Coursera, Inc. (COUR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Coursera's First Quarter 2023 Earnings Call. [Operator Instructions], and please be advised that this call is being recorded. [Operator Instructions] 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 Q1 earnings conference call. With me today is Jeff Maggioncalda, 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, which are 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 relating 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 impact 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 good afternoon, everyone. It's great to meet with you all. Last month, we had the opportunity to see and speak with many of you at our first Investor Day. It provided an excellent opportunity to reflect on the amount of progress that we've made, executing on our vision, expanding our ecosystem and deepening our platform's advantages. And it reinforced my confidence in our strategy, including our vision for the future of higher education. This vision includes a globally connected ecosystem of learners, educators and institutions that is redefining the future of learning and work. And 2 weeks ago, I had the privilege of bringing together thousands in the Coursera community at our annual conference to discuss what we believe this future will look like: a highly personalized and more engaging learning experience with technologies like generative AI and virtual reality; a stronger link between college degrees and industry micro-credentials; and the globalization of the world's workforce that allows employers to expand and diversify access to skilled talent around the world. As we make progress on our long-term opportunities, we are also delivering on our near-term results. In Q1, we grew revenues 23% over the prior year to $148 million, which was driven by our consumer, enterprise and degree segments. Ken will cover each in more detail during the discussion of our financial results, so I'd like to spend my time today briefly discussing the structural trends driving our business along with the slate of announcements we recently made to better serve the changing needs of individuals, institutions and our educator partners. Let's start with our first major trend, which is Digital Transformation. The forces of technology and globalization have been accelerating the transformation of every institution in our society. In recent decades, the microprocessor, the Internet, cloud computing, mobile computing and social media have profoundly reshaped businesses and society. We believe that AI represents the next major technological disruption that will dramatically change how we work and how we live, and this impact will go far beyond the traditional boundaries of automation. Coursera's founder, Andrew Ng, has said, AI is the new electricity. Just as electricity was quickly and widely integrated into homes and factories, we believe that generative AI will be integrated into applications, software and platforms that employees are already familiar with. This integration is happening quickly, and we believe it will increase the importance of digital transformation and talent reskilling in businesses. And this brings us to our second trend, which is skills development. For years, employers have been rapidly digitizing work processes and jobs that are repeatable and predictable. And generative AI has the potential to impact an entirely new class of knowledge workers unleashing a new wave of reskilling and upskilling imperatives. AI will amplify and accelerate the change already facing universities, pushing them to enhance curriculums and the learning experience to make trusted education more accessible, personalized and relevant. AI will amplify and accelerate the change already facing governments, driving them to deliver job training programs at the speed and scale needed to keep pace with job dislocation and unemployment challenges. And AI will amplify and accelerate the change being felt by individuals, pushing every one of us in every job to keep learning in order to stay relevant. And this leads me to the third trend driving our business, the transformation of higher education. The traditional higher education system has not kept pace with the changing skill requirements driven by technology and automation. Academic institutions must evolve more quickly to better serve the needs of students, governments and businesses in an increasingly digital and distributed labor market. Let's discuss a recent example. The Republic of Kazakhstan is facing a skills gap crisis and rapid population growth, and we are expanding our partnership with a new nationwide scope that encompasses both Coursera for Government and Coursera for Campus. Our partnership began with the success of our workforce recovery program back in 2020. Now the Ministry of Higher Education and Science is using Coursera to up-level its public higher education system to empower students and faculty nationwide with the skills and credentials needed to thrive in the digital economy. The MOE is integrating over 650 courses on Coursera into 25 universities for credit in their degree programs. We are able to pursue partnerships like these largely because of the world-class brands of our educators and the breadth of our content, especially the job-relevant professional certificates that prepare learners for digital careers. Collaboration between government and universities enabled implementation across entire education systems at unprecedented speed and scale. This is the kind of forward-thinking approach required to ensure that higher education is more accessible to over 1 billion young adults between the ages of 15 and 24 who need to be skilled for this new era. So those are some of the key tailwinds that are driving the opportunity we see in front of us. Now let's talk about 3 key advantages that allow us to compete differently to seize this opportunity. First, our leading educator partners who created a broad catalog of trusted and branded content and credentials; second, our global reach to individuals and institutions; and third is the data, technology and innovation that we leverage across our platform. Let's cover each of these categories and the recent progress that we've had in each of them. First, our educator partners. Coursera's catalog of content and credentials is created by more than 300 of the world's trusted universities and industry leaders. And we're proud to have welcomed 15 new partners. These include universities located in the U.S. and around the globe, such as Anahuac University in Mexico, London Business School and SP Jain Institute of Management and Research in India. We're also broadening our set of industry partners in fields like health care, consumer goods and real estate with new partners like Epic Games, Keller Williams, Moderna, Novartis, Unilever and more. These universities and industry partners continue to rapidly expand Coursera's catalog of branded credentials that are sought by learners looking to unlock career opportunities. And I want to provide updates on 2 categories that create value for learners, entry-level professional certificates and college degrees. The entry-level professional certificates on Coursera create new pathways to secure well-paying digital jobs and also earn credit toward a college degree. We believe that industry micro-credentials will play an increasingly prominent role in the transformation of higher education, which is why we continue to pursue rapid expansion of this catalog with new partners, new job roles, additional languages and credit recommendations. At our recent Investor Day, I shared that we expect 50 certificates on the platform by the end of the year. To date, we have announced more than 40, including 6 new certificates unveiled at our Coursera Conference 2 weeks ago, including solution architect from Akamai, data science specialists from Fractal Analytics, real estate agent from Keller Williams, and 3 additional certificates from IBM in IT project management, mobile app developer and front-end development. And we are excited about our pipeline of partners and job roles that we'll continue to announce as the year continues. Now let's take a look at the most valuable and recognized credential in the world, the college degree. We believe that higher education, and in particular the college degree, needs to be more accessible, affordable and relevant to students and employers alike. And innovative universities are adopting the best capabilities of Coursera to provide degrees that are designed especially to meet the needs of working adults. At our Investor Day, we demonstrated our early success with the University of Colorado Boulder's Masters in Data Science, and