are committed to driving sustainable growth with our outlook reflecting an increased focus on scale, and leverage to position us for the future. I'll now turn the call back to Jeff for closing comments.

Thanks, Ken. Growth in online learning in combination with remote work, digital jobs, and broadband connectivity is reshaping the supply and demand for jobs globally. For many companies, human capital is their most important asset, and they now find themselves competing on a global stage for in-demand skills. This presents a challenge, but possibly a larger opportunity. Remote work provides direct access to sources of the best talent in the world, no matter where it resides in the world. And online learning can build the next generation of talent with the skill sets needed for these future job roles. I want to wrap up today's remarks with a Coursera for Business customer example that is drafting the blueprint for how forward-thinking companies are managing their holistic talent needs. Sanofi, one of the world's largest pharmaceutical and healthcare companies, has been a Coursera customer since 2017. And over the years, our partnership has deepened and scaled. Early on, Sanofi focused on providing high-quality training around the latest data, digital, and IT skills. Later, this expanded into a broader talent development solution that reached more of their organization and demonstrated their commitment to employee well-being. And recently, their ambition extended beyond the confines of their organization as they look to make direct investments in marginalized communities and to grow a future pipeline of diverse healthcare professionals. As part of this effort, our partnership now includes an eight-year initiative to offer 20,000 training licenses for Career Academy. By leveraging Coursera as a delivery platform, they are broadening access to job-relevant training and enabling new career and degree pathways to learners in their company and in their communities as well. This is a complete talent solution, advancing training for cutting edge skills, learning as a benefit for broader organizational needs, and future talent pipelines with diverse representation and a commitment to the communities in which they live and work. I've said many times that Coursera's mission is what inspires our team members and attracts our partners. but it is also what enables our customers to fuel their human capital needs and improve lives through learning. With our Coursera community encompassing leaders in higher education, government, and business, we are working together so that talent and opportunity can rise from anywhere in the world. Now, let's open the call for questions.

Thank you, Mr. Maggi and Caldo. Ladies and gentlemen, at this time, any questions, please press star 1. And just a reminder, if you would like to remove yourself from the queue, you can press star 1 again. We'll take our first question this afternoon from Stephen Sheldon of William & Blair. Hey, thanks.

First, just wanted to ask about enterprise trends. You talked about seeing more caution from business customers there. Can you give some more detail on what that looks like? Are you seeing customers... reduce the scope of contracts much or just being cautious about expanding? And also curious if you've seen any changes in gross retention, especially for some of your smaller customers.

Yeah, Steve, this is Jeff. We obviously going into Q4 weren't sure exactly how the year was going to finish up. It was pretty solid. We felt pretty good about it. To your point, there's definitely, especially in certain regions, increased sensitivity on budgets. Certainly, budgets have tightened. In some cases, that has led to people saying, hey, I want to pull back on the scope of my buy. So that is not a total churn, but we saw pressure among many accounts, and that did put some pressure on the NRRs. But we actually felt pretty good. In terms of the NRR, we saw that generally in emerging markets where you sort of early markets like Coursera for Campus and Coursera for Government, especially Coursera for Campus, which is still kind of in the early stages of higher education, learning how to incorporate these types of services. It was generally lower in more mature markets like Coursera for Business. It was a little bit better. So I would say that we feel pretty good coming into this year. And that doesn't obviously mean that we didn't see some pressure, though. Got it.

That's helpful. And then on this, the kind of the the large partner, the extension and kind of the change in the contract there, just to make sure I understand, does that have any impact on total revenue or how much kind of, or is it just more about, you know, what, what the, it sounds like it might be a shift in expenses from, you know, out of OpEx and the core and into cost of revenue, but then also maybe a total increase in, I guess, just can you walk through that one more time? Just to make sure we understand.

Yeah, sure. And we wanted to be very clear about it, Stephen. This is Ken, of course. It was a shift in geography from primarily from operating expense to cost of sales affecting the margin, of course. There is also for 2023 only roughly $25 million that will remain in operating expenses, incremental total expense, if you want to think about it that way. So, there's a transition period where there's OPEX expense, but the majority of it is simply, as you referenced, a shift in geography from OPEX to cost of sales.

Okay, got it. And that will not continue in 2024. So, if we kind of looked at the, I guess, yeah, if we looked at the guidance and stripped that out, then you'd be more or less, I guess, yeah.

Yeah, more or less is the answer. Yep. Yep. You understand it perfectly. Okay. Great. Thank you. Thank you. We'll go next now to Josh Baer of Morgan Stanley.

