Udemy, Inc. Q1 FY2024 earnings call

• Expanded global enterprise customer base, entering into new or expanded relationships with companies like Pepsi, Flutter Entertainment, and the South African Reserve Bank, with over 16,000 Udemy business customers in over 150 countries.
• Noted over 4 million enrollments in AI courses since Chat GPT launched, highlighting the growing need for generative AI upskilling.
• Launched Gen AI skills pack for Udemy Business customers to upscale workforce on generative AI.
• Commenced actions to address execution challenges, including hiring general managers in South Korea and Vietnam, and searching for a new Chief Revenue Officer for Udemy Business.

Total revenue increased 12% year-over-year. Udemy business revenue grew by 24% compared to Q1 2023. Udemy Business revenue for the quarter was $180 million. Annual recurring revenue (ARR) was $479 million, up 21% from a year ago. Consumer revenue was down 2% year-over-year. Gross margin for the Udemy Business segment was 72% for the quarter, and consolidated gross margin was 62%. The company grew its customer base by 12% year-over-year to over 16,000 customers globally, with the large customer cohort growing at 16% year-over-year, and over 30% of customers being large customers.

• Q2 revenue expected to be between $192 million and $195 million, ~9% year-over-year growth at midpoint, with FX expected to negatively impact by 1 percentage point. Q2 adjusted EBITDA margin targeted at negative 50 to positive 50 basis points.
• Full year revenue range narrowed to $795 million to $805 million, ~10% growth at midpoint, with FX expected to negatively impact by 1 percentage point. Full year 2024 adjusted EBITDA margin expected in the range of 200 to 300 basis points.
• Udemy Business revenue expected to account for more than 60% of total revenue for the full year. Consumer revenue anticipated to be down 2% to 4% year-over-year on full year basis.

• FX impact on revenue growth.
• Execution challenges in APAC and EMEA regions, including issues with reseller partners and underperforming cohorts.
• Macro-economic volatility, particularly in EMEA.
• Competition in enterprise with aggressive pricing in some deals.

Q: First one here, I just want to make sure I understood the FX commentary. I think last quarter, you said it was going to be a 3% drag and just to make sure I heard that quickly. Now you're thinking for the year, it's going to be a 1% drag. And can you talk about what that change?

A: Listen, we did previously announced that we expected about 3 points of headwind from FX. The updated estimate is 1%, 1 point. And it really was just an unfortunate error -- these things happen. It has been remediated, and we've put additional checks in place to make sure that, that doesn't happen again.

Q: Maybe just first for Sarah. Apologies if I missed this, but what's driving the additional, [50 ] to 100 bps in terms of the EBITDA guide for the year?

A: So we are bringing our expectations for EBITDA up due to the outperformance that we saw in the first quarter. We're being very balanced in our approach, which is continuing to invest in the product, in the innovation, the go-to-market, AEs and enablement that allow us to capture this growth opportunity in front of us. And at the same time, being really thoughtful about driving that operational efficiency. So just with this balanced approach that we continue to take, we do expect it to be able to deliver another 100 basis points or so on the bottom line.

Q: I just wanted to start with one on the instructor base. As you rolled out some changes that impact the group over the past few quarters, whether it be the [ rent share ] agreement or integration today tools into the platform. Just anything you could speak to about the feedback you're getting from those instructors and maybe what seems to be top of line for them when you talk about the direction of Udemy?

A: We remain very connected with our instructors and have a number of communication channels right now that are open that we're all engaged with to ensure that not only are they able to provide meaningful feedback to us, but we're able to clearly articulate and communicate how the investments we're making in product organic impact in a very positive way, their ability to develop learning capability, bring that into the marketplace and be able to monetize that both in the marketplace and within UB. And effectively, what we did is the same thing we did for you all just a couple of months ago, which is we've given them a deep dive demonstration into the 3 capabilities we're bringing online. And the excitement and merger from the group was palpable. It could not be more fired up about what we're bringing to market. And the impact of that really is the net of it is, is that no top instructors have opted out of our platform. And I think more now than ever, they're increasingly excited about the earnings potential that we're going to provide as a result of the investments we're making and their ability to develop and transform the learning experience. So all to say, really pleased with how our team has managed the communications with our instructors and the response from our instructors.