outline the attributes of this degree program that are resonating with learners, including: first, the ability to start the degree at any time by taking open courses for $49 a month; second, affordable pricing with tuition at $15,750 for the full master's degree; third, no application during admission. Students earn admissions based on their performance in the open courses. And fourth, integrated industry content that counts as credit towards the degree. We spent much of the last year better understanding what our learners want from an online degree and the types of transformational partners who are willing to help us unlock this opportunity. I'm excited to share that we added 10-degree programs in Q1, which is twice the number that we announced in any prior quarter. And many of these programs expect to take full advantage of the capabilities that Coursera offers to make these degrees particularly well-suited for working adults. The newly announced degree programs include a masters of computer science from the University of Colorado Boulder, 4 degrees from the Illinois Institute of Technology, including 3 masters and 1 Bachelor's program, 2 degrees from Ball State University and 3 international programs from universities in the U.K., India and Peru. To date, we have announced more than 50-degree programs on Coursera, and we look forward to building on our early momentum as the year continues. So that's a bit of an update on our educator partners. Now let's shift to our second major advantage, which is the global reach of our platform. We have a large growing learner base that attracts educators looking to teach individuals and institutions around the world. In Q1, we added 5.5 million new registered learners growing our global learner base to 124 million by the end of March. Learner growth continues to be broad-based with double-digit percentage increases across the majority of our largest countries like the U.S. India, the U.K. and others. We also grew the number of paid enterprise customers to more than 1,250 with the additions across all of our enterprise verticals, including new business, campus and government customers. This brings me to our third advantage that I'd like to talk about, which is the ongoing product innovation that we leverage across our platform. And I'd like to start with our efforts in generative AI. At Coursera Conference, we unveiled 2 new AI-powered innovations, including one for learners and one for educators. First is Coursera Coach for Learners. Coach is a virtual learning partner powered by generative AI that allows learners to ask questions and receive personalized valuable role in education as learners look for quality. And to support our educator partners, we are piloting AI-assisted course building. This new set of AI-powered features can auto-generate course content including an overall course structure, readings, assignments and glossaries based on a few simple inputs from an author. It can also recommend relevant video and modules from the broader Coursera catalog to consider including in the course. And it will enable enterprise customers to upload internal videos that can be automatically transformed into smaller clips and integrated into well-structured private courses. Our goal is to use technology to dramatically reduce the time and cost of producing high-quality trusted content at scale. This strategy also underpins our approach to localization, which we discussed at our Investor Day last month. Historically, one of the challenges with producing content at scale was language dependencies. Educators tend to produce in their local language while learners come from all around the world speaking many languages. We believe that high-quality education from the world's leading experts should be accessible to learners anywhere in the world no matter what language they speak. And recent advancements in the quality of machine learning translations can now translate courses at a fraction of the cost of using conventional human translation. Our team has been focused on building a scalable translation framework for the Coursera catalog. In the coming months, we intend to translate more than 2,000 full courses into 7 key languages, benefiting more than 35 million registered learners who speak Spanish, Arabic, Portuguese, French, German, Indonesian and Thai. Next, we continue to expand our efforts in immersive learning with new virtual reality-enabled course experiences. In collaboration with Duke University, Peking University, University of Washington and University of Michigan, we recently launched courses that allow for a deeper level of engagement. For example, the public speaking course from the University of Washington allows learners to immerse themselves in a simulated auditorium or conference room to practice their presentation and delivery skills in a realistic setting. We also announced 2 new credentials from Meta, including a professional certificate and specialization in augmented reality for learners considering careers focused on these exciting new technologies. Finally, we launched in Q1 a product that we've been working on for quite some time, Coursera Hiring Solutions to connect learners to jobs. Rapid technological shifts have created a shortage of qualified talent causing employers to look beyond traditional talent pools to fulfill open roles. In the recent Coursera survey of more than 1,500 employers across 11 countries, more than 97% said that they are using or considering adopting skills-based hiring approaches to expand their talent pools. This includes eliminating the college degree requirement for many positions in order to attract candidates from wider, more global pools of emerging talent. And while more employers are considering skills-based hiring to address talent shortages, verifying a candidate's skills is difficult, especially for entry-level roles where a career starter or switcher may lack a college degree or relevant prior work experience. This challenge has coincided with growth in online learning, which, in combination with remote work, digital jobs and broadband connectivity 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. Coursera Hiring Solutions is how we plan to use our 3 sided platform to bridge learning opportunity and economic opportunity by connecting learners to employers, even if they lack a college degree or relevant prior work experience. Job seekers come into Coursera, can develop in-demand skills and earn branded credentials that they need to be considered for entry-level digital jobs. They can also build hands-on projects with the digital tools used by professionals in the field. These projects not only develop skills but also lead to a portfolio that demonstrates these skills to an employer. And learners can showcase their job readiness with the skills profile that includes credentials, assessments and their project portfolio. From the employer's perspective, they can expand and diversify their candidate pool by gaining access to industry-trained job-relevant talent. Recruiters can use a talent dashboard from Coursera to identify a prequalified talent and filter candidates that meet their unique sourcing requirements, including skill proficiency levels based on Coursera's assessments. Hiring Solutions is currently in beta with thousands of learners and a selected number of employers in India, and we are excited to start testing with U.S. customers in the coming months. 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 that we're focusing on in the years ahead. First, we are broadening our catalog of entry-level professional certificates with world-class industry brands, expanding with new roles, new partners, new languages and credit recommendations. And we are working with accrediting bodies around the world so that learners can receive academic credit for college degrees for the learning that they complete in these professional certificates on Coursera. Second, we're expanding our portfolio of degree programs, especially those tailored to meet the unique needs of working adults, including flexibility, affordability and stronger pathways from our open content and industry micro-credentials into college degrees. Third, we are focused on growing our enterprise segment across business, government and campus customers seeking to address their needs in this fast-changing environment. And we are focused on deepening our advantages while driving more scale and leverage over time. We are especially excited by the opportunity to use generative AI to make learning more personalized and interactive for learners and to make content production faster and cheaper for our educator partners. And now I'd like to turn it over to Ken. Ken, please go ahead.