Great. Thanks for the question. Jeff, you outlined some of your key priorities for this year coming up. I was hoping we could fast forward to Q4 2023 earnings, where you'll be reviewing 2023. What would a great and highly successful year for Coursera look like in your eyes?

Yeah, I think it comes down to two things. It's obviously like, how do we perform in the year? And do we perform well against the expectations that we're setting with you all today? Of course, most of that is the top line growth, but we want to make sure we continue to exhibit leverage. That's part of the obvious part. But I think that a lot of why I feel pretty good is I like where we're sitting right here at the beginning of this year. There's a lot of things that are changing. We believe that a lot of those play right into our advantages and our differentiation. There are some really important things that we're going to do this year that I think are going to capitalize on some of the advantages we have. A lot of focus on quality and brands and institutions. collaboration among institutions. So at the end of the year, if we're bringing on more brands, more branded credentials, especially for job starters and career switchers, that will be big. These credit pathways that we're talking about, helping people get into either career pathways to a job, but also credit pathways to a degree, we think is a really powerful kind of system effect that we can create among institutions like governments, businesses, and campuses. So I definitely want to create more of those institutional collaborations. On the career academy side, we see across all segments, we see a lot of interest in commingling, combining these industry certificates with college degrees. And a lot of the people who are really looking for that are also looking to make the switch to a new career. So we think that there's a real opportunity to help learners not only develop skills, but get a better and clearer path to a job. And with this globalization of talent that we talked about in the script and my travels, I've been traveling a ton around the world talking to businesses, governments, and campuses. The CHROs that I talked to, especially in markets where there is emerging talent got kind of affordable skilled talent they're saying wow it's really getting hard to hold on to my computer scientists and data scientists because they're getting really good offers from international employers and and when i go to the campuses and talk to students they're all saying hey jeff we're going to be studying data science and computer science because there's a lot of great jobs from international companies that will hire us with pretty good compensation so I really think that there are good opportunities to help learners find new job opportunities in such a dynamic and globalizing labor market. So at the end of the year, I hope we have something really interesting to say about that. And then I did mention a bit on AI. I think my sense is, and as we look at it and work with it, we're getting a sense this technology, this generative language technology is really know pretty interesting especially if you start with high quality branded expert sources of material and so we we think this could really play to some of our existing strengths and i hope at the end of the year we can do something pretty special there thanks jeff uh and a quick one for ken on uh segment margins i think the strength in consumer segment margins is is pretty clear and understood as far as the drivers

Wondering on enterprise segment margins, why it was down year-over-year and quarter-over-quarter. Was that mix-driven as well, or is there anything else going on there to consider around pricing or discounting or anything? Thanks.

No, it was nothing more. It was down just a bit. It's a bit of a mix issue, relatively minor in the big scheme of things, but you're correct on the trending.

Hey, Josh, there's one thing I want to add. going down our P&L on the degree side, at the end of the year, you can probably see by the mix here, we are finding that there are certain kinds of degrees that seem to appeal pretty well to sort of working adults who are thinking about switching careers, not unlike the folks who are taking these career certificates, these professional certificates in Career Academy. And I would like to be able to say that we have figure it out a certain design of degree that really seems to resonate with and be more distinctive and different from the general online degrees that are out there. And that that is driving a very clear growth rate based on clearly meeting a need for these working learners for certain kinds of degrees that aren't being met by the current standard and more traditional degree programs that are out there.

Thank you. We go next now to Terry Tillman of Truist Securities.

Yeah, hey, good afternoon, gentlemen. Thanks for taking my questions. Hopefully you all can hear me okay. Yeah, I guess maybe, Jeff, the first question for you is maybe I'm just kind of slow writing things down or typing things, but I think you said 18 certificates kind of beginning of the year to 36. Did I get that right or 38?

I think 38 is the announced. Now we've got to get these things rolled out, but we've had a pretty good track record of getting these things rolled out. So yeah, among the ones that we've announced, we have more than doubled to 38. Okay.

Well, it feels like obligatory now for me on every call to ask about AI and you talk about it. So I'm curious out of these certificates, what's the exposure to data science and AI amid the mix of your certificates now? And then the second question is, And whether, you know, in an analyst that you could talk about this, would love to get a sense on like the cohort analysis of each of these certificates and as they mature and how the revenue ramps from each of those and what have you learned to help kind of improve the newer ones?