Thanks, Jeff, and good afternoon, everyone. I'm pleased to report on our solid first quarter. In Q1, we generated total revenue of $147.6 million, which was up 23% from a year ago driven by strong growth in our consumer and enterprise segments. Additionally, our degrees segment returned to growth, demonstrating nice progress to start this new year. It was a modest increase at 1%, but critical for a growth company, most importantly, in a market as large as degrees. As we discussed at our Investor Day last month, we believe we are resuming progress on our strategy to fundamentally transform access to degrees. 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. Additionally, as a reminder of our prior communication on last quarter's call, the changes associated with a multiyear contract extension with our largest industry partner were in line with our expectations. Specifically, this shifted expense from operating expense to cost of revenue, as this partner chose to receive a more standard revenue share going forward, which we remain excited about given more closely aligned incentives around growth, reach and opportunity for learners around the globe. Gross profit was $79.6 million, slightly up on a dollar basis from a year ago and the 54% gross margin, which was down 12 points in the prior year period. Total operating expense was $91.4 million or 62% of revenue, down 15 points from 77% in the prior year period. Sales and marketing expenses represented 30% of total revenue, down 8 points from 38%. Research and development expense was 20% of revenue, down 3 points from 23%. And general and administrative expense was 12% of revenue, down 4 points from 16%. Net loss was $5.2 million or 3.5% of revenue and adjusted EBITDA was a loss of $7.5 million or 5.1% of revenue. Now turning to cash performance and the balance sheet. Free cash flow was $1.5 million during the quarter compared to a use of $42.2 million a year ago. This included the remaining cash payments of $4.8 million related to the restructuring charges we incurred in late 2022. And we ended the quarter with approximately $780 million of unrestricted cash, cash equivalents and marketable securities with no debt. We believe the strength of our balance sheet is a considerable asset that provides us the stability and strategic optionality to execute on our long-term vision. As we outlined at our Investor Day, our approach to capital allocation has primarily emphasized investments in our organic growth opportunities. We believe that the education technology industry is changing rapidly and having the flexibility to pursue additions to our platform will provide opportunities to accelerate our leadership position and enhance our business model advantages. Our strong views on that have not changed. But given the size of our balance sheet and the modest cash requirements for operating needs, we are pleased to announce our Board has authorized a share repurchase program of up to $95 million. Our program is a direct reflection of our confidence in the business as well as the value we place on shareholder equity. The authorization amount is specifically designed to offset dilution above the benchmark gross dilution rate of companies in the first year after an IPO based on a market analysis performed by an independent third-party adviser. Our higher dilution in 2022, our first year after going public, was associated with onetime equity employee grants made to attract, motivate and retain key talent while providing long-term incentives aligned with shareholder value creation in future years. And we thought it important that investors understand that we consider 2022 an anomaly. And we are confident we can pursue a repurchase program at this level while continuing to prioritize cash for strategic opportunities that increase the likelihood of us leading our large, early and dynamic markets. Next, let's discuss each of our segments in more detail. Consumer revenue was $82 million, up 20% from the prior year on strong performance in our entry-level professional certificates. We believe our strategic focus on job relevant credentials created by world-class brands is resonating with learners around the world looking to start or switch careers. Segment gross profit was $44.6 million or 54% of consumer revenue compared to 71% a year ago. As discussed last quarter, the impacts of the contract extension with our largest industry partner were expected to be most pronounced in our consumer segment margin with a higher cost of revenue, meaning lower segment margin offset by lower operating expense. Finally, top-of-funnel activity remains strong with another 5.5 million new registered learners coming to Coursera. Enterprise revenue was $52.2 million, up 34% from a year ago on growth in all 3 of our segment verticals. Segment gross profit was $35 million or 67% of enterprise revenue compared to 72% a year ago. The total number of paid enterprise customers increased to 1,253, up 37% from a year ago. And our net retention rate for paid enterprise customers was 104%. Consistent with our outlook at the start of the year, we are seeing business customers exercise caution in their spending priorities amidst increased macroeconomic uncertainty. And finally, our Degrees segment. Degrees revenue was $13.4 million, up 1% from a year ago and increased student enrollments and scaling of new program launches. The total number of Degrees students grew 10% from a year ago to 18,095. As a reminder, there's no content costs attributable to Degrees segment, so Degrees segment gross margin was 100% of revenue. We are encouraged by our early progress in Degrees, including our ability to accelerate growth as the year proceeds as well as our recent sourcing successes, highlighted by the 10 new programs Jeff mentioned earlier. By sourcing the types of high-value programs that resonate with our learners, with partners that leverage our platform's unique assets and scale, we are able to compete uniquely and execute on our long-term vision in more accessible, affordable and relevant model for higher education that transforms one of the world's largest industries. Now on to our financial outlook. For Q2, we're expecting revenue to be in the range of $143 million to $147 million. For adjusted EBITDA, we're expecting a loss in the range of $13 million to $16 million. For full-year 2023, we now anticipate revenue to be in the range of $600 million to $610 million, representing approximately 16% growth at the midpoint of the range. For adjusted EBITDA, we're expecting a loss of $26 million to $34 million or a negative 5% adjusted EBITDA margin at the midpoint of the revenue and EBITDA guidance ranges. As a reminder of our operating framework, we set an annual EBITDA margin target at the beginning of the year and work within that plan based on the trajectory of our business to maximize our growth opportunities. We do not optimize the business for any single quarter, and we'll strategically invest to position Coursera for the long term while demonstrating scale and leverage over time, including our outlook to be adjusted EBITDA positive in 2024. I'll now turn the call back to Jeff for closing comments.

Thanks, Ken. Our mission is deeply rooted in our business. It is what inspires our team members, attracts our partners and enables our customers to make access to high-quality education a growing reality for millions of learners around the world. To that end, I was excited to introduce our first environmental, social and governance report last month. It showcases our progress on several key initiatives like talent development, workforce representation and data privacy, as well as our learning platform's role in promoting literacy in ESG topics, including more than 200 courses in sustainability and over 100 addressing social justice. Additionally, we expect to publish our 2023 learner outcome report in the coming weeks, which was conducted in partnership with a respected third-party firm. Learning for knowledge's sake is valuable, but learning that unlocks opportunity can be transformative. That's why we were excited to hear from more than 55,000 learners in more than 190 countries about how their online learning experiences on Coursera are driving impactful career and personal benefits. This is what they told us. 77% of learners seeking career advancements say learning on Coursera benefited their career. 28% of approximately 4,000 entry-level professional certificate learners got a new job. And 30% of a smaller subset of unemployed learners were employed after learning. It is an inspiring validation of our platform and community's ability to change lives as Coursera increasingly becomes a global destination for learners seeking job-relevant skills and recognized credentials that can unlock the next phase in their education or career. In collaboration with the Coursera community, we are focused on fulfilling our mission so that talent and opportunity can rise from anywhere in the world. Now let's open up the call for questions. Thank you.