Yeah. So on the question of impact of AI on these certificates, I kind of immediately go to two different things. One is what is the impact on the jobs that these certificates train for? That's a tougher one, in my opinion. But clearly you look at GitHub co-pilot that Microsoft put out and some of the amazing things that can be done. I mean, not perfectly, but it's pretty amazing things that could be done even with the GPT 3.5 in terms of writing code in different languages. It's got to change those jobs. So I think that I'm not sure exactly what the impact will be, but the bar will likely be raised in terms of what humans are expected to do because the tools are going to be able to do a lot more. In terms of the impact that AI will have on the actual content and the demand for the content, I mean, clearly, if the jobs all dried up, people feel less likely to take those certificates. But of course, they're going to need some of their job. And so that's one of the reasons why we continue to broaden the portfolio of certificates is in a really dynamic labor market, you don't really necessarily know all the time which ones are going to be the jobs with the most upsides. So I think that the diversification, the broadening of the portfolios we started the call is an important part of the strategy so that we can really cover our bases and make sure that whatever those high demand entry level jobs are, we could be training for them. I will say, though, that we believe that credentials are going to become more important and credentials from trusted brands will become more important. The ability to just learn a skill is going to be, I think, more straightforward in terms of sort of bite size upskilling. But I think employers are going to be looking for more than just, you know, have you developed a bunch of small skills? I think they're going to be looking for, have you really developed a deeper understanding with a deeper conceptual ability to whatever the current tool is, transfer those skills to the emerging tools, whatever those might be. So I think that there's going to be a bigger premium put on credentials, and those credentials are going to be highly associated, I believe, with the kinds of brands that we've been working with. So I think AI to a large degree will help more people get into our programs. It'll make those programs more interactive and more personalized. But at the end of the day, the premium will be, I think, remaining on credentials because I think credentials will be an important part of the employment equation.

Yeah, that's great. And I guess my thought, thanks for that, Jeff. And then Ken, in terms of just so I understand it, because I was curious, Because you all have talked about reductions of expense run rate. And then when I saw the guidance, I was confused. But I think it really is explainable now with this updated partnership with one of your key content providers. But what I'm curious about is, because I don't know if I got this in the prepared remarks. So the gross margin and consumer, it's going to take a large step down. Is that right? And did you say what that would be?

We did. The guidance is, yeah, we'll be up roughly 1,000 basis points. The guidance is 52% margin, both overall and for consumers. So we were pretty specific on both those counts.

Okay. Well, the one, so I'll end it with this. I'm getting some questions in terms of, like, you know, the 25 million additional OPEX. I mean, you know, partners are two-way streets. Like, What do you all get out of the incremental $25 million of OPEX? I mean, what does it help you with in your business? And I don't want to sound short-sighted, but, like, what could you get out of that? Thank you.

So, firstly, we've extended our most important strategic relationship that we're pretty excited about from a job-ready – you hear thematically what's important to us from a job-ready standpoint – There will be incremental investment in the program overall that we do. We're excited about the growth that's going to drive, and I think we may see some additional opportunity there over the course of the year. Overall, yes, does it slow down the path to EBITDA breakeven that we were moving pretty quickly on? It does, but over the long term, we're still improving 200 basis points, and we're excited to extend this contract for several years. And I think it's going to be an important part of what we're talking about to the previous question a year from now as we look backwards and some of the growth we think we're going to achieve. But it is a two-way street, exactly to your point. And we're excited about it. It's actually a big positive over the next couple of years.

Understood. Thank you. Thank you. We go next now to Jason Salino at KeyBank.

Hey, thanks for taking my questions. Just two for me, you know, staying on this EBITDA topic, you know, Ken, you are showing, you know, breakeven within reach here, especially in the second half. I think you alluded to your prior philosophy around setting a margin target and then reinvesting upside if there is. Do we think this, do we, should we think that this philosophy holds here, Bill?

Oh, yeah, 100%, Jason. It's just, it's how we manage the business, how we manage the business before we were public. And it's both upside and downside, right? As things slowed down in the second half of last year, we pulled back our expenses to hit our targets. We've, in fact, beat a bit in Q4, although that's not our objective is not to beat on it. It's to come in at what we promised. And so we'll manage over the course of the year, again, getting to this target we have for this coming year operationally, of negative 500 basis points or negative 5%. It's an improvement of a couple hundred basis points. It'd be nice if there were more, but it's steady progress. So we're committed to continued scaling, to driving towards EBITDA, breakeven, and profitability over time. And we aim to do that regardless of the shape of the revenue growth. We won't be silly. This is for the long term. But so far, with some pretty dynamic time, both on the upside and not so, we've navigated to our targets over the course of the year. We have good control of the business, and it's important to us from a business discipline standpoint. So expect the same behavior, you know, that it's what we commit to, and I think we plan to always fulfill those commitments to you.