[Operator Instructions] Your first question comes from the line of Rishi Jaluria with RBC.

It's nice to see continued strength in the business and Degree return back to growth. One question on generative AI and a quick follow-up on Degrees. On generative AI, Jeff, I think it's pretty clear to all of us generative AI could be a huge tailwind for your business given the societal implications and you've laid out a road map for productizing it. I wanted to understand from your own perspective, how do you think you as Coursera to internally use generative AI to drive greater efficiency or iterate on products or functionality better? Anything like that, that would be really helpful. And I've got a quick follow-up.

Yes, Rishi, that's great. So we're kind of going crazy on this these days. And I think that the impact on the business will be not unique just to Coursera, the way we run the business. I think there's a few things. most of the productivity that we expect to get at Coursera. This is separate for helping learners get more value and helping our educator partners get more value. But internal to the company, a lot of our costs are headcount and a lot of our headcount costs are in R&D. And what I'm hearing from our engineers is that the productivity improvements that you can get as a software coder, especially at more entry-level software coding jobs is considerable. So I think software coding productivity is going to go way up. All the marketers who are doing language. Most of our performance consumer marketing teams have been using earlier versions, not ChatGPT, but like GPT-3 is I think when it started picking up steam. They've been using this to help write articles, write marketing messages, write e-mails, et cetera. Their productivity and quality has gone up quite a bit. So engineering, marketing. On the design side and product side, I've seen designers -- we do this -- you don't know this, but like every couple of weeks, we do this show and tell, which is like, let's show everyone in the company how you're using generative AI to change your -- change the way you do your job task. We had a designer put together sort of a learner journey vision. It was like a like a 15-minute video with video, scripts, audio, screenshots, et cetera. And he did this all. He time bound it, it was only -- he did the holding in 8 hours. He said he did in 8 hours, what would have taken about a week for him to do and involve a lot more people. So I think on the design and creative side, the marketing side, the software program side is going to be huge. And then for all the other positions in the company, like anybody who uses the software tool, whether that's Salesforce or whether that's Google Docs or any tool, all these tools are not getting electrified with AI. They're just becoming more productive. And I'm pretty sure by the way, not to mention services, which can provide -- there was just an article from MIT suggesting that services productivity really goes up dramatically when you started using generative AI. So I think it's going to be across the board. Certain positions more than others, but I would not be surprised if most CEOs are not rethinking, probably not work structure, but certainly productivity expectations for how the company runs and what can be done by talented people in the company.

Quick follow-up just on the Degrees segment. So at the Analyst Day, you talked about 25% growth next year. And that was assuming no new degrees. You since then announced 10 new degrees. And I know there's a ramp up time and all that. But was that all contemplated in that? Or how should we be thinking about how the new Degrees announcement impacts that next year?

Yes. I don't know that we could -- that we could tease them apart exactly. Obviously, although these reprograms are multiyear and you can kind of see the revenue coming in with a bit of lead time. I don't think we've really parsed out exactly how much of that growth would come from existing corporate versus new. I wouldn't write a whole lot into the combination of those 2 points, the 25% and then this 10. Ken, would you see anything different on that?

No, I'd say exactly what you said. I guess it was softer guide. The newer -- again, you referred to, Rishi, the newer programs contribute very little. We didn't factor in nothing, but it's not a huge driver. It takes a good year to start to see any real input from the new degree. So if we over perform on that over the next couple -- it'll have very little impact...

Your next question comes from the line of Stephen Sheldon with William Blair.

First one here on the revenue guidance. You just grew 23% year-over-year in the first quarter. I think the midpoint of guidance has been 16% growth in 2Q. And I think the full year guide would then imply closer to 12% growth at the midpoint in the second half of the year. So is that conservatism? Or are there some factors that could be potentially driving a slowdown in the second half relative to the first half? Because from what we can see, it seems like trends in the business remain pretty strong at this point overall.

Stephen, this is Ken. I'd agree that the trends are looking pretty good. It's not conservative. You keep saying it's conservative, it's part of our view. But to be fair, it's early in the year. And we just -- we want to be careful in an uncertain macro environment is maybe what you're hearing a little bit of caution there. But the business is performing. I would not look at it as any lack of confidence in the business whatsoever.

And then just as a follow-up on Coursera Hiring Solutions. It seems like a really interesting opportunity given your position with employers universities, but there's also some established competition there. It's early and in beta, but how do you think about potentially differentiating your capabilities versus competitive solutions? And Also, what could the monetization structure look like at a high level?

Stephen, this is Jeff. So great question. I'd say mostly, we are trying to create learner value. So the biggest thing that we're trying to do is get learners a way to keep track of and to showcase what they're achieving on Coursera, so that they could show that with a private personal URL that they can share with any employer or friends or whoever they want actually. So I'd say that the first piece of it, you could think of as this learner skill profile that is just learner value. When it will allow employers to find them and allow them to connect, we do think it will be quite a number of years before a network really grows on both sides of the talent supply and the talent demand. But your question around the competitive space, it is pretty competitive out there for sure. We are not actually monetizing. We're not planning in any monetization at this stage of the game, certainly not '23. I doubt that there'll be anything in our '24 models either. It's just not what we're focused on right now because it's going to be a longer-term play. And it also gets to how we want to really differentiate this. We talk a lot of that emerging talent, emerging talent. And this can certainly be young people who are just graduated from college from all around the world. I spent a lot of time in the Middle East, in Latin America, Southeast Asia, Europe, et cetera. With remote work and digital jobs, there's an ability for employers to really go global with the kind of talent out there. And I've seen firsthand when I visited the campuses, whether that's in Bogota or in Riyadh. I talked to students, and they were really smart students all over the world who are utilizing this online learning, and will be great employees at companies anywhere in the world. And so what we're really going to be focused on is how do you help someone who doesn't have a long job experience history, say on LinkedIn? And sometimes they don't even have a college degree. They're switching from a career in one field that maybe doesn't pay as well or is going to get automated and they're trying to switch careers. If you don't have a good degree, you don't have a LinkedIn profile, how does an employer know what you're really capable of? And so we are really trying to help those career switchers and career starters and emerging talent pools, not only developed talent but showcase their talent and connect to employment. That will be kind of the niche, if you will, that we go after, but there's like 1 billion people between 14 and 25 years old. That's going to be a pretty big niche. Getting started in a new career is what we're going to focus on.

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

Maybe a follow-up to the question on the full-year guide. So -- now on the back of the 1Q performance, when we look at the full-year guide, I guess, how should we think about the growth assumptions baked in for each segment? Because, for instance, you can see the enterprise NRR weakening, which I would imagine would have an impact going forward, but at the same time, you would have to assume a significant detail, I think, in consumer in order to get to that full-year guide. So are there certain areas that you're being more prudent than others? And maybe you could just elaborate on that and how that might compare to what you're seeing in 2Q so far.

Hi, Taylor, this is Ken. So your numbers are correct, of course, as you look at it. Again, as we discussed a response to Stephen, we're early in the year, so starting to increase the overall target is something. Given the uncertainty of the macro, you're correct, of course, as you look at NRR and the implications there. We only provide to be perfectly blunt about it, we don't like providing input or guidance on each of them because people end up missing in individual segments and then it creates problems whereas we're really looking at the overall mix of the business, especially given the way the business model works at the different verticals help each other. So yes, we haven't given any update on the buyer segment.

And then maybe just to like ask that, I guess, in a different way. Just looking at like the 1Q performance, I guess, it was outsized relative to what we've seen in some of the past quarters. So was there any -- one of the segments outside of the degrees like rebound that you would point to that may be like outperform your expectations or influence how you guys think about the rest of the year.

Yes, well, as we said in the prepared remarks, we've been very happy with the consumer. But we think perhaps seeing a little bit of counter-cyclicality there. It's just been a very strong performance over there for some time, and the consumer business tends to be particularly durable, I think, during some tough economic times...

I would add to that, Taylor. A lot of what we're seeing growth in, it doesn't quite show up exactly the same in every segment. But these industry micro-credentials, it seems like a lot of people want them, the professional certificates. And part of it -- the content is skills you can learn. But I think increasingly, as people think about like how do we get a job, having a credential from a trusted institution that says this person knows these things to do this job, I think it's a pretty attractive asset that we have on platform. And you saw from the script. What we're really trying to do is not only have that the portfolio of professional certificates, which we call Career Academy, but to create pathways from that, get the ACE accreditation, which now is 14 of those professional certificates have ACE credit recommendations to make it easier for universities to integrate those certificates into their college degree programs -- so creating pathway from those professional certificates into degrees and now with the hiring solutions, creating pathways from the certificates to employers who are specifically looking for entry-level talent in the job that you've earned that certificate, we think is going to enhance the distinctiveness and the value of those professional certificates. And that we expect will provide good leverage and good value across all segments of our business.

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

Congrats on the quarter. I wanted to ask on enterprise. I was hoping you could provide some more context on that step down in net retention rate. Just thinking through churn, how that's trended versus seat expansion, SMB versus enterprise, and then business versus government versus campus.