Okay. Perfect. Excellent. And then one question on the Georgetown bachelor's completion degree. You know, interesting to see both from a quality of institution standpoint and also because it's a bachelor's completion degree, how do we think of this as an opportunity with other schools? Because I imagine there's a lot of folks out there with credits and they might not have finished. Is this an area that we could expect more announcements?

Yeah, you know this is Jeff. I think this is really important. I went to a Jesuit high school, so props for props for the Jesuit educational institutions who do have a serve mission of serving a broad range of people. When you really look at why Georgetown is doing this, especially with their stature, they're really a thought leader. I think extending that kind of quality education to a much more diverse and broad population. The fact that it's affordable, the fact that it's online, the fact that it's a completion degree, I think speaks to, and not just in the U.S., but around the world. A lot more societies are realizing we need more flexible ways for people to continue to learn through their lives and to earn important credentials as they do that. Credentialized learning through our lives is going to be important. And obviously, we're delighted that an institution with the kind of esteem of Georgetown has is really stepping into a leadership role here and saying, look, we can do this. We can make a high quality and very elite education more available to more people.

Great. Thank you. Thank you. We go next now to Ryan McDonald of Needham.

All right, thanks for taking my questions. Jeff, maybe the first one for you. You know, obviously we continue to see layoffs picking up in the news and sort of the unemployment numbers likely to start rising here soon. I'm just curious that sort of as we see that news flow, what you're seeing in terms of reflection into sort of pipeline or top of the funnel, not only in the consumer segment, you know, for the professional certifications, but then also on the degrees segment and sort of the application of pipeline for the growing number of programs you have. And then just, you know, how that's sort of reflecting into the guidance you're giving for 23 here. Thanks.

Yeah, thanks, Ryan. You know, the world is a pretty dynamic place coming off of COVID and looking at what's happening with expected recession. And you're looking at inflation, the secondary effects of that. And we have this really tight labor market. You know, we felt that Q4 ended up pretty decently with respect to new degree learners. And as I said, we're kind of getting a sense of the kinds of degrees that are in most demand. And affordability, flexibility, and relevance to jobs are obviously three big parts of it, with a big overlay that it's got to be a quality institution. Clearly, well, we believe that if history is any guide, if the labor market gets softer, we expect that that will improve things. Even if it doesn't, we think better designed degrees that really meet more of the key characteristics of what these lifelong learners are looking for these adult working learners are looking for helps a lot too um we launched a boulder degree that has really nice characteristics uh sort of performance-based pathways very reasonable price about fifteen thousand dollars um and very high quality and in a high demand domain like data science so we think that these sort of uh degrees that have pathways from open content and even a performance-based admissions process is the kind of a degree that people like. So it's a combination. I think, generally speaking, it's countercyclical. And also, if we can put more of our focus on these types of degrees that are well-suited for working adults, you know, we feel pretty good about next year's new degree or this year's new degree student numbers.

And Ryan, one of the things we did, we did include some hints on timing for our forecasts and As we did last year, we provided segment guidance to start the year to help everybody with their models. But as we talked about degrees, we did forecast roughly 10% growth with modest declines in the first half. So because of the degrees revenue model. So we see some real acceleration in the business as throughout this year. Just to point that out, which I think directly addresses your question.

No, yeah, super helpful call there, Ken. I really appreciate it. Maybe just my follow-up, a second question, Jeff. You know, on the Coursera for government opportunity, we're starting to see more and more governments announce initiatives for reskilling and upskilling. And you mentioned you've been traveling quite a bit. Just curious, you know, what that demand pipeline is looking like. And we've heard of a number of other vendors in this space also kind of going after the same opportunity. Are these opportunities becoming more competitive or any changes you're seeing in the competitive dynamics there? Thanks.

Yeah, it definitely looks like there's a growing recognition that reskilling is important. It will continue to get more important over time. The government has a big, governments have a big role to play. And online is pretty much the way to do it. I mean, the online model is really well tuned to the needs of governments. I mean, they're largely serving working adults. who are trying to manage families and jobs and want to find something that's affordable. So we definitely are seeing more interest. On the competitive side, I suppose that there's a little bit more, but I have to say that we find that the attributes that are distinctive about Coursera resonate particularly well among governments. And the attributes include the quality, the credentials, the brands, how well-known Coursera is by the citizens and the number of citizens in the country already using Coursera. These institutional collaborations where Coursera can be used in higher education institutions, so up-leveling higher education system of public universities, also being able to do workforce development programs, like with the state of New York, being able to do a workforce development program where the graduates of these professional certificates can become eligible to be graduates of college degrees. And linking those two things together, workforce development with the Ministry of Labor and career electives with the Ministry of Education. So it's not just the content and credentials, it's also the way that we can actually structure relationships and connections between institutions that governments seem to think to be pretty compelling.