Yes, thanks, Josh. I'll give you sort of a high level. We -- I won't give sort of good specific numbers for specific cell. But generally speaking, it's a combination of the denominator and the numerator. I mean there's certainly more pricing pressure as L&D departments want to reduce their budget. It seems to us like companies increasing, they are saying, I got to have some online learning benefits, like it's becoming like a pretty standard benefit that you have to offer. But if you could cut your costs down, a lot of L&D teams are getting cut in terms of number of heads, they're cutting their budgets down, et cetera. So there's more cost sensitivity and price sensitivity on the revenue retention rate. And I think that they're a little bit less likely if they check the box to write a big ticket to expand as well. So it's both pieces of that. If you look across regions, there seems to be -- if you look at the NRRs, across all the verticals of businesses, governments, campuses, particularly weakness in EMEA, Europe, Middle East, that's where we've seen the biggest weakness, although it is pretty broad-based, too. And then if you look at it by what we call verticals, which is the business versus government versus campus, business -- EMEA business is sort of where we've seen more of the weakness. We're using this as an opportunity to keep on improving the offering, keep on with the skills profile with more certificates, better degrees, et cetera, just -- and all the AI, building more value in so that when budgets come back a bit and people are more open on the spending, we'll have the best solution there. But it is pretty broad-based. I mean that's 1 -- I think, Ken, to your point on the guidance, it's one of the reasons we don't want to get too far ahead of ourselves because on the enterprise side, especially with businesses, it's pretty uncertain out there, and there's a lot of pressure to watch costs.

And then just like a quick follow-up on that. I mean how should we think about the bottom? Are we there yet? Should we expect that to trend lower throughout the rest of this year? Any context for how to think about the future of that?

It's always hard to call a bottom, but it feels like things are getting better from a booking standpoint going forward. But there's still a lot of uncertainty broadly, right, in the enterprise spend market. So I think I'd look to how do you feel about the economies broadly in enterprise market spending that affects us. But again, we're starting to see some upticks in the right places. And so we're not completely negative on it. We just -- we want to be cautious in this macro environment.

One of the things I would add, Josh, is there is a difference between campuses and businesses. I mean, on the one hand, you see businesses, if you look across most software, SaaS software, they're seeing similar kind of budget pressures. It's not like campuses are swimming in money. But in the U.S., they're definitely dealing with demographic and declining enrollments, especially like the community colleges and the non-elite universities out there. There seems to be a recognition that offering industry micro-credentials that are going to attract more suits than help those students get placed into jobs, like that seems to be resonating pretty well. It's still very, very early in this new market. I mean that market doesn't really exist today. We're sort of creating that market. We're seeing some positive indicators, but it's still pretty early, it's still pretty small. So it's not really moving the overall NRR a ton. But I think this whole idea that industry is going to help reinvent higher education. I'm pretty sure that's going to happen. It's going to happen through the integration of content and credentials from industry into these more traditional degree programs. I'm pretty sure that's certainly the indication that we're seeing.

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

I'll keep it to one. So I just wanted to talk about Coursera hiring. How do we think about the go-to-market effort needed for that? Any details you can provide there? And as you kind of stack rank some of the long-term growth vectors, because there's a lot, how do you kind of stack rank hiring in that right quarter?

Yes. Sure, Brian. I would say think of it out there a little bit further. And obviously, it's a huge market. I mean, anyone who can play materially or in some impact in the way the talent gets placed. I mean there's just a lot of economic there. The way we're thinking about though, certainly in the near term, like being in the next year, couple of years, it's going to enhance quality, it's going to create a better experience for our learners. It will be a nice value proposition. It already has been a nice value proposition for colleges looking at career category like, oh my students can not only learn the skills and get credit towards a degree and integrate industry and build all these projects. They can now have something that really is a companion to the transcript. I got a transcript from my professor's courses, and we have a skills profile from Coursera. One shows a more traditional course of study and the grades they got, the other shows the hands-on skills and the tools that they've learned and the credentials that they're from industry. And together, that are pretty compelling graduates. I don't -- I do expect monetization to come early. If we really -- this is probably obvious, but if we really crack into this emerging talent market and find an effective way to connect talent with employers in a way that's not really being connected today, we think there's a lot of upside there. But honestly, we're not really putting pencil and paper and calculators to the -- or spreadsheets for the numbers because it's really big, but it's kind of out there and we're not going to count on it right now.

Your next question comes from the line of Ryan MacDonald with Needham.

Jeff, obviously, Degrees is coming along quite nicely and seeing strong demand trends in terms of customer adoption or new degree program announcements. But to the extent that maybe some of the Q1 wins were already late in the pipeline when the Department of Education situation came up with the new guidance. I'm just curious and maybe some of your earlier-stage conversations or conversations with existing university partners, are you seeing any impact in the conversations because of this sort of uncertain situation with the department?

We're really not, Ryan. At least not that we've seen. And I think part of it, though, is -- well, first of all, the Department of Education, they got the 2011 year college letter, there's no change at this point on that. There's this third-party services, a new Dear Colleague letter that they put out with -- they got more than 1,000 comments back. A lot of those comments were not positive, they were negative. They pulled back from their original position. The DOE has pulled back in the position. They suspended the effect of the Dear Colleague Letter. It's kind of pending with an indefinite suspension at this point. So there is uncertainty there, but it's not fast on that front. And when we think about what we're hearing certainly in North America, where those regulations would have an impact. I mean, internationally, it doesn't matter. I mean that really -- most of the companies kind of look to the policy. But for the most part, this is a North America thing. In North America, there is just a lot of colleges and universities who need to serve new populations of students. And that's really imperative to say there are not as many younger people coming to my campus. I've got to find a population to serve. And this at the same time the governors are saying we've got to upskill and reskill our symptoms to make them employable. We got The Chips Act, we've got the Infrastructure Bill, we've got the Inflation Reduction Act. There's a lot of money going into infrastructure and reskilling. There's a lot more talk about apprenticeships. So there's a lot of emphasis on colleges and education. You've got to serve working adults. And the degree design, I pointed out University Colorado Boulder, that program where you can start a degree for [indiscernible] really appeal to working adults. So when you see what's coming on the supply side of Degrees, there seems to be a lot of interest in those kinds of tailored for working adults degrees. And we haven't really seen, as far as we can tell, a major friction or headwind on that sourcing from North American universities looking at Department of Education potential policy changes.

And before I follow up with Ken, Jeff, sorry for making you go through the quick background and all that mess. I will call that you summarized it well. Ken, on the adjusted EBITDA for second quarter, I apologize if I missed it, but are there -- given the strong performance in Q1, we're obviously taking a slight step back in second quarter. Were there any investments that you held off on in the first quarter that are falling into Q2? Or can you just walk us through maybe why...

Yes, there's a little bit of a shift, Ryan. Most importantly, though, is we don't focus on particular quarters. It's always how do we get to the annual number, right? And we were negative 7% last year, as you know, the guidance is negative 500 basis points or 5% in this year and then positive in '24 as well. Positive in Q4 of this year. But it's really -- it's an annual basis, and we shift our spending around to maximize growth and future growth within that year, within that budget. It's our operating cadence. It has been for years since well before we were public. And so it's really the 5%. We always point people to focus on for the year as opposed to any individual quarter. So yes, this quarter ended up being better. But as we look at it, again, we manage the whole business to the year. The quarters are too short, and a lot of what we're pursuing has longer-term paybacks. So we're scaling regularly, but we're not trying to do it on a quarter-by-quarter basis.

Thanks for the clarification. Congrats again.

Your last question today comes from the line of Jason Celino with KeyBanc.

Jeff, Ken, sorry, I've got more enterprise questions. It appears the better-than-expected strength that you saw this quarter is coming from new land. Is this a reflection of consolidation benefits? I guess what is enabling you to drive these lands, especially as enterprises try to bring down those budgets like you mentioned?

Yes, I would say that you're picking up on something that we sort of see in the numbers, which is there seems to be more weakness. And I'll kind of focus on the weakness part of it because 1 of 4 is not at all the NRR that we aspire to achieve. I mean it's lousy. So but when you think about the -- where there's more weakness, it does feel to us like companies are saying, I got to have this benefit, like online learning is here to stay. Everybody knows that you're going to have to train up your people on more automations coming. There's a World Economic Forum report that's coming out, and it was in a podcast, which is what I can say this because I don't think the report is actually out yet. But when the World Economic Forum interviewed businesses and asked what's the most important thing that governments can do to support your business, more than tax policy, more than regulation, they said, train people. I need people to be trained. So I do think that there is value in companies just recognizing that they've got to be doing this. It's really a structural trend for learning despite an environment where people are trying to really cut their spend, like if you do have the benefit, you don't want to spend as much on it, you want to try to bang down your suppliers. So there's that, one, price sensitivity and at the same time, a recognition that this is going to be an important benefit that I think most companies are going to need. So I wouldn't call it super strong, but I think you kind of picked up on something which is most of the weakness we've seen in the NRR.

And then maybe just to quickly follow up on this. So if you -- I know it's still pretty early in the year, but if you were going to think about your enterprise pipeline, how does it compare today versus maybe 3 months ago?

Three months ago, Ken, I mean, I don't know if you want to give any thoughts on that...

I don't know, it's hard to characterize. It's -- again, there's this overall constraint on spending in the corporate markets. We're in pipeline, always the question on pipeline is how [indiscernible] and it's hard to tell early stage. What I would say is there's been no deterioration in the pipeline. There is some stability there. We're not -- I want to make sure we're not being overly negative on it. We're just -- we're really being conservative in this environment, which I think is wise.

And partly, we're being conservative because the environment looks pretty -- doesn't look great.

Yes, tough enterprise spend environment.

Great. Well, 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.

This concludes today's conference call. Thank you for attending. You may now disconnect.