And generally speaking, it's pretty unique for Coursera. Thank you. And we'll take our last question today from Rishi Jalaria of RBC.

Wonderful. Thanks for taking my questions, guys. Two that I'd like to, if I may. First, going back up to the chat GPT open AI question, I understand. there's potential benefits as it becomes another skill that people need to learn. One question I've gotten a lot from investors and would love to hear your perspective is, how does ChatGPT itself kind of disrupt the way learning can happen and even EdTech as itself? Is there a potential threat that you see or is it really the kind of benefits and everything to your business model far outweigh the risk? And then I got a quick follow-up.

Yeah, thanks, Rishi. So in terms of the way the learning experience happens, the way I see it, in a very simple view, I sort of say, all right, there was kind of era one of online learning was YouTube, for the most part. It's very passive. You sit back and watch a video. When Coursera came out, along with other MOOC providers, and it came out of universities where they introduced active learning. You'd watch a video, but then you'd answer questions. So it was more engagement in the content. I think there's a new and next level of learning, which I will call interactive learning, where you are actually interacting. You are watching a video or you're doing an assessment. And not only do you do it, but you get personalized feedback on that and can even have kind of conversations to better understand the concept, to get more examples, to role play a scenario. So I think that that interactive, personalized learning is really going to be a big unlock with this technology. And so I think the ability to learn is going to go way up so long as people don't outsource their thinking to GPT. This is a little bit different than a calculator. Calculators just basically follows instructions you put into it. This technology can write stuff pretty much from scratch. And so it is possible to outsource a lot of the thinking that would normally accompany writing. And I think that's actually one of the potential downsides or vulnerabilities, risks that comes from this kind of technology. But overall, we're going to really push on how do we unlock more of that personalized interactive learning. We think that in terms of the relative position, I really like the fact that we have high quality branded content because that is something that will be, I think, highly desired in a world where people aren't always able to distinguish fact from fiction. And it'll be harder and harder to credentialize things when they're all kind of piecemeal and totally personalized. So I think grounding that kind of the learning experiences on branded credentialed learning, I think is going to be key. You know, I think the other major thing in terms, in addition to the kind of learning being different and more interactive is the content generation. I mean, you can generate content far more quickly and productively than you can before. And people will say, oh gosh, but you know, it can have a lot of mistakes in it. You know, a human, at least if you're dealing with, you know, quality institutions, a human is always going to look at it before the course gets published. So, I think it's just going to sort of superpower instructional designers. It's going to superpower the people that prepare this kind of content. But the quality stamp of an institution is going to be a big part of this. And so I actually think the cost of production of content will go way down. And people will be looking with more, I think, seriousness at whether the quality is maintained as the costs go down. Overall, if you could say, hey, Jeff, do you wish that GPT never existed? It only came out three years from now or now. I'd definitely say now. I'm glad it's here. I think it's going to be exciting. I think it's going to be great for learners. And I think it's going to be relatively advantageous to Coursera.

Got it. That's really helpful. And then, Ken, just a quick one for you. I really appreciate the kind of granularity in terms of how to think about the segment growth for this year. Drilling on to the degree side, You know, glad to see we're seeing it in flesh in the back half of the year. Can you expand a little bit on what is giving you confidence in that? And maybe is there a certain set of macro expectations embedded in that? Or are you making the assumption that the kind of counter cyclical forces on degrees don't change relative to what we're seeing today?

Thanks. Sure, Rishi. I'm happy, happy to do. Yep. Firstly, based on the revenue model, we have amazing visibility, whether it's good or bad, around degrees. And the vast majority of revenue will come from existing programs with wonderful visibility. It's about filling those student cohorts next. We've seen real improvements in our ability to fulfill. We have a number of new degrees rolling out that we will be fulfilling. And so the really venue of my segments is as far as the ability to look forward with certainty on a forecast degrees is, in fact, the best. And so we're not relying on any particular trending. That said, as we look forward to 24 then, some of the programs in the pipeline, we're pretty excited about with the changes that we're seeing. But 23, no matter what the revenue recognition, nothing's in the bag. But our visibility is quite high in degrees. So that inflection after the first half, I have a very high level of confidence in.

All right, great. That's really helpful. Thank you, guys.

Absolutely. Thank you, Rishi.

That wraps the Q&A. A replay of this webcast will be available on our Investor Relations website, along with the transcript in the next 24 hours. We appreciate you joining us.

Thank you, Mr. Carey. Ladies and gentlemen, again, that does conclude Coursera's fourth quarter and full year 2022 earnings conference call. I'd like to thank you so much for joining us and wish you all a great remainder of your